(10)%
4.0%
78.8%
2.2%
37.4%
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004-12/31/2014):
Compounded annual gain
Overall gain
JPMorgan Chase & Co.
S&P 500
S&P Financials Index
7.5%
113.3%
8.0%
124.5%
0.9%
9.5%
This chart shows actual returns of the stock, with dividends included, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500) and the Standard & Poor's Financials Index (S&P Financials Index).
(a) On March 27, 2000, Jamie Dimon was hired as CEO of Bank One
However, our stock performance has not been particularly good in the last five years.
While the business franchise has become stronger, I believe that legal and regulatory
costs and future uncertainty regarding legal and regulatory costs have hurt our
company and the value of our stock and have led to a price/earnings ratio lower
than some of our competitors. We are determined to limit (we can never completely
eliminate them) our legal costs over time, and as we do, we expect that the strength
and quality of the underlying business will shine through.
JPMorgan Chase continued to support consumers and businesses and make a
significant positive impact on our communities. In 2014, the firm provided credit
and raised capital of more than $2.1 trillion for our clients. The firm also has hired
nearly 8,700 military veterans since 2011 as a proud founding member of the 100,000
Jobs Mission, which recently has increased the goal to 300,000 jobs. Our firm was
there to help small businesses – we provided $19 billion of credit to U.S. small
businesses, which allowed them to develop new products, expand operations and
hire more workers. In total, we provided $197 billion of credit to consumers. And
we provided credit and raised capital of more than $75 billion for nonprofit and
government entities, including states, municipalities, hospitals and universities.
Our strength allows us to be there for our clients and communities in good times -
and, more important, in bad times. In the face of many difficult challenges, we never
stopped doing our job, and we demonstrated that the work we do matters. And we also
continue to build our business by investing in infrastructure, systems, technology and
new products and by adding bankers and branches around the world.
10.4%
328.3%
New and Renewed Credit and Capital for Clients
Overall gain
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2014) (a):
7.4%
329.8%
JPMorgan Chase & Co.
(A)
S&P 500
(B)
Relative Results
(A) - (B)
14.1%
300.5%
8.0%
124.5%
6.1%
176.0%
Tangible book value over time captures the company's use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an aftertax number assuming all dividends were retained vs. the S&P 500 (a pretax number with dividends reinvested).
(a) On March 27, 2000, Jamie Dimon was hired as CEO of Bank One
We believe that, in 2014, we continued to deliver for our shareholders. The table above
shows the growth in tangible book value per share, which we believe is a conservative
measure of value. You can see that the tangible book value per share has grown far
more than the Standard & Poor's 500 Index (S&P 500) in both time periods. For Bank
One shareholders since March 27, 2000, the stock has performed far better than most
financial companies and the S&P 500. And since the JPMorgan Chase & Co. merger with
Bank One on July 1, 2004, we have performed well versus other financial companies
and slightly below the S&P 500. The details are shown in the table below.
Stock total return analysis
Bank One
S&P 500
S&P Financials Index
Compounded annual gain
5.3%
105.1%
at December 31,
($ in trillions)
$17
$108
Small business
■Card & Auto
18%
(8)%
5%
(10)%
12%
18%
$91
$131
■Commercial/
11%
8%
41%
$122
Middle market
$82
Corporate clients
$19
$474
$1.4
$1.3
Consumer and Commercial Banking
($ in billions)
Year-over-year change
$583
'11 to '12 '12 to '13 '13 to '14
$556
$18
$20
$523
Corporate clients
(9)%
20%
7%
$1.6
$1.5
$92
12.7%
434.9%
(A) - (B)
Relative Results
$3.96
$4.00
$4.33
$8.5
$2.35
$4.5
$5.6
$2.26
$1.35
$1.52
2004
2005
2006
2008
2009
2010
2011
$4.35
2012
$4.48
$5.29
Seven years ago, the world was shaken by the global financial crisis. And since then,
our company has been dealing with extraordinary challenges as a result of that crisis.
We have endured an unprecedented economic, political and social storm – the impact
of which will continue to be felt for years and possibly decades to come. What is
most striking to me, in spite of all the turmoil, is that our company became safer and
stronger - and it never stopped supporting clients, communities and the growth of
economies around the world.
I feel extraordinarily privileged to work for this great company with such talented
people. Our management team and our employees do outstanding work every single
day – sometimes under enormous pressure – while dealing with an extreme number
of complex business and regulatory issues. The way our people and our firm are
able to address our challenges and admit our mistakes while continuing to grow our
businesses and support our clients fills me with pride.
2
Jamie Dimon,
Chairman and
Chief Executive Officer
1 Represents managed revenue
Our company earned a record $21.8 billion in net income on revenue¹ of $97.9 billion in
2014. In fact, we have delivered record results in the last four out of five years, and we
hope to continue to deliver in the future. Our financial results reflected strong underlying
performance across our businesses. Over the course of last year, our four franchises
maintained – and even strengthened - our leadership positions and continued to gain
market share, improve customer satisfaction and foster innovation. We also continued
to deliver on our many commitments - including business simplification, regulatory
requirements, controls, expense discipline and capital requirements.
Earnings and Diluted Earnings per share
2004-2014
($ in billions, except diluted EPS)
$15.4
$14.4
$21.3
$19.0
$17.4
$17.9
$21.8
$5.20
$11.7
2013
2014
Net income
2012
2013
2014
3
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2014) (a).
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004-12/31/2014):
Compounded annual gain
Overall gain
Bank One
(A)
S&P 500
(B)
2011
2010
2009
2008
Diluted EPS
Tangible Book Value per Share
2004-2014
$44.69
$40.81
$38.75
$33.69
$30.18
Asset
$27.09
$22.52
$18.88
$15.35
$16.45
2004
2005
2006
2007
$21.96
Dear Fellow Shareholders,
41%
(23)%
55%
WFC
~50%
18%
16%
WFC
20%
Banking
Corporate &
62%¹
60%
55%-60%
13%¹
14%
13%
Investment
Citi
Citi
Community
Bank
58%
ROE
We have a fully engaged board, an exceptional management team and a strong
corporate culture
I. WE HAVE AN OUTSTANDING FRANCHISE - OUR
COMPANY HAS EMERGED AS AN ENDGAME WINNER,
BUT WE NEED TO EARN IT EVERY DAY
If
you think back 10, 20 or 30 years ago, my
predecessors and I struggled to try to build
a great company, which we hoped would
emerge as an endgame winner. The ultimate
outcome was unclear - and many competitors
did not survive (this is true for most large-
scale consolidating industries). Even for those
of us that did, it was quite a struggle. Today,
it is clear that our company is an endgame
winner - both in the United States and glob-
ally - which is invaluable in any industry. And
while we have had some difficult times since
the financial crisis, the power of the franchise
has shone through. We also know that future
success is not guaranteed - only consistently
good management over a long period of time
can ensure long-term success in any business.
But we certainly are in a very good place.
We have delivered good multi-year financial
results (strong margins and returns and
low volatility) and have shown a great
ability to adapt to changes - both from the
marketplace and the regulatory environment
We always compare our margins and returns
with those of our best competitors in each
business. The chart below, which is very
similar to a chart we showed at our Investor
Day, shows some of these numbers for 2014.
We believe that the right discipline is to
compare each of our businesses against its
best competitor. It is a mistake just to look
at the consolidated numbers and compare
them every company has a different mix of
businesses. The chart below also shows how
our businesses compare in terms of margins,
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency
Returns
JPM 2014
overhead
ratios
Best-in-class
peer overhead
ratios² weighted
by JPM
revenue mix
Best-in-class
JPM target
overhead
ratios
JPM 2014
ROE
peer ROTCE4
weighted by
JPM equity mix
JPM target
Consumer &
V.
Commercial
Banking
1 Excludes legal expense
2 Best-in-class overhead ratio represents implied expenses of comparable peer segments weighted by JPMorgan Chase (JPM) revenue: Wells Fargo
Community Banking (WFC), Citi Institutional Clients Group (Citi), PNC Corporate and Institutional Banking (PNC), UBS Wealth Management and
Wealth Management Americas (UBS WM) and BlackRock (BLK), and JPM Corporate segment
3
Represents ROTCE for total JPMorgan Chase. Goodwill is primarily related to the Bank One merger and prior acquisitions and is predominantly
retained by Corporate
4 Best-in-class ROTCE represents implied net income minus preferred stock dividends of comparable peers weighted by JPM tangible common equity:
WFC, Citi, PNC, Franklin Templeton (BEN) and JPM Corporate segment
7
I. AN OUTSTANDING FRANCHISE
our target margins in a normal environment
and, most important, our return on equity
(ROE). On most of these measures, we are
very close to the best-in-class competitor.
A good company should be able to earn
competitive margins over an extended period
of time regardless of economic conditions while
investing and without taking excessive risk
Any company can improve earnings in the
short run by taking on additional risk or
cutting back on investments. Any company
can grow rapidly if it takes on too much
risk-but that usually is the kind of growth
one comes to regret. Our margins have been
quite good, even as we have been investing
for the long run. These investment expenses
lower our short-term returns, but they
are "good" expenses. In addition to the
tremendous amount that we invest annu-
ally in technology and infrastructure, some
examples of where we have invested over
the past five years are:
448 retail branches in the United States
28 wholesale offices abroad
– 2,498 Chase Private Client locations/
branches, supported by 594 new Private
Client advisors
20 Commercial Banking expansion cities,
including approximately 350 Commercial
Banking bankers
205 small business bankers
A good company always should be investing
while it also is waste cutting; i.e., cutting
out any unnecessary expenses. However,
I often have received bad advice on what
are unnecessary expenses. For example,
spending on important strategic off-sites,
research and development for innovation,
marketing that has a positive return – those
are good expenses. We take a bus trip annu-
ally to visit branches, operating centers
and clients. It is both fun and enormously
productive and it is not an unnecessary
expense - it makes us a better company.
Even our annual Retail National Sales
Conference with the top 5% of our branch
bankers, loan officers and tellers is critical -
we spend time working together, we learn
a lot and we get to thank these outstanding
employees at an awards recognition dinner.
While it is perfectly reasonable in tough
times to dramatically reduce the cost of that
conference, it is unwise to cancel it. I have
been to every single one of these events since
I started running Bank One, and I intend to
continue that tradition.
We earned adequate returns while building an
increasingly stronger capital base
During these challenging years, our company
has confronted difficult markets, billions of
dollars of additional regulatory costs, billions
of dollars of costs due to changes in prod-
ucts and services, and, unfortunately, very
high legal costs. And we have had to hold
an increasing amount of capital throughout
this time. While there is no question that
these events did reduce our performance and
returns, we have been able to adapt, meet the
new rules and perform fairly well financially.
~15%³
39%
13%
55%+/-
38%
PNC
35%
18%
13%
PNC
18%
Asset
71%
69%
≤70%
23%
Management
UBS WM & BLK
27%
BEN
25%+
60%¹
JPMorgan Chase
59%¹
13%³
IV. We have a solid strategy and believe our future outlook is very good – but, as
usual, there still are a lot of things to think and worry about
III. We will successfully navigate the new global financial architecture (and we are
well on our way to having fortress controls)
We build for the long term – we manage through-the-cycle, and we always are
prepared for the toughest of times
2011
2012
2013
2014
5
Our clients also exhibit their faith in us by entrusting us to take care of their money –
either as deposits or as client assets entrusted to us - as shown in the chart below.
Assets Entrusted to us by Our Clients
at December 31,
Deposits and client assets
($ in billions)
Year-over-year change
'11 to '12 '12 to '13 '13 to '14
$3,973
$3,822
$503
Deposits
$3,438
2014
$464
2013
2011
$110
$185
management
$141 $165
■Mortgage/
22%
(7)%
(53)%
Home equity
$100
$127
Total Consumer and 17%
Commercial Banking
5%
$191
$177
$156
$84
2012
Consumer
10%
6%
2012
2013
2014
Assets under custody(b)
($ in billions)
$16,870
$18,835
$20,485
$20,549
Represent assets under management as
well as custody, brokerage, administration
and deposit accounts
(b)
Represents activities associated with the
safekeeping and servicing of assets
In this letter, I will discuss the issues highlighted below. I also encourage you to read
the letters written by several of our business leaders about our main businesses, our
critical operations and controls, and some of our corporate responsibility efforts.
As usual, this letter will describe some of our successes and opportunities, as well as
our challenges and issues. The main sections of the letter are as follows:
I.
II.
We have an outstanding franchise - our company has emerged as an endgame
winner, but we need to earn it every day
(a)
2011
$2,035
$2,244
8%
$3,163
$439
Wholesale
3%
9%
4%
$861
17%
$398
$755
$730
■Client assets (a)
10%
13%
3%
$2,534
$2,609
$824
JPMORGAN CHASE & Co.
2007
hospitals
70,467
Pre-provision profit
32,931
26,139
Provision for credit losses
3,139
225
Net income
$
21,762
$
17,923
Per common share data
Net income per share:
Basic
Diluted
Cash dividends declared
Book value
Tangible book value (b)
Selected ratios
Return on common equity
Return on tangible common equity(b)
Common equity Tier 1 (“CET1”) capital ratio (c)
Tier 1 capital ratio (c)
5.34
61,274
$
Total noninterest expense
94,205
local governments
TWO SEVENTY PARK AVENUE
Dar
00
SIHI
THIS
SIN
00
ANNUAL REPORT 2014
JPMORGAN CHASE & CO.
Good 
Works O
VOLUNTEERS
JPMORGAN CHAM&G
Good Works
ECO.
JPMORGAN CHASE & CO.
JPMORGAN CHASE & CO.
Cade for
1000challenge
&
Financial Highlights
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
2013
Reported basis (a)
Total net revenue
96,606
4.39
2014
4.35
232,065
211,178
Headcount
241,359
251,196
(a) Results are presented in accordance with accounting principles generally accepted in the United States of America
(U.S. GAAP), except where otherwise noted.
(b) Non-GAAP financial measure. For further discussion, see “Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures" in this Annual Report.
(c) Basel III Transitional rules became effective on January 1, 2014; prior period data is based on Basel I rules.
As of December 31, 2014, the ratios presented are calculated under the Basel III Advanced Transitional Approach.
CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective,
Tier 1 common capital under Basel I was a non-GAAP financial measure. For further discussion, see "Regulatory
capital" in this Annual Report.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with
assets of $2.6 trillion and operations worldwide. The firm is a leader in investment
banking, financial services for consumers and small businesses, commercial
banking, financial transaction processing and asset management. A component
of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of
consumers in the United States and many of the world's most prominent corporate,
institutional and government clients under its J.P. Morgan and Chase brands.
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and
about Chase's capabilities at chase.com. Information about JPMorgan Chase & Co.
is available at jpmorganchase.com.
Schmidts
1886
CHASE O
und #RETURN THE SERVE
J.P. Morgan
Center for
Commoditie
&
communities
clients
customers
employees
veterans
nonprofits
business owners
5.29
schools
Total stockholders' equity
1,287,765
Sau
Deposits
1.44
1,363,427
57.07
53.25
44.69
40.81
10%
10.2
11.6
13.1
9%
11
10.7
13
1.58
2,573,126
11.9
Total assets
738,418
$
Loans
Selected balance sheet data (period-end)
Total capital ratio (c)
14.4
$ 757,336
2,415,689
Investment banking
$ 3,762
2,428
$3,576
$ 3,945
2,429
2,448
Treasury services
4,482
Revenue by product
Net income
1,749
Income tax expense
4,376
4,397
684
Lending
1,741
$ 6,912
545
$ 1,597
Revenue by client segment
Income before income tax expense
$1,676
$1,986
Investment banking revenue, gross
575
$ 7,092
revenue
Total Commercial Banking net
177
143
174
Other
$6,882
2,389
1,081
2,695
4,794
4,533
Net interest income
2,283
2,298
2,349
1,149
1,279
130
116
92
Asset management, administration
$ 1,072
Middle Market Banking
$ 1,033
4,629
2,610
Total net revenue (b)
7,092
Total noninterest expense
1,375
1,495
1,492
Noncompensation expense
1,014
1,115
1,203
Compensation expense
Noninterest expense
41
85
(189)
Provision for credit losses
6,912
6,882
$2,838 $3,075
11.2
Corporate Client Banking
U.S.
19.4
1
17.8
1
18.2
2
1
Banking fees
8.1%
#1
8.5%
#1
7.5%
Global Investment
$ 978
1
13.8
1
9.9
1
8.2
2
Global
12.4
1
11.6
1
11.6
1
U.S.
13.3
1
#1
(a) Source: Dealogic. Reflects the ranking and share of Global Investment Banking fees
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and mortgage-backed
securities; and exclude money market, short-term debt, and U.S. municipal securities.
(c) Global equity and equity-related rankings include rights offerings and Chinese A-Shares.
(d) M&A and Announced M&A rankings reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S. U.S.
announced M&A volumes represents any U.S. involvement ranking.
(e) Source: Dealogic. Reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A
assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to
each book manager/equal if joint.
Total international net revenue
17,475
16,765
16,448
North America
17,158
18,021
18,314
Total net revenue
Loans (period-end) (a)
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
Total international loans
North America
Total loans
Client deposits and other third-
party liabilities (average) (a)
Europe/Middle East/Africa
Asia/Pacific
1,533
$ 3,010
1,340
Latin America/Caribbean
JPMorgan Chase & Co./2014 Annual Report
95
Management's discussion and analysis
International metrics
Year ended December 31,
(in millions)
Total net revenue (a)
2014
2013
2012
Europe/Middle East/Africa
Asia/Pacific
$ 11,598 $ 10,689 $ 10,787
4,698
4,736
4,128
1,179
Lending- and deposit-related fees
Banking revenue was $11.8 billion, down 3% from the prior
year. Investment banking fees were $6.6 billion, up 4%
from the prior year. The increase was driven by higher
advisory and equity underwriting fees, partially offset by
lower debt underwriting fees. Advisory fees were $1.6
billion up 24% on stronger share of fees for completed
transactions as well as growth in the industry-wide fee
levels, according to Dealogic. Equity underwriting fees were
$1.6 billion up 5%, driven by higher industry wide issuance.
Debt underwriting fees were $3.4 billion, down 4%,
primarily related to lower loan syndication fees on lower
industry-wide fee levels and lower bond underwriting fees.
The Firm also ranked #1 globally in fees and volumes share
across high grade, high yield and loan products. The Firm
maintained its #2 ranking for M&A, and improved share of
fees both globally and in the U.S. compared to the prior
year. Treasury Services revenue was $4.1 billion, down 1%
compared with the prior year, primarily driven by lower
trade finance revenue as well as the impact of business
simplification initiatives, largely offset by higher net
interest income from increased deposits. Lending revenue
was $1.1 billion, down from $1.7 billion in the prior year,
driven by losses, compared with gains in the prior periods,
on securities received from restructured loans, as well as
lower net interest income.
(in millions, except ratios)
110
163
535
Nonaccrual loans held-
for-sale and loans at
fair value
JPMorgan Chase & Co./2014 Annual Report
retained(a)(b)
96
(a) Total net revenue is based predominantly on the domicile of the client
or location of the trading desk, as applicable. Loans outstanding
(excluding loans held-for-sale and loans at fair value), client deposits
and other third-party liabilities, and AUC are based predominantly on
the domicile of the client.
$ 20,549 $ 20,485 $ 18,835
8,331
9,186
8,562
$ 11,987 $ 11,299 $ 10,504
96
Nonaccrual loans
Nonaccrual loans:
(78) $ (284)
December 31,
(in millions, except headcount)
Selected balance sheet data
(period-end)
Assets
Selected metrics
As of or for the year ended
December 31,
(in millions, except ratios
and where otherwise noted)
Credit data and quality
statistics
Net charge-offs/
(recoveries)
Nonperforming assets:
2014
2013
2012
$
(12)
$
$213,536 $ 189,558
As of or for the year ended
$ 383,667 $355,766
166,208
8,950
27,193
22,151
19,992
$ 27,155 $ 29,392 $ 30,266
$ 34,633 $ 34,786 $ 34,762
8,362
Total AUC
North America
AUC (period-end) (in billions) (a)
Total client deposits and other
third-party liabilities
North America
Total international
9.5
All other regions
10,220
56,097
59,905
170,131
175,364
$242,005
11,052
15,301
51,180
54,428
66,933
22,360
$127,326
$ 152,712 $ 143,807
$ 96,409 $ 95,627 $ 109,501
41,822
35,722
40,312
67,679
$ 417,369
Latin America/Caribbean
Selected metrics
Return on equity was 15% on $56.5 billion of average
allocated capital and 17% excluding FVA (effective 2013)
and DVA.
Provision for credit losses
(161)
(232)
(479)
Noninterest expense
Compensation expense
11,658
34,762
10,449
Noncompensation expense
12,824
10,909
Total noninterest expense
23,273
21,744
10,835
34,786
34,633
Total net revenue (b)
1,783
$2,635 $2,648 $2,699
2012
2013
2014
Noninterest revenue
All other income(a)
and commissions
Year ended December 31,
Selected income statement data
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions and
nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. CB provides
financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB
provides comprehensive financial solutions, including
lending, treasury services, investment banking and
asset management to meet its clients' domestic and
international financial needs.
COMMERCIAL BANKING
1,184
23,104
Net interest income
11,175
10,976
11,313
10,537
21,850
Income before income tax
expense
11,521
JPMorgan Chase & Co./2014 Annual Report
business. The compensation expense to net revenue ratio
was 30%.
Return on equity was 10% on $61.0 billion of average
allocated capital.
2013 compared with 2012
Net income was $8.9 billion, up 2% compared with the
prior year.
Net revenue was $34.8 billion, flat compared with the prior
year. Net revenue in 2013 included a $1.5 billion loss as a
result of implementing a FVA framework for OTC derivatives
and structured notes. The FVA framework incorporates the
impact of funding into the Firm's valuation estimates for
OTC derivatives and structured notes and reflects an
industry migration towards incorporating the market cost of
unsecured funding in the valuation of such instruments. The
loss recorded in 2013 was a one-time adjustment arising on
implementation of the new FVA framework.
Net revenue in 2013 also included a $452 million loss from
DVA on structured notes and derivative liabilities, compared
with a loss of $930 million in the prior year. Excluding the
impact of FVA and DVA, net revenue was $36.7 billion and
net income was $10.1 billion, compared with $35.7 billion
and $9.2 billion, respectively the prior year.
Banking revenue was $12.2 billion, compared with $11.4
billion in the prior year. Investment banking fees were $6.3
billion, up 10% from the prior year, driven by higher equity
underwriting fees of $1.5 billion (up 46%) and record debt
underwriting fees of $3.5 billion (up 8%), partially offset
by lower advisory fees of $1.3 billion (down 12%). Equity
underwriting results were driven by higher industry-wide
issuance and an increase in share of fees compared with the
prior year, according to Dealogic. Industry-wide loan
syndication volumes and fees increased as the low-rate
environment continued to fuel refinancing activity. The Firm
also ranked #1 in industry-wide fee shares across high
grade, high yield and loan products. Advisory fees were
lower compared with the prior year as industry-wide
completed M&A industry-wide fee levels declined 13%. The
Firm maintained its #2 ranking and improved share for both
announced and completed volumes during the year.
Treasury Services revenue was $4.2 billion, down 2%
compared with the prior year, primarily reflecting lower
trade finance spreads, partially offset by higher net interest
income on higher deposit balances. Lending revenue was
$1.7 billion, up from $1.4 billion, in the prior year
reflecting net interest income on retained loans, fees on
lending-related commitments, and gains on securities
received from restructured loans.
Markets and Investor Services revenue was $22.6 billion
compared to $23.4 billion in the prior year. Combined Fixed
Income and Equity Markets revenue was $20.6 billion, up
from $20.1 billion the prior year. Fixed Income Markets
revenue was $15.8 billion slightly higher reflecting
consistently strong client revenue and lower losses from the
synthetic credit portfolio, which was partially offset by
lower rates-related revenue given an uncertain rate outlook
and low spread environment. Equities Markets revenue was
93
Management's discussion and analysis
$4.8 billion up 8% compared with the prior year driven by
higher revenue in derivatives and cash equities products
and Prime Services primarily on higher balances. Securities
Services revenue was $4.1 billion compared with $4.0
billion in the prior year on higher custody and fund services
revenue primarily driven by higher assets under custody of
$20.5 trillion. Credit Adjustments & Other was a loss of
$2.1 billion predominantly driven by FVA (effective 2013)
and DVA.
The provision for credit losses was a benefit of $232
million, compared with a benefit of $479 million in the
prior year. The 2013 benefit reflected lower recoveries as
compared with 2012 as the prior year benefited from the
restructuring of certain nonperforming loans. Net
recoveries were $78 million, compared with $284 million in
the prior year reflecting a continued favorable credit
environment with stable credit quality trends.
Nonperforming loans were down 57% from the prior year.
Noninterest expense was $21.7 billion slightly down
compared with the prior year, driven by lower compensation
expense, offset by higher noncompensation expense related
to higher litigation expense as compared with the prior
year. The compensation ratio, excluding the impact of DVA
and FVA (effective 2013), was 30% and 32% for 2013 and
2012, respectively.
Noninterest expense was $23.3 billion, up 7% compared to
the prior year as a result of higher legal expense and
investment in controls. This was partially offset by lower
performance-based compensation expense as well as the
impact of business simplification, including the sale or
liquidation of a significant part of the physical commodities
Revenue
Markets & Investor Services revenue was $22.8 billion, up
1% from the prior year. Fixed Income Markets revenue was
$13.8 billion down 13% from the prior year driven by lower
revenues in Fixed Income primarily from credit-related and
rates products as well as the impact of business
simplification. Equity Markets revenue was $4.9 billion up
1% as higher prime services revenue was partially offset by
lower equity derivatives revenue. Securities Services
revenue was $4.4 billion, up 6% from the prior year,
primarily driven by higher net interest income on increased
deposits and higher fees and commissions. Credit
Adjustments & Other revenue was a loss of $272 million
driven by net CVA losses partially offset by gains, net of
hedges, related to FVA/DVA. The prior year was a loss of
$2.1 billion (including the FVA implementation loss of $1.5
billion and DVA losses of $452 million).
2014 compared with 2013
Income tax expense
4,596
13,274
4,387
13,391
4,719
Net income
$ 6,925 $ 8,887 $ 8,672
Note: As discussed on pages 79-80, effective with the fourth quarter of
2014 the Firm changed its methodology for allocating the cost of preferred
stock to its reportable business segments. Prior periods have been revised to
conform with the current period presentation.
92
(a) Return on equity excluding FVA (effective 2013) and DVA, a non-GAAP financial
measure, was 17% and 19% for the years ended December 31, 2013 and 2012,
respectively.
(b) Overhead ratio excluding FVA (effective 2013) and DVA, a non-GAAP financial
measure, was 59% and 61% for the years ended December 31, 2013 and 2012,
respectively.
(c) Compensation expense as a percentage of total net revenue excluding FVA
(effective 2013) and DVA, a non-GAAP financial measure, was 30% and 32% for
the years ended December 31, 2013 and 2012, respectively.
(d) Includes results of the synthetic credit portfolio that was transferred from the
CIO effective July 2, 2012.
(e) Consists primarily of credit valuation adjustments ("CVA") managed by the credit
portfolio group, and FVA (effective 2013) and DVA on OTC derivatives and
structured notes. Results are presented net of associated hedging activities and
net of CVA and FVA amounts allocated to Fixed Income Markets and Equity
Markets.
Prior to January 1, 2014, CIB provided several non-GAAP
financial measures excluding the impact of implementing the
FVA framework (effective 2013) and DVA on: net revenue, net
income, compensation ratio, overhead ratio, and return on
equity. Beginning in the first quarter 2014, the Firm did not
exclude FVA and DVA from its assessment of business
performance; however, the Firm continues to present these
non-GAAP measures for the periods prior to January 1, 2014,
as they reflected how management assessed the underlying
business performance of the CIB in those prior periods. In
addition, the ratio for the allowance for loan losses to end-of-
period loans, also a non-GAAP financial measure, is
JPMorgan Chase & Co./2014 Annual Report
calculated excluding the impact of consolidated Firm-
administered multi-seller conduits and trade finance, to
provide a more meaningful assessment of CIB's allowance
coverage ratio. These measures are used by management to
assess the underlying performance of the business and for
comparability with peers.
Net income was $6.9 billion, down 22% compared with
$8.9 billion in the prior year. These results primarily
reflected lower revenue as well as higher noninterest
expense. Net revenue was $34.6 billion, flat compared with
the prior year.
Global
Overhead ratio
Loan syndications
Fixed Income
asset class (period-end) in
billions:
Assets under custody ("AUC") by
7
0
9
$ 12,328 $ 11,903 $ 11,745
Return on common equity
2012
2013
2014
where otherwise noted)
(in millions, except ratios and
December 31,
Market risk-related revenue -
trading loss days(a)
Equity
Other(b)
6,524
1,697
35,783
30,752
$355,766
$383,667
$417,369
25,713
Trade finance loans (period-end)
party liabilities (average) (c)
Client deposits and other third
$ 18,835
$ 20,485
$ 20,549
Total AUC
5,637
1,453
1,669
6,913
As of or for the year ended
(a) Market risk-related revenue is defined as the change in value of: principal
transactions revenue; trading-related net interest income; brokerage
commissions, underwriting fees or other revenue; and revenue from syndicated
lending facilities that the Firm intends to distribute; gains and losses from DVA
and FVA are excluded. Market risk-related revenue - trading loss days represent
the number of days for which the CIB posted losses under this measure. The loss
days determined under this measure differ from the loss days that are
determined based on the disclosure of market risk-related gains and losses for
the Firm in the VaR back-testing discussion on pages 134-135.
Business metrics
94
Loans:
74,874
70,353
64,833
receivables
Trading assets-derivative
Loans retained(a)
312,944
317,535
instruments
Trading assets-debt and equity
$ 859,071 $ 854,670
$ 854,712
Assets
321,585
95,764
104,864
110,100
(a) Loans retained includes credit portfolio loans, trade finance loans, other held-
for-investment loans and overdrafts.
52,022
52,250
51,129
Headcount
3,502
113,602
47,500
56,500
61,000
Equity
5,158
110,022
103,363
Total loans
7,599
loans at fair value
Loans held-for-sale and
JPMorgan Chase & Co./2014 Annual Report
(b) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance
contracts, options and other contracts.
(c) Client deposits and other third party liabilities pertain to the Treasury Services
and Securities Services businesses, and include deposits, as well as deposits that
are swept to on-balance sheet liabilities (e.g., commercial paper, federal funds
purchased and securities loaned or sold under repurchase agreements) as part
of their client cash management program.
League table results - IB Fee Share(a)
Long-term debt(b)
Long-term debt (b)
1
11.5
1
12.0
Global
1
U.S.
1
#1
7.2%
#1
7.3%
11.8
8.0
1
8.2
1
11.6
1
11.6
U.S.
1
7.1
1
7.2
1
6.7
Global
1
8.3
1
#1
6.8%
Global
#1
2013
2014
December 31,
Year ended
Fee
Share Rankings
Share Rankings
Share Rankings
December 31,
Fee
Fee
Year ended
2012
2013
2014
League table results. volumes(e)
Market
Share Rankings
(average)
Market
Share Rankings
Market
7.8%
11.1
#1
1
11.5
1
10.7
U.S.
8.3%
#1
7.6%
Global
equity-related
equity-related
Debt, equity and
Debt, equity and
2012
Share Rankings
Loan syndications
Selected balance sheet data
(a) Loans retained includes credit portfolio loans, trade finance loans, other held-
for-investment loans and overdrafts.
7.1
1
Global(c)
7.6
3
8.2
2
2
9.6
2
11.3
2
10.1
2
U.S.
8.4
3
7.1
180
11
1
U.S.
11.3
1
11.7
1
11.6
1
Equity and equity-
Equity and equity-
related
related
Global(c)
U.S.
254
11.0
12.1
2
23.5
7.7
2
U.S.
27.8
21.6
2
~ 2
2
20.0
2
24.3
2
36.4
Global
2
6.5
2
7.8
10.4
4
5
M&A(d)
M&A announced(d)
Global
8.2
2
7.6
U.S.
10.0
2
8.8
2 2
2
1,935
Total nonaccrual loans
121
243
672
940
retained(a)(b)
nonaccrual loans
Allowance for loan losses to
Nonaccrual loans to total
2.52
1.82
and conduits
excluding trade finance
2012
2013
2014
2.02
period-end loans
0.12
0.32
5,749
115,250
47,500
11,913
107,540
56,500
61,000
Equity
5,567
101,976
Total loans
loans at fair value
Loans held-for-sale and
109,501
95,627
96,409
Loans retained(a)
Loans:
$ 861,819 $ 843,577 $ 876,107
0.68
period-end loans retained,
Allowance for loan losses to
1.19
1.15
Allowance for loan
losses
Allowance for credit losses:
1,092
838
463
Total nonperforming
assets
64
80
67
239
415
275
Derivative receivables
Assets acquired in loan
satisfactions
789
343
1,034
(b) Allowance for loan losses of $18 million, $51 million and $153 million were held
against these nonaccrual loans at December 31, 2014, 2013 and 2012,
respectively.
1,096
Allowance for lending-
related commitments
1.07
retained(a)
period-end loans
Allowance for loan losses to
(0.26)%
(0.07)%
(0.01)%
Net charge-off/(recovery)
rate(a)
1,773
1,621
1,473
Total allowance for credit
losses
473
525
439
1,300
1,851
$ 1,627
Commercial Term Lending
8.8
7.3
6.7
Credit Card (c)
0.70
0.80
1.02
Open accounts
64.6
65.3
64.5
Nonperforming assets(e)
$ 411
$
New accounts opened
280
265
Accounts with sales
Allowance for loan losses:
activity
34.0
32.3
30.6
Credit Card
$ 3,439
$
3,795
$
5,501
% of accounts acquired
$
90+ day delinquency rate -
$ 381.1
$ 419.5
125,113
52,961
9,987
Total loans
Business metrics
$ 188,061
123,613
50,748
11,049
$ 185,410
125,464
Delinquency rates
48,413
30+ day delinquency rate:
12,507
$ 186,384
Credit Card (c)
1.44
1.67
2.10
Auto
1.23
1.15
$ 465.6
Sales volume (in billions)
1.87
1.58
1.42
delinquency rate
online
Total 30+ day
Credit Card, excluding
2.13
2.56
2.35
Student(d)
1.25
Commercial Card
56%
55%
51%
2.18
2.49
3.41
The following are brief descriptions of selected business
metrics within Card, Merchant Services & Auto.
1,843
Merchant Services processes transactions for merchants.
Total transactions - Number of transactions and
authorizations processed for merchants.
Commercial Card provides a wide range of payment services to
corporate and public sector clients worldwide through the
commercial card products. Services include procurement,
corporate travel and entertainment, expense management
services, and business-to-business payment solutions.
Sales volume - Dollar amount of cardmember purchases, net
of returns.
Open accounts - Cardmember accounts with charging
privileges.
Auto origination volume - Dollar amount of auto loans and
leases originated.
(a) Net charge-offs and net charge-off rates for the year ended December 31,
2012, included $53 million of charge-offs of Chapter 7 loans. Excluding
these incremental charge-offs, net charge-offs for the year ended
December 31, 2012 would have been $135 million, and the net charge-off
rate would have been 0.28%.
(b) Average credit card loans included loans held-for-sale of $509 million, $95
million and $433 million for the years ended December 31, 2014, 2013
and 2012, respectively. These amounts are excluded when calculating the
net charge-off rate.
(c) Period-end credit card loans included loans held-for-sale of $3.0 billion and
$326 million at December 31, 2014 and 2013, respectively. There were no
loans held-for-sale at December 31, 2012. These amounts are excluded
when calculating delinquency rates and the allowance for loan losses to
period-end loans.
(d) Excluded student loans insured by U.S. government agencies under the
FFELP of $654 million, $737 million and $894 million at December 31,
2014, 2013 and 2012, respectively, that are 30 or more days past due.
These amounts have been excluded based upon the government guarantee.
(e) Nonperforming assets excluded student loans insured by U.S. government
agencies under the FFELP of $367 million, $428 million and $525 million
at December 31, 2014, 2013 and 2012, respectively, that are 90 or more
days past due. These amounts have been excluded from nonaccrual loans
based upon the government guarantee.
90
00
JPMorgan Chase & Co./2014 Annual Report
11,638
11,462
Net interest income
$ 3,887
$ 3,977
$ 3,593
loans
Noninterest revenue
2012
2013
2014
(in millions, except ratios)
Year ended December 31,
Card Services supplemental information
Revenue
Student
23.4
27.5
Auto & Student
749
953
954
Merchant Services (Chase
Paymentech Solutions)
Total allowance for loan
losses
$ 4,188
$ 4,748
6,455
Merchant processing
volume (in billions)
$
847.9
$ 750.1
$ 655.2
Allowance for loan losses to
period-end loans:
(in billions)
Total allowance for loan
losses to period-end
Origination volume
Auto
4.30%
1.55
2.98%
1.51
26.1
2.69%
1.17
29.5
35.6
38.1
(in billions)
Credit Card (c)
Total transactions
Auto & Student
2.96
2.36
2.12
2013
2014
Noninterest revenue
All other income
Card income
As of or for the year
Selected income statement data
Card, Merchant Services & Auto
11.7
21%
45
31%
43
43
Equity (period-end and
average)
$16,500
$ 19,000
$ 15,500
6,752
89
JPMorgan Chase & Co./2014 Annual Report
Noninterest expense was $8.1 billion, a decrease of $138
million, or 2%, from the prior year. This decrease was due
to one-time expense items recognized in the prior year
related to the exit of a non-core product and the write-off of
intangible assets associated with a non-strategic
relationship. The reduction in expenses was partially offset
by increased auto lease depreciation and payments to
customers required by a regulatory Consent Order during
2013.
The provision for credit losses was $2.7 billion, compared
with $4.0 billion in the prior year. The current-year
provision reflected lower net charge-offs and a $1.7 billion
reduction in the allowance for loan losses due to lower
estimated losses reflecting improved delinquency trends
and restructured loan performance. The prior-year
provision included a $1.6 billion reduction in the allowance
for loan losses. The Credit Card net charge-off rate was
3.14%, down from 3.95% in the prior year; and the 30+
day delinquency rate was 1.67%, down from 2.10% in the
prior year. The Auto net charge-off rate was 0.31%, down
from 0.39% in the prior year.
Net revenue was $18.9 billion, flat compared with the prior
year. Net interest income was $13.6 billion, down $261
million, or 2%, from the prior year. The decrease was
primarily driven by spread compression in Credit Card and
Auto and lower average credit card loan balances, largely
offset by the impact of lower revenue reversals associated
with lower net charge-offs in Credit Card. Noninterest
revenue was $5.3 billion, an increase of $229 million, or
4%, compared with the prior year primarily driven by
higher net interchange income, auto lease income and
merchant servicing revenue, largely offset by lower revenue
from an exited non-core product and a gain on an
investment security recognized in the prior year.
Card net income was $4.9 billion, an increase of $808
million, or 20%, compared with the prior year, driven by
lower provision for credit losses.
2012
2013 compared with 2012
The provision for credit losses was $3.4 billion, compared
with $2.7 billion in the prior year. The current-year
provision reflected lower net charge-offs and a $554
million reduction in the allowance for loan losses. The
reduction in the allowance for loan losses was primarily
related to a decrease in the asset-specific allowance
resulting from increased granularity of the impairment
estimates and lower balances related to credit card loans
modified in TDRs, runoff in the student loan portfolio, and
lower estimated losses in auto loans. The prior-year
provision included a $1.7 billion reduction in the allowance
for loan losses.
Net revenue was $18.3 billion, down $573 million or 3%
compared with the prior year. Net interest income was
$13.2 billion, a decrease of $409 million, or 3%, from the
prior year primarily driven by spread compression in Credit
Card and Auto, partially offset by higher average loan
balances. Noninterest revenue was $5.2 billion, down $164
million, or 3%, from the prior year. The decrease was
primarily driven by higher amortization of new account
origination costs and the impact of non-core portfolio exits,
largely offset by higher auto lease income and net
interchange income from higher sales volume.
Card net income was $4.1 billion, a decrease of $833
million, or 17%, compared with the prior year,
predominantly driven by higher provision for credit losses
and lower net revenue.
2014 compared with 2013
(a) Included operating lease depreciation expense of $1.2 billion, $972
million and $817 million for the years ended December 31, 2014,
2013 and 2012, respectively.
24%
Noninterest expense was $8.2 billion, up $98 million, or
1% from the prior year primarily driven by higher auto
lease depreciation expense and higher investment in
controls, predominantly offset by lower intangible
amortization and lower remediation costs.
Management's discussion and analysis
1,009
(in millions, except ratios)
$ 4,099
$ 4,907
$ 4,074
Net income
8,142
6,708
expense
Income before income tax
8,216
8,078
8,176
Noninterest expense (a)
3,953
2,669
3,432
Provision for credit losses
18,921
Revenue
$ 4,173
993
$ 4,289
1,041
$ 4,092
5,166
ended December 31,
5,330
13,150
13,559
5,101
13,820
Total net revenue
18,316
18,889
Net interest income
11,745
Selected metrics
(in millions, except ratios
11,558
Total net charge-offs
$ 3,985
$ 4,370 $
5,509
Total loans
$ 194,935
$ 191,089
$ 189,464
Net charge-off rate:
Selected balance sheet
data (average)
Credit Card (b)
Auto(a)
2.75%
3.14%
3.95%
0.34
Total net charge-off rate
Auto
Credit Card
Loans:
3.01
3.01
377
3.75
$ 197,661
$ 198,265
$ 202,609
Total assets
0.39
0.31
Student
As of or for the year
ended December 31,
333
Student
and where otherwise
noted)
Selected balance sheet
Selected metrics
As of or for the year
ended December 31,
(in millions, except ratios)
2014
2013
2012
2014
2013
2012
Credit data and quality
statistics
data (period-end)
Net charge-offs:
Loans:
Credit Card
$ 3,429
49,913
52,757
10,541
188
158
181
Auto(a)
375
$ 127,993
$ 131,048
54,536
9,351
Student
Auto
Credit Card
4,944
3,879
$ 127,791
Total net revenue
Card Services includes the Credit Card and Merchant Services
businesses.
15,615
Loans held-for-sale and
119,218
131,100
140,982
$ 165,111
$ 185,776
$ 191,857
$ 128,208
$ 137,138
$ 148,506
3,885
3,975
4,840
8,552
loans at fair value
11,024
43,512
48,925
54,038
21,707
20,925
22,695
$ 53,635 $ 52,289 $ 50,552
9,500
13,500
1,388
$ 137,138 $ 128,208
Total loans
Loans retained
Loans:
Total assets
13,298
782
930
882
6,117
6,848
7,262
Headcount
$ 120,100
$ 141,764 $ 132,030
Total Commercial Banking
loans
4,085
3,711
4,512
8,562
9,582
12,080
40,872
45,989
51,120
19,572
$ 141,764
$ 132,030
$ 120,100
Client deposits and other
third-party liabilities
204,017
14,000
15,055
Selected balance sheet data
(average)
195,912
9,500
Average loans by client
segment
Middle Market Banking
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
$ 52,444
$ 51,830 $ 47,009
21,608
20,918
Equity
Total Commercial Banking
loans
Middle Market Banking
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Period-end loans by client
segment
Net revenue was a record $7.1 billion, an increase of $180
million, or 3%, from the prior year. Net interest income was
$4.8 billion, up by $165 million, or 4%, driven by higher
loan balances and proceeds from a lending-related workout,
partially offset by lower purchase discounts recognized on
loan repayments. Noninterest revenue was $2.3 billion, flat
compared with the prior year.
Net income was $2.6 billion, a decrease of $51 million, or
2%, from the prior year, driven by an increase in
noninterest expense and the provision for credit losses,
partially offset by an increase in net revenue.
2013 compared with 2012
Noninterest expense was $2.7 billion, an increase of $85
million, or 3%, from the prior year, largely reflecting higher
investments in controls.
Net revenue was $6.9 billion, a decrease of $210 million, or
3%, compared with the prior year. Net interest income was
$4.5 billion, a decrease of $261 million, or 5%, reflecting
yield compression, the absence of proceeds received in the
prior year from a lending-related workout, and lower
purchase discounts recognized on loan repayments,
partially offset by higher loan balances. Noninterest
revenue was $2.3 billion, up $51 million, or 2%, reflecting
higher investment banking revenue largely offset by
business simplification and lower lending fees.
Net income was $2.6 billion, flat compared with the prior
year, reflecting lower net revenue and higher noninterest
expense, predominantly offset by a lower provision for
credit losses.
2014 compared with 2013
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income from municipal bond
activity of $462 million, $407 million and $381 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
(a) Includes revenue from investment banking products and commercial card
transactions.
28%
35
19%
37
18%
39
Overhead ratio
Return on common equity
Financial ratios
$ 6,912
$ 7,092
1,252
1,239
1,206
Real Estate Banking
495
561
Noninterest expense was $2.6 billion, an increase of $221
million, or 9%, from the prior year, reflecting higher
product- and headcount-related expense.
450
362
366
403
Total Commercial Banking net
revenue
$6,882
Other
98
Note: As discussed on pages 79-80, effective with the fourth quarter of
2014 the Firm changed its methodology for allocating the cost of preferred
stock to its reportable business segments. Prior periods have been revised to
conform with the current period presentation.
97
Equity
$ 148,506
14,000
1,212
845
Loans held-for-sale and
loans at fair value
Total loans
126,996
135,750
147,661
Loans retained
$ 190,782 $ 181,502
$ 195,267
2012
2013
2014
Loans:
Total assets
Selected balance sheet data
(period-end)
Management's discussion and analysis
CB revenue comprises the following:
Lending includes a variety of financing alternatives, which
are predominantly secured by receivables, inventory,
equipment, real estate or other assets. Products include
term loans, revolving lines of credit, bridge financing, asset-
based structures, leases, commercial card products and
standby letters of credit.
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products that provide CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed income and
Equity market products used by CB clients is also included.
Investment banking revenue, gross, represents total
revenue related to investment banking products sold to
CB clients.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.
JPMorgan Chase & Co./2014 Annual Report
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investment
banking needs.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.
Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
investment properties.
Other primarily includes lending and investment activities
within the Community Development Banking and Chase
Capital businesses.
Selected metrics
As of or for the year ended
December 31, (in millions,
except headcount)
Middle Market Banking covers corporate, municipal and
nonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
JPMorgan Chase & Co./2014 Annual Report
198,356
13,500
23,458
The Corporate & Investment Bank, comprised of
Banking and Markets & Investor Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, government and
municipal entities. Within Banking, the CIB offers a full
range of investment banking products and services in
all major capital markets, including advising on
corporate strategy and structure, capital-raising in
equity and debt markets, as well as loan origination
and syndication. Also included in Banking is Treasury
Services, which includes transaction services,
comprised primarily of cash management and liquidity
solutions, and trade finance products. The Markets &
Investor Services segment of the CIB is a global market-
maker in cash securities and derivative instruments,
and also offers sophisticated risk management
solutions, prime brokerage, and research. Markets &
Investor Services also includes the Securities Services
business, a leading global custodian which includes
custody, fund accounting and administration, and
securities lending products sold principally to asset
managers, insurance companies and public and private
investment funds.
(a) Included FVA (effective 2013) and DVA on OTC derivatives and structured notes,
measured at fair value. FVA and DVA gains/(losses) were $468 million and
$(1.9) billion for the years ended December 31, 2014 and 2013, respectively.
DVA losses were ($930) million for the year ended December 31, 2012.
(b) Included tax-equivalent adjustments, predominantly due to income tax credits
related to affordable housing and alternative energy investments, as well as tax-
exempt income from municipal bond investments, of $2.5 billion, $2.3 billion
and $2.0 billion for the years ended December 31, 2014, 2013 and 2012,
respectively.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Financial ratios
23,810
Return on common equity(a)
Overhead ratio (b)
2014
2013
2012
10%
15%
18%
CORPORATE & INVESTMENT BANK
67
63
Compensation expense as
percentage of total net
revenue(c)
30
31
33
Revenue by business
Advisory
Percentage of average loans:
$ 1,315
$ 1,491
1,571
1,499
1,026
3,372
63
15,632
Provision for credit losses
3,079
Noninterest revenue
Net interest income
Total net revenue
2.87%
3.22%
3.10%
9.16
9.41
9.36
12.03
12.63
12.46
JPMorgan Chase & Co./2014 Annual Report
91
93
Management's discussion and analysis
$
2,179
3,444
Noninterest expense
6,152
6,245
6,566
3,517
Income before income tax
5,824
7,191
5,622
Net income
$ 3,547
$ 4,340
expense
3,252
Equity underwriting
Debt underwriting
6,570
Revenue
(in millions)
Year ended December 31,
Selected income statement data
$34,762
$34,786
$34,633
Total net revenue
23,355
22,615
22,788
Services
Total Markets & Investor
2012
2013
Investment banking fees
Total investment banking fees
$ 6,570 $ 6,331 $ 5,769
8,947
Noninterest revenue
1,593
1,512
All other income
4,693
4,713
4,687
administration and commissions
Asset management,
1,948
1,884
1,742
Lending- and deposit-related fees
9,510
9,289
Principal transactions (a)
2014
3,426
4,448
15,701
Equity Markets
4,861
4,803
(794)
Securities Services
Fixed Income Markets(d)
11,407
12,171
4,351
11,845
Total Banking
4,100
15,832
4,000
(272)
1,389
1,669
1,130
Lending
4,249
4,171
(2,120)
4,145
Treasury Services
5,769
6,331
Credit Adjustments & Other(e)
13,848
Firmwide structures for risk governance.
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers on their investment decisions,
makes markets in securities, or conducts any number of
other services or activities, the Firm takes on some degree
of risk. The Firm's overall objective in managing risk is to
protect the safety and soundness of the Firm, avoid
excessive risk taking, and manage and balance risk in a
manner that serves the interest of our clients, customers
and shareholders.
Ownership of risk management within each line of
ENTERPRISE-WIDE RISK MANAGEMENT
JPMorgan Chase & Co./2014 Annual Report
The carrying value of the private equity portfolio at
December 31, 2013 was $7.9 billion, down from $8.1
billion at December 31, 2012. The decrease in the portfolio
was predominantly driven by sales of investments, partially
offset by new investments and unrealized gains.
2013 compared with 2012
2014 compared with 2013
(b) Unfunded commitments to third-party private equity funds were $147 million,
$215 million and $370 million at December 31, 2014, 2013 and 2012,
respectively.
business and corporate functions; and
(a) For more information on the Firm's methodologies regarding the valuation of the
Private Equity portfolio, see Note 3. For information on the sale of a portion of
the Private Equity business in January 2015, see Note 2.
Cost
$
Total private equity portfolio
Carrying value
The Firm's approach to risk management covers a broad
spectrum of risk areas, such as credit, market, liquidity,
model, structural interest rate, principal, country,
operational, fiduciary and reputation risk.
•
The Firm believes that effective risk management requires:
Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;
5,866 $ 7,868 $ 8,074
6,281
8,491
8,897
The carrying value of the private equity portfolio at
December 31, 2014 was $5.9 billion, down from $7.9
billion at December 31, 2013. The decrease in the portfolio
was predominantly driven by sales of investments, partially
offset by unrealized gains.
except ratios)
341
Nonperforming assets
35
$
43
$ (7) $
Net charge-offs/(recoveries)
statistics
Credit data and quality
2012
2013
2014
December 31, (in millions,
As of or for the year ended
Selected metrics (continued)
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm's Chief Executive Officer
("CEO"), Chief Financial Officer ("CFO"), Chief Risk Officer
("CRO") and Chief Operating Officer ("COO") develop and
set the risk management framework and governance
structure for the Firm, which is intended to provide
comprehensive controls and ongoing management of the
major risks inherent in the Firm's business activities. The
Firm's risk management framework is intended to create a
culture of transparency, awareness and personal
responsibility through reporting, collaboration, discussion,
escalation and sharing of information. The CEO, CFO, CRO
and COO are ultimately responsible and accountable to the
Firm's Board of Directors.
Nonaccrual loans:
Nonaccrual loans retained(a)
317
471
Total nonperforming assets
14
15
10
satisfactions
Assets acquired in loan
673
529
514
Total nonaccrual loans
29
43
14
and loans at fair value
Nonaccrual loans held-for-sale
644
331
The Firm's risk culture strives for continual improvement
through ongoing employee training and development, as
well as talent retention. The Firm also approaches its
incentive compensation arrangements through an
integrated risk, compensation and financial management
framework to encourage a culture of risk awareness and
personal accountability.
Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into USD. This % of AUM is based on
fund performance and associated peer rankings at the share class
level for U.S. domiciled funds, at a "primary share class" level to
represent the quartile ranking of Luxembourg, U.K. and Hong Kong
funds and at the fund level for all other funds. The "primary share
class", as defined by Morningstar, denotes the share class
recommended as being the best proxy for the portfolio and in most
cases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one "primary
share class" territory both rankings are included to reflect local
market competitiveness (applies to "Offshore Territories" and "HK SFC
Authorized" funds only). Past performance is not indicative of future
results.
105
1,114
1,009
Private Banking
$
Institutional
Retail
428 $
827
489
361 $
777
318
Total assets under management
$
1,744 $
1,598 $
1,426
741
Client assets
460
367
Europe/Middle East/Africa
1,243
$
North America
45
669
Total client assets
$ 2,387 $ 2,343 $ 2,095
Memo:
Assets under management
Europe/Middle East/Africa
Asia/Pacific
$
329 $
305 $
258
126
132
114
Alternatives client assets (a)
166
158
142
Latin America/Caribbean
46
47
Assets by client segment
391 $
367 $
317
1,508
589
477
Total client assets
$
2,387 $ 2,343 $
2,095
Total client assets
$ 2,387 $
2,343 $ 2,095
(a) Regional revenue is based on the domicile of the client.
(a) Represents assets under management, as well as client balances in
brokerage accounts.
102
JPMorgan Chase & Co./2014 Annual Report
CORPORATE
The Corporate segment comprises Private Equity,
Treasury and Chief Investment Office ("CIO") and Other
Corporate, which includes corporate staff units and
expense that is centrally managed. Treasury and CIO
are predominantly responsible for measuring,
monitoring, reporting and managing the Firm's
liquidity, funding and structural interest rate and
foreign exchange risks, as well as executing the Firm's
capital plan. The major Other Corporate units include
Real Estate, Enterprise Technology, Legal, Compliance,
Finance, Human Resources, Internal Audit, Risk
Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups.
Other centrally managed expense includes the Firm's
occupancy and pension-related expenses that are
subject to allocation to the businesses.
Selected income statement data
2014
2013
1,679
1,707
North America
741
Total assets under management
$ 1,744 $
1,598 $
1,426
Asia/Pacific
174
180
160
Private Banking
745
$
Retail
1,057 $
835
495
977 $
877
Latin America/Caribbean
115
117
110
777
Institutional
2012
643
$ 12,028 $ 11,405 $ 10,010
48
23
48
86
73
$
1,744 $
1,598 $ 1,426
$ 2,343 $
2,095 $ 1,921
118
80
(74)
168
60
114
$
2,387 $
2,343 $ 2,095
International metrics
42
December 31,
8
5
2012
Assets under management
rollforward
Beginning balance
Net asset flows:
Liquidity
Fixed income
Equity
Multi-asset and alternatives
Market/performance/other impacts
Ending balance, December 31
Client assets rollforward
Beginning balance
Net asset flows
Market/performance/other impacts
Ending balance, December 31
$
1,598 $ 1,426 $ 1,336
18
(4)
(41)
33
8
27
34
(in billions)
2014
2013 2012
958
Multi-asset and alternatives
549
447
361
Latin America/Caribbean
841
879
773
Total assets under management
1,744
1,598
1,426
North America
7,908
7,512
6,638
Custody/brokerage/administration/
Total net revenue
1,133
1,881 $ 1,641
2,080 $
1,199
Asia/Pacific
Year ended December 31,
(in billions,
Assets by asset class
Liquidity
$
461 $
451 $ 458
except where otherwise noted)
Total net revenue (in millions)(a)
2014
2013
deposits
2012
359
330
330
Europe/Middle East/Africa
$
Equity
375
370
277
Fixed income
563 $ (4,268)
666
2,024
2,434
Year ended December 31,
(in millions, except headcount)
Mortgage loans (period-end)
2,834
3,779
7,037
(a) Period-end investment securities included held-to-maturity securities of $49.3
billion and $24.0 billion at December 31, 2014, and 2013, respectively. Held-to-
maturity securities as of December 31, 2012, were not material.
Private Equity portfolio
Selected income statement and balance sheet data
Year ended December 31,
(in millions)
2014
2013
2012
Private equity gains/(losses)
Realized gains
Unrealized gains/(losses)(a)
$ 1,164
$
(170) $
17
43
734
10,241
639
5,145
Mortgage loans (average)
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 156-160. For
information on interest rate, foreign exchange and other
risks, Treasury and CIO Value-at-risk ("VaR") and the Firm's
structural interest rate-sensitive revenue at risk, see Market
Risk Management on pages 131-136.
104
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
2014
2013
2012
Securities gains
71
$
659 $ 2,028
Investment securities portfolio
(average)
349,285
353,712
358,029
Investment securities portfolio
(period-end)(a)
343,146
347,562 365,421
3,308
Total direct investments
Third-party fund investments
1,207
564
893
1,077
578
Privately held direct securities
Carrying value
4,555
5,065
5,379
Cost
5,275
6,022
6,584
Third-party fund investments (b)
Carrying value
433
1,768
2,117
Cost
423
1,797
1,963
Quoted public value
350
672
583
656
34
137
134
Total private equity gains/(losses) (b) $
1,241
$ 701 $
790
(a) Includes reversals of unrealized gains and losses that were recognized in prior
periods and have now been realized.
Treasury and CIO achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. For further information on
derivatives, see Note 6. The investment securities portfolio
primarily consists of U.S. and non-U.S. government
securities, agency and nonagency mortgage-backed
securities, other asset-backed securities, corporate debt
securities and obligations of U.S. states and municipalities.
At December 31, 2014, the investment securities portfolio
was $343.1 billion, and the average credit rating of the
securities comprising the portfolio was AA+ (based upon
external ratings where available and where not available,
based primarily upon internal ratings that correspond to
ratings as defined by S&P and Moody's). See Note 12 for
further information on the details of the Firm's investment
securities portfolio.
(b) Included in principal transactions revenue in the Consolidated statements of
income.
2014
2013
2012
December 31, (in millions)
Publicly held securities
Carrying value
$ 878 $ 1,035 $
578
Cost
Private equity portfolio information (a)
Treasury and CIO are predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding and structural interest rate and foreign
exchange risks, as well as executing the Firm's capital plan.
The risks managed by Treasury and CIO arise from the
activities undertaken by the Firm's four major reportable
business segments to serve their respective client bases,
which generate both on- and off-balance sheet assets and
liabilities.
Treasury and CIO overview
months ended September 30, 2012. Net interest income in
2013 was a loss of $2.7 billion compared with a loss of
$1.7 billion in the prior year, primarily due to low interest
rates and limited reinvestment opportunities. Net interest
income improved in the fourth quarter of 2013 due to
higher interest rates and better reinvestment opportunities.
Other Corporate reported a net loss of $5.6 billion,
compared with a net loss of $221 million in the prior year.
Noninterest revenue in 2013 was $1.8 billion, down 2%
compared with the prior year. In 2013, noninterest revenue
included gains of $1.3 billion and $493 million on the sales
of Visa shares and One Chase Manhattan Plaza, respectively.
Noninterest revenue in the prior year included a $1.1 billion
benefit for the Washington Mutual bankruptcy settlement
and a $665 million gain from the recovery on a Bear
Stearns-related subordinated loan. Noninterest expense of
$9.7 billion was up $5.9 billion compared with the prior
year. Included in 2013 noninterest expense was $10.2
billion of legal expense, including reserves for litigation and
regulatory proceedings, compared with $3.7 billion of
expense for additional litigation reserves, largely for
mortgage-related matters, in the prior year.
(37)
Noninterest expense
Compensation expense
2,888
2,299
2,221
Noncompensation expense (b)
4,589
13,208
Subtotal
7,477
15,507
6,972
9,193
Net expense allocated to other
businesses
(6,318)
Total noninterest expense
1,159
(5,252)
10,255
(4,634)
4,559
(28)
(35)
Provision for credit losses
(2,072)
Revenue
Principal transactions
$
1,197
$
Securities gains
71
All other income
704
Income/(loss) before income
1,864
1,972
3,093
Net interest income
(1,960)
(3,115)
190
(2,262)
Total net revenue(a)
12
(22)
Noninterest revenue
2013
tax expense/(benefit)
Income tax expense/(benefit)
Total net income/(loss)
Total assets (period-end)
Headcount
319
(2,718)
(221)
$ 864 $ (6,756) $ (2,620)
$931,705 $ 805,987 $ 725,251
26,047
20,717
17,758
Note: As discussed on pages 79-80, effective with the fourth quarter of
2014 the Firm changed its methodology for allocating the cost of preferred
stock to its reportable business segments. Prior periods have been revised to
conform with the current period presentation.
(a) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $730 million, $480
million and $443 million for the years ended December 31, 2014,
2013 and 2012, respectively.
(b) Included legal expense of $821 million, $10.2 billion and $3.7 billion
for the years ended December 31, 2014, 2013 and 2012,
respectively.
2014 compared with 2013
Net income was $864 million, compared with a net loss of
$6.8 billion in the prior year.
Private Equity reported net income of $400 million,
compared with net income of $285 million in the prior year,
primarily due to higher net gains on sales, largely offset by
higher noninterest expense related to goodwill impairment.
Treasury and CIO reported a net loss of $1.2 billion,
compared with a net loss of $1.5 billion in the prior year.
Net revenue was a loss of $1.3 billion, compared with a loss
of $2.1 billion in the prior year. Current year net interest
income was a loss of $1.7 billion compared with a loss of
$2.7 billion in the prior year, primarily reflecting higher
yields on investment securities. Securities gains were $71
million, compared to $659 million in the prior year,
reflecting lower repositioning activity of the investment
securities portfolio in the current period.
Other Corporate reported net income of $1.6 billion,
compared with a net loss of $5.6 billion in the prior year.
Current year noninterest revenue was $353 million
compared with $1.8 billion in the prior year. Prior year
noninterest revenue included gains of $1.3 billion and $493
million on the sales of Visa shares and One Chase
Manhattan Plaza, respectively. The current year included
$821 million of legal expense, compared with $10.2 billion,
which included reserves for litigation and regulatory
proceedings, in the prior year.
2013 compared with 2012
Net loss was $6.8 billion, compared with a net loss of $2.6
billion in the prior year.
Private Equity reported net income of $285 million,
compared with net income of $319 million in the prior year.
Net revenue was of $589 million, compared with $645
million in the prior year.
Treasury and CIO reported a net loss of $1.5 billion,
compared with a net loss of $2.7 billion in the prior year.
Net revenue was a loss of $2.1 billion, compared with a loss
of $4.1 billion in the prior year. Net revenue in 2013
included $659 million of net securities gains from sales of
available-for-sale investment securities, compared with
securities gains of $2.0 billion; and $888 million of pretax
extinguishment gains related to the redemption of trust
preferred securities in the prior year. The extinguishment
gains were related to adjustments applied to the cost basis
of the trust preferred securities during the period they were
in a qualified hedge accounting relationship. The prior year
loss also reflected $5.8 billion of losses incurred by CIO
from the synthetic credit portfolio for the six months ended
June 30, 2012, and $449 million of losses from the
retained index credit derivative positions for the three
JPMorgan Chase & Co./2014 Annual Report
103
Management's discussion and analysis
285 $
(1,454)
(5,587)
(1,165)
1,629
Other Corporate
Treasury and CIO
(1,976)
Net income/(loss)
$ 864 $
(10,249) (6,594)
(3,493) (3,974)
(6,756) $ (2,620)
Total net revenue
Private equity
$
1,118 $
Treasury and CIO
(1,112)
(1,317)
211
Total net revenue
$
12 $
589 $ 645
(2,068) (4,089)
1,457
1,372
(22) $ (2,072)
Net income/(loss)
Private equity
$
400 $
Other Corporate
2014
Year ended December 31,
(in billions)
Client assets (continued)
Allowance for loan losses
2,466
2,669
2,610
Allowance for lending-related
commitments
165
142
183
Total allowance for credit
losses
2,631
2,811
2,793
Net charge-off/(recovery) rate (b)
-%
0.03%
0.03%
Allowance for loan losses to
period-end loans retained
JPMorgan Chase & Co./2014 Annual Report
1.67
The Asset-Liability Committee ("ALCO"), chaired by the
Corporate Treasurer under the direction of the COO,
monitors the Firm's overall balance sheet, liquidity risk and
interest rate risk. ALCO is responsible for reviewing and
approving the Firm's funds transfer pricing policy (through
which lines of business “transfer” interest rate and foreign
exchange risk to Treasury). ALCO is responsible for
reviewing the Firm's Liquidity Risk Management and
Risk committees oversee the inherent risks in the respective
line of business, function or region, including the review,
assessment and decision making relating to specific risks,
risk strategy, policy and controls. These committees
escalate issues to the Firmwide Risk Committee, as
appropriate.
Line of Business Fiduciary Risk Committees'
Line of Business Reputation Risk Committees'
Firmwide Control
Committee
Firmwide
Fiduciary Risk
Committee
Firmwide
Reputation Risk
Governance
Internal
Audit
The Board of Directors provides oversight of risk principally
through the Board of Directors' Risk Policy Committee
("DRPC"), Audit Committee and, with respect to
compensation, Compensation & Management Development
Committee. Each committee of the Board oversees
reputation risk issues within its scope of responsibility.
The Directors' Risk Policy Committee approves and
periodically reviews the primary risk management policies
of the Firm's global operations and oversees the operation
of the Firm's global risk management framework. The
committee's responsibilities include oversight of
management's exercise of its responsibility to assess and
manage: (i) credit risk, market risk, liquidity risk, model
risk, structural interest rate risk, principal risk and country
risk; (ii) the governance frameworks or policies for
operational, fiduciary, reputational risks and the New
Business Initiative Approval ("NBIA") process; and (iii)
capital and liquidity planning and analysis. The DRPC
reviews the firmwide value-at-risk and market stress
tolerances, as well as any other parameter tolerances
established by management in accordance with the Firm's
Risk Appetite Policy. It reviews reports of significant issues
identified by risk management officers, including reports
describing the Firm's credit risk profile, and information
about concentrations and country risks. The Firm's CRO, LOB
CROS, LOB CEOs, heads of risk for Country Risk, Market Risk,
Structural Interest Rate Risk, Liquidity Risk, Principal Risk,
Wholesale Credit Risk, Consumer Credit Risk, Model Risk,
Risk Management Policy, Reputation Risk Governance,
Fiduciary Risk Governance, and Operational Risk
Governance (all referred to as Firmwide Risk Executives)
meet with and provide updates to the DRPC. Additionally,
breaches in risk appetite tolerances, liquidity issues that
may have a material adverse impact on the Firm and other
significant matters as determined by the CRO or Firmwide
functions with risk responsibility are escalated to the DRPC.
JPMorgan Chase & Co./2014 Annual Report
107
Management's discussion and analysis
The Audit Committee has primary responsibility for assisting
the Board in its oversight of the system of controls designed
to reasonably assure the quality and integrity of the Firm's
financial statements and that are relied upon to provide
reasonable assurance of the Firm's management of
operational risk. The Audit Committee also assists the Board
in its oversight of legal and compliance risk. Internal Audit,
an independent function within the Firm that provides
independent and objective assessments of the control
environment, reports directly to the Audit Committee and
administratively to the CEO. Internal Audit conducts
independent reviews to evaluate the Firm's internal control
structure and compliance with applicable regulatory
requirements and is responsible for providing the Audit
Committee, senior management and regulators with an
independent assessment of the Firm's ability to manage and
control risk.
The Compensation & Management Development Committee
assists the Board in its oversight of the Firm's compensation
programs and reviews and approves the Firm's overall
compensation philosophy and practices. The Committee
reviews the Firm's compensation practices as they relate to
risk and risk management in light of the Firm's objectives,
including its safety and soundness and the avoidance of
practices that encourage excessive risk taking. The
Committee reviews and approves the terms of
compensation award programs, including recovery
provisions, vesting periods, and restrictive covenants, taking
into account regulatory requirements. The Committee also
reviews and approves the Firm's overall incentive
compensation pools and reviews those of each of the Firm's
lines of business and the Corporate segment. The
Committee reviews the goals relevant to compensation for
the Firm's Operating Committee, reviews Operating
Committee members' performance against such goals, and
approves their compensation awards. The Committee
recommends to the full Board's independent directors, for
ratification, the CEO's compensation. In addition, the
Committee periodically reviews the Firm's management
development and succession planning, as well as the Firm's
diversity programs.
Among the Firm's senior management level committees that
are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level Risk Committee. It provides oversight of
the risks inherent in the Firm's businesses, including credit
risk, market risk, liquidity risk, model risk, structural
interest rate risk, principal risk and country risk. It also
provides oversight of the governance frameworks for
operational, fiduciary and reputational risks. The Committee
is co-chaired by the Firm's CEO and CRO. Members of the
committee include the Firm's COO, the Firm's CFO, LOB
CEOS, LOB CROS, General Counsel, and other senior
managers from risk and control functions. This committee
serves as an escalation point for risk topics and issues
raised by its members, the Line of Business Risk
Committees, Firmwide Control Committee, Firmwide
108
Fiduciary Risk Committee, Reputation Risk committees and
regional Risk Committees. The committee escalates
significant issues to the Board of Directors, as appropriate.
The Firmwide Control Committee ("FCC") is a forum to review
and discuss firmwide operational risk, metrics and
management, including existing and emerging issues, and
execution against the operational risk management
framework. The committee is co-chaired by the Firm's Chief
Control Officer and the head of Firmwide Operational Risk
Governance/Model Risk and Development. It serves as an
escalation point for the line of business, function and
regional Control Committees and escalates significant issues
to the Firmwide Risk Committee, as appropriate.
The Firmwide Fiduciary Risk Committee ("FFRC") is a forum
for risk matters related to the Firm's fiduciary activities and
oversees the firmwide fiduciary risk governance framework,
which supports the consistent identification and escalation
of fiduciary risk matters by the relevant lines of business or
corporate functions responsible for managing fiduciary
activities. The committee escalates significant issues to the
Firmwide Risk Committee and any other committee
considered appropriate.
The Firmwide Reputation Risk Governance group seeks to
promote consistent management of reputational risk across
the Firm. Its objectives are to increase visibility of
reputation risk governance; promote and maintain a
globally consistent governance model for reputation risk
across lines of business; promote early self-identification of
potential reputation risks to the Firm; and provide thought
leadership on cross-line of business reputation risk issues.
Each line of business has a separate reputation risk
governance structure which includes, in most cases, one or
more dedicated reputation risk committees.
Line of business, corporate function, and regional risk and
control committees:
Control committees oversee the operational risks and
control environment of the respective line of business,
function or region. These committees escalate operational
risk issues to their respective line of business, function or
regional Risk committee and also escalate significant risk
issues (and/or risk issues with potential firmwide impact) to
the Firmwide Control Committee.
1.97
2.06
Allowance for loan losses to
and commissions
$ 9,024
$ 8,232 $ 7,041
All other income
564
797
806
Noninterest revenue
9,588
9,029
7,847
Net interest income
2,440
2,376
2,163
Total net revenue
12,028
11,405
10,010
Asset management, administration
Revenue
and headcount)
(in millions, except ratios
nonaccrual loans retained(a)
778
567
405
Nonaccrual loans to total period-
end loans
0.22
0.37
0.52
(a) An allowance for loan losses of $45 million, $81 million and $107
million was held against nonaccrual loans retained at December 31,
2014, 2013 and 2012, respectively.
Line of Business and Function Control Committees'
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
99
Management's discussion and analysis
ASSET MANAGEMENT
Asset Management, with client assets of $2.4 trillion, is
a global leader in investment and wealth management.
AM clients include institutions, high-net-worth
individuals and retail investors in every major market
throughout the world. AM offers investment
management across all major asset classes including
equities, fixed income, alternatives and money market
funds. AM also offers multi-asset investment
management, providing solutions for a broad range of
clients' investment needs. For Global Wealth
Management clients, AM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and
deposits. The majority of AM's client assets are in
actively managed portfolios.
Selected income statement data
Year ended December 31,
2014
2013
2012
JPMorgan Chase & Co./2014 Annual Report
1 As applicable
Consumer &
Community
Banking Risk
Committee
Risk
Committee
Not Applicable
The risk that the Firm will not have the appropriate amount, composition and tenor of LCR; Stress
funding and liquidity in support of its assets, and that the Firm will be unable to meet
its contractual and contingent obligations through normal economic cycles and
market stress events.
The risk of loss arising from potential adverse changes in the value of the Firm's
assets and liabilities resulting from changes in market variables such as interest rates,
foreign exchange rates, equity prices, commodity prices, implied volatilities or credit
spreads.
The risk of the potential for adverse consequences from decisions based on incorrect
or misused model outputs and reports.
Non-USD FX The risk arising from capital investments, forecasted expense and revenue,
risk
investment securities portfolio or issuing debt in denominations other than the U.S.
dollar.
Operational
risk
Principal
risk
Reputation
risk
Structural
interest
rate risk
The risk of loss resulting from inadequate or failed processes or systems or due to
external events that are neither market nor credit-related.
The risk of an adverse change in the value of privately-held financial assets and
instruments, typically representing an ownership or junior capital position. These
positions have unique risks due to their illiquidity or for which there is less observable
market or valuation data.
The risk that an action, transaction, investment or event will reduce the trust that
clients, shareholders, employees or the broader public has in the Firm's integrity or
competence.
The risk resulting from the Firm's traditional banking activities (both on- and off-
balance sheet positions) arising from the extension of loans and credit facilities,
taking deposits and issuing debt (collectively referred to as "non-trading activities"),
and also the impact from the CIO investment securities portfolio and other related
CIO, Treasury activities.
VaR, Stress, Sensitivities
Model Status, Model Tier
FX Net Open Position ("NOP")
Page
references
146-155
144
Not Applicable
Total exposure; industry, geographic and customer
concentrations; risk ratings; delinquencies; loss
experience; stress
Default exposure at 0% recovery, Stress
Not Applicable
Management's discussion and analysis
The following sections outline the key risks that are inherent in the Firm's business activities.
Risk
Capital risk
Compliance
risk
Definition
The risk the Firm has an insufficient level and composition of capital to support the
Firm's business activities and associated risks during normal economic environments
and stressed conditions.
The risk of fines or sanctions or of financial damage or loss due to the failure to
comply with laws, rules, and regulations.
Country risk The risk that a sovereign event or action alters the value or terms of contractual
obligations of obligors, counterparties and issuers or adversely affects markets
related to a particular country.
137-138
Credit risk
Fiduciary
risk
Legal risk
Liquidity
risk
Market risk
Model risk
The risk of a failure to exercise the applicable high standard of care, to act in the best
interests of clients or to treat clients fairly, as required under applicable law or
regulation.
The risk of loss or imposition of damages, fines, penalties or other liability arising
from failure to comply with a contractual obligation or to comply with laws or
regulations to which the Firm is subject.
Key risk management metrics
Risk-based capital ratios, Supplementary Leverage
ratio
The risk of loss arising from the default of a customer, client or counterparty.
Provision for credit losses
110-130
144
Chief Executive
Officer
Line of
Business CEOS
Head of Human
Resources
Chief Operating
Officer
Chief Risk
Officer
Chief Financial
Officer
General
Counsel
Firmwide
Asset Liability
Committee
Firmwide
Risk
Committee
Firmwide
Capital Governance
Committee
Firmwide
Valuation
Governance Forum
Asset
Management
Risk
Committee
CIO, Treasury
and Corporate
Risk
Committee
Commercial
Banking
Risk
Committee
Corporate &
Investment Bank
Operating Committee
Board of Directors' Risk Policy Committee, Audit Committee and Compensation & Management Development Committee
Board of Directors
The chart below illustrates the governance structure and certain senior management level committees and forums that are
primarily responsible for key risk-related functions. There are additional committees and forums not represented in the chart
that are also responsible for management and oversight of risk.
156-160
131-136
139
203,
211-213
Firm-specific loss experience; industry loss
experience; business environment and internal
control factors ("BEICF")
140-143
140
Carrying Value, Stress
145
Not Applicable
145
136
Risk organization
The LOBS are responsible for managing the risks inherent in
their respective business activities. The Risk organization
operates independently from the revenue-generating
businesses, providing a credible challenge to them. The CRO
is the head of the Risk organization and is responsible for
the overall direction of Risk oversight. The CRO is supported
by individuals and organizations that align to lines of
business and corporate functions, as well as others that
align to specific risk types.
The Firm's Risk Management Organization and other
Firmwide functions with risk-related responsibilities (i.e.,
Regulatory Capital Management Office ("RCMO"), Firmwide
Oversight and Control Group, Valuation Control Group
("VCG"), Legal and Compliance) provide independent
oversight of the monitoring, evaluation and escalation of
risk.
Risk governance
The independent stature of the Risk organization is
supported by a governance structure that provides for
escalation of risk issues up to senior management and the
Board of Directors.
106
JPMorgan Chase & Co./2014 Annual Report
Earnings-at-risk
JPMorgan Chase & Co./2014 Annual Report
4
86
Selected balance sheet data
(average)
Total assets
$ 126,440
99,805
$113,198
86,066
$ 97,447
150,121
139,707
68,719
129,208
Equity
9,000
9,000
7,000
Credit data and quality
statistics
Net charge-offs
6
$
40
$
7,000
64
9,000
Equity
67
3 years
72
68
74
5 years
76
69
76
Selected balance sheet data
(period-end)
Total assets
Loans(c)
$128,701 $122,414
$ 108,999
104,279
Deposits
155,247
95,445
146,183
80,216
144,579
9,000
Nonaccrual loans
218
167
Deposits
5
5
5
0.21
0.17
0.31
(a) Represents the "overall star rating" derived from Morningstar for the U.S., the
U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura 'star
rating' for Japan domiciled funds. Includes only retail open ended mutual funds
that have a rating. Excludes money market funds, Undiscovered Managers Fund,
and Brazil and India domiciled funds.
(b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled funds;
Morningstar for the U.K., Luxembourg and Hong Kong domiciled funds; Nomura
for Japan domiciled funds and FundDoctor for South Korea domiciled funds.
Includes only retail open ended mutual funds that are ranked by the
aforementioned sources. Excludes money market funds, Undiscovered Managers
Fund, and Brazil and India domiciled funds.
(c) Included $22.1 billion, $18.9 billion and $10.9 billion of prime mortgage loans
reported in the Consumer, excluding credit card, loan portfolio at December 31,
2014, 2013 and 2012, respectively. For the same periods, excluded $2.7 billion,
$3.7 billion and $6.7 billion, respectively, of prime mortgage loans reported in
the CIO portfolio within the Corporate segment.
JPMorgan Chase & Co./2014 Annual Report
101
Management's discussion and analysis
Client assets
2014 compared with 2013
Client assets were $2.4 trillion, an increase of $44 billion,
or 2%, compared with the prior year. Excluding the sale of
Retirement Plan Services, client assets were up 8%
compared with the prior year. Assets under management
were $1.7 trillion, an increase of $146 billion, or 9%, from
the prior year, due to net inflows to long-term products and
the effect of higher market levels.
2013 compared with 2012
Client assets were $2.3 trillion at December 31, 2013, an
increase of $248 billion, or 12%, compared with the prior
year. Assets under management were $1.6 trillion, an
increase of $172 billion, or 12%, from the prior year, due
to net inflows to long-term products and the effect of higher
market levels. Custody, brokerage, administration and
deposit balances were $745 billion, up $76 billion, or 11%,
from the prior year, due to the effect of higher market levels
and custody inflows, partially offset by brokerage outflows.
Client assets
Nonaccrual loans to period-end
loans
99
166
124
250
Allowance for credit losses:
Allowance for loan losses
Allowance for lending-related
271
278
248
commitments
Total allowance for credit
losses
276
68
283
Net charge-off rate
0.01%
0.05%
0.09%
Allowance for loan losses to
period-end loans
0.26
0.29
0.31
Allowance for loan losses to
nonaccrual loans
253
72
1 year
% of JPM mutual fund assets
ranked in 1st or 2nd quartile:(b)
$ 6,327
Global Wealth Management
Total net revenue
5,701
$12,028
$ 5,951
5,454
$ 11,405
Financial ratios
Return on common equity
23%
23%
Overhead ratio
71
70
24%
71
Pretax margin ratio:
Global Investment Management
31
32
30
Global Wealth Management
Global Investment Management
Revenue by line of business
2,820
1,078
$ 1,742
$ 2,153 $ 2,083
Noninterest expense
Compensation expense
5,082
4,875
4,405
Noncompensation expense
3,456
3,141
2,699
27
Total noninterest expense
8,016
7,104
Income before income tax expense
3,486
3,324
Income tax expense
1,333
1,241
Net income
8,538
65
26
Asset Management
AM's lines of business comprise the following:
Global Investment Management provides comprehensive global
investment services, including asset management, pension analytics,
asset-liability management and active risk-budgeting strategies.
Global Wealth Management offers investment advice and wealth
management, including investment management, capital markets and
risk management, tax and estate planning, banking, lending and
specialty-wealth advisory services.
AM's client segments comprise the following:
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
Retail clients include financial intermediaries and individual investors.
J.P. Morgan Asset Management has two high-level
measures of its overall fund performance.
• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
"overall Morningstar rating" is derived from a weighted average of the
performance figures associated with a fund's three-, five- and ten-year
(if applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura "star rating" is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers as mentioned in
footnote (a). The data providers re-denominate the asset values into
USD. This % of AUM is based on star ratings at the share class level
for U.S. domiciled funds, and at a "primary share class" level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The “primary share class",
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). Past performance
is not indicative of future results.
687
Selected metrics
As of or for the year ended
December 31,
(in millions, except ranking data
and ratios)
% of JPM mutual fund assets
rated as 4- or 5-star (a)
Loans
2014
2013
2012
52%
49%
47%
JPMorgan Chase & Co./2014 Annual Report
100
Note: As discussed on pages 79-80, effective with the fourth quarter of
2014 the Firm changed its methodology for allocating the cost of preferred
stock to its reportable business segments. Prior periods have been revised to
conform with the current period presentation.
Noninterest expense was $8.0 billion, an increase of $912
million, or 13%, from the prior year, primarily due to higher
headcount-related expense driven by continued front office
expansion efforts, higher performance-based compensation
and costs related to the control agenda.
29
29
28
Headcount
19,735
20,048
18,645
Number of client advisors
2,836
26
2,962
$ 5,141
4,869
$ 10,010
2014 compared with 2013
Net income was $2.2 billion, an increase of $70 million, or
3%, from the prior year, reflecting higher net revenue and
lower provision for credit losses, predominantly offset by
higher noninterest expense.
Net revenue was $12.0 billion, an increase of $623 million,
or 5%, from the prior year. Noninterest revenue was $9.6
billion, up $559 million, or 6%, from the prior year, due to
net client inflows and the effect of higher market levels,
partially offset by lower valuations of seed capital
investments. Net interest income was $2.4 billion, up $64
million, or 3%, from the prior year, due to higher loan and
deposit balances, largely offset by spread compression.
Revenue from Global Investment Management was $6.3
billion, up 6% due to net client inflows and the effect of
higher market levels, partially offset by lower valuations of
seed capital investments. Revenue from Global Wealth
Management was $5.7 billion, up 5% from the prior year
due to higher net interest income from loan and deposit
balances and net client inflows, partially offset by spread
compression and lower brokerage revenue.
Noninterest expense was $8.5 billion, an increase of $522
million, or 7%, from the prior year, as the business
continues to invest in both infrastructure and controls.
2013 compared with 2012
Net income was $2.1 billion, an increase of $341 million, or
20%, from the prior year, reflecting higher net revenue,
largely offset by higher noninterest expense.
Net revenue was $11.4 billion, an increase of $1.4 billion,
or 14%, from the prior year. Noninterest revenue was $9.0
billion, up $1.2 billion, or 15%, from the prior year, due to
net client inflows, the effect of higher market levels and
higher performance fees. Net interest income was $2.4
billion, up $213 million, or 10%, from the prior year, due to
higher loan and deposit balances, partially offset by
narrower loan and deposit spreads.
Revenue from Global Investment Management was $6.0
billion, up 16% due to net client inflows, the effect of
higher market levels and higher performance fees. Revenue
from Global Wealth Management was $5.5 billion, up 12%
from the prior year due to higher net interest income from
loan and deposit balances and higher brokerage revenue.
2,821
Allowance for credit losses:
(e)
The Capital Governance Committee, chaired by the Head of
Regulatory Capital Management Office (under the direction
of the Firm's CFO) is responsible for reviewing the Firm's
Capital Management Policy and the principles underlying
capital issuance and distribution alternatives. The
Committee is also responsible for governing the capital
adequacy assessment process, including overall design,
assumptions and risk streams and ensuring that capital
stress test programs are designed to adequately capture the
idiosyncratic risks across the Firm's businesses.
Top 5 States - Residential Real Estate
(at December 31, 2013)
All other
37.4%
Texas
5.3%
Florida
5.7%
Illinois
7.2%
California
26.0%
(at December 31, 2014)
New York
18.4%
Texas
5.1% Florida
Illinois
6.1%
6.9%
California
25.0%
New York
18.9%
All other
38.0%
Top 5 States - Residential Real Estate
At December 31, 2014, $94.3 billion, or 63% of total retained residential real estate loan portfolio, excluding mortgage loans
insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Florida and Texas,
compared with $85.9 billion, or 62%, at December 31, 2013. California had the greatest concentration of these loans with
26% at December 31, 2014, compared with 25% at December 31, 2013. The unpaid principal balance of PCI loans
concentrated in these five states represented 74% of total PCI loans at both December 31, 2014 and December 31, 2013. For
further information on the geographic composition of the Firm's residential real estate loans, see Note 14.
Lifetime principal loss estimates declined from
December 31, 2013, to December 31, 2014, reflecting
improvement in home prices and delinquencies. The decline
in lifetime principal loss estimates during the year ended
December 31, 2014, resulted in a $300 million reduction of
the PCI allowance for loan losses related to option ARM
loans. In addition, for the year ended December 31, 2014,
PCI write-offs of $533 million were recorded against the
prime mortgage allowance for loan losses. For further
information on the Firm's PCI loans, including write-offs, see
Note 14.
3.8
3.8
3.5
$ 12.4 $ 12.1
3.3
3.3
3.3
2.8
2.6
9.9
10.2
9.3
8.8
$ 31.6 $ 32.0 $ 28.0 $ 26.8
(a) Includes the original nonaccretable difference established in purchase
accounting of $30.5 billion for principal losses plus additional principal
losses recognized subsequent to acquisition through the provision and
Geographic composition of residential real estate loans
allowance for loan losses. The remaining nonaccretable difference for
principal losses was $2.3 billion and $3.8 billion at December 31, 2014
and 2013, respectively.
(b) Life-to-date (“LTD”) liquidation losses represent both realization of loss
upon loan resolution and any principal forgiven upon modification.
Current estimated LTVs of residential real estate
loans
The current estimated average loan-to-value ("LTV") ratio
for residential real estate loans retained, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, was 71% at December 31, 2014, compared with
75% at December 31, 2013.
Although home prices continue to recover, the decline in
home prices since 2007 has had a significant impact on the
collateral values underlying the Firm's residential real
estate loan portfolio. In general, the delinquency rate for
loans with high LTV ratios is greater than the delinquency
rate for loans in which the borrower has greater equity in
the collateral. While a large portion of the loans with
current estimated LTV ratios greater than 100% continue
to pay and are current, the continued willingness and ability
of these borrowers to pay remains a risk.
116
Net
carrying
value(c)
carrying value
to current estimated
collateral value(c)
Home equity
(b)
$
17,740
83% $
(b)
15,337
72%
$
19,830
90% $ 17,169
78%
Prime mortgage
10,249
LTV ratio(a)
$ 14.6 $ 14.7
balance
Current
estimated
JPMorgan Chase & Co./2014 Annual Report
The following table presents the current estimated LTV ratios for PCI loans, as well as the ratios of the carrying value of the
underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratios
of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are
based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual
appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as
estimates.
LTV ratios and ratios of carrying values to current estimated collateral values - PCI loans
2014
2013
December 31,
(in millions,
Unpaid
principal
Current
estimated
except ratios)
balance
LTV ratio(a)
Net
carrying
value(c)
Ratio of net
carrying value
Ratio of net
to current estimated
Unpaid
principal
collateral value(c)
2013
2014
2013
(c) Receivables from customers represent margin loans to retail brokerage customers, and are included in accrued interest and accounts receivable on the
Consolidated balance sheets.
JPMorgan Chase & Co./2014 Annual Report
113
Management's discussion and analysis
(d) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(e) Predominantly represents prime mortgage loans held-for-sale.
(f) At December 31, 2014 and 2013, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $7.8 billion and $8.4 billion,
respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $367 million and $428
million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In
addition, the Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
(g) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(h) Net charge-offs and net charge-off rates excluded $533 million and $53 million of write-offs of prime mortgages in the PCI portfolio for the years ended
December 31, 2014 and 2013. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 128-130 for
further details.
(i) Average consumer loans held-for-sale were $917 million and $209 million, respectively, for the years ended December 31, 2014 and 2013. These amounts
were excluded when calculating net charge-off rates.
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased during the year ended
December 31, 2014, due to prime mortgage, business
banking and auto loan originations, partially offset by
paydowns and the charge-off or liquidation of delinquent
loans. Credit performance has improved across most
portfolios but delinquent residential real estate loans and
home equity charge-offs remain elevated compared with
pre-recessionary levels.
In the following discussion of loan and lending-related
categories, PCI loans are excluded from individual loan
product discussions and are addressed separately below.
For further information about the Firm's consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, see
Note 14.
Home equity: The home equity portfolio declined from
December 31, 2013 primarily reflecting loan paydowns and
charge-offs. Early-stage delinquencies showed improvement
from December 31, 2013. Late-stage delinquencies
continue to be elevated as improvement in the number of
loans becoming severely delinquent was offset by a higher
number of loans remaining in late-stage delinquency due to
higher average carrying values on these delinquent loans,
reflecting improving collateral values. Senior lien
nonaccrual loans were flat compared with the prior year
while junior lien nonaccrual loans decreased in 2014. Net
charge-offs for both senior and junior lien home equity
loans declined when compared with the prior year as a
result of improvement in home prices and delinquencies.
Approximately 15% of the Firm's home equity portfolio
consists of home equity loans ("HELOANS") and the
remainder consists of home equity lines of credit
("HELOCS"). HELOANS are generally fixed-rate, closed-end,
amortizing loans, with terms ranging from 3-30 years.
Approximately half of the HELOANS are senior liens and the
remainder are junior liens. In general, HELOCS originated by
the Firm are revolving loans for a 10-year period, after
which time the HELOC recasts into a loan with a 20-year
amortization period. At the time of origination, the
borrower typically selects one of two minimum payment
options that will generally remain in effect during the
revolving period: a monthly payment of 1% of the
outstanding balance, or interest-only payments based on a
variable index (typically Prime). HELOCS originated by
Washington Mutual were generally revolving loans for a 10-
year period, after which time the HELOC converts to an
114
interest-only loan with a balloon payment at the end of the
loan's term.
The unpaid principal balance of non-PCI HELOCS
outstanding was $47 billion at December 31, 2014. Of the
$47 billion, approximately $29 billion have recently recast
or are scheduled to recast from interest-only to fully
amortizing payments, with $3 billion having recast in 2014;
$6 billion, $7 billion, and $6 billion are scheduled to recast
in 2015, 2016, and 2017, respectively; and $7 billion is
scheduled to recast after 2017. However, of the total $26
billion still remaining to recast, $18 billion are expected to
actually recast; and the remaining $8 billion represents
loans to borrowers who are expected either to pre-pay or
charge-off prior to recast. In the third quarter of 2014, the
Firm refined its approach for estimating the number of
HELOCS expected to voluntarily pre-pay prior to recast.
Based on the refined methodology, the number of loans
expected to pre-pay declined, resulting in an increase in the
number of loans expected to recast. The Firm has
considered this payment recast risk in its allowance for loan
losses based upon the estimated amount of payment shock
(i.e., the excess of the fully-amortizing payment over the
interest-only payment in effect prior to recast) expected to
occur at the payment recast date, along with the
corresponding estimated probability of default and loss
severity assumptions. Certain factors, such as future
developments in both unemployment rates and home
prices, could have a significant impact on the performance
of these loans.
The Firm manages the risk of HELOCS during their revolving
period by closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile. The Firm will
continue to evaluate both the near-term and longer-term
repricing and recast risks inherent in its HELOC portfolio to
ensure that changes in the Firm's estimate of incurred
losses are appropriately considered in the allowance for
loan losses and that the Firm's account management
practices are appropriate given the portfolio's risk profile.
High-risk seconds are loans where the borrower has a first
mortgage loan that is either delinquent or has been
modified. Such loans are considered to pose a higher risk of
default than junior lien loans for which the senior lien is
neither delinquent nor modified. At December 31, 2014,
the Firm estimated that its home equity portfolio contained
approximately $1.8 billion of current high-risk seconds,
compared with $2.3 billion at December 31, 2013. The
Firm estimates the balance of its total exposure to high-risk
seconds on a quarterly basis using internal data and loan
(a) At December 31, 2014 and 2013, excluded operating lease-related assets of $6.7 billion and $5.5 billion, respectively.
(b) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and
does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are
met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice.
JPMorgan Chase & Co./2014 Annual Report
3.14
3,879
525,963
657,011
529,383
657,174
$ 1,010,646
$ 963,950
$ 1,002,433
$ 949,378
$ 6,509 $ 7,496
$ 6,509 $ 7,496
$ 4,747 $ 5,786
1.15%
1.40%
$ 4,747 $ 5,786
1.30%
1.62%
3,429
3,879
2.75
3.14
3,429
2.75
76
level credit bureau data (which typically provides the
delinquency status of the senior lien). The estimated
balance of these high-risk seconds may vary from quarter
to quarter for reasons such as the movement of related
senior liens into and out of the 30+ day delinquency bucket.
December 31, (in billions)
Student and other: Student and other loans decreased from
December 31, 2013 due primarily to the run-off of the
student loan portfolio. Student nonaccrual loans increased
from December 31, 2013 due to a modification program
began in May 2014 that extended the deferment period for
up to 24 months for certain student loans, which resulted in
extending the maturity of these loans at their original
contractual interest rates.
Purchased credit-impaired loans: PCI loans acquired in the
Washington Mutual transaction decreased as the portfolio
continues to run off.
As of December 31, 2014, approximately 16% of the
option ARM PCI loans were delinquent and approximately
57% of the portfolio has been modified into fixed-rate, fully
amortizing loans. Substantially all of the remaining loans
are making amortizing payments, although such payments
are not necessarily fully amortizing. This latter group of
loans is subject to the risk of payment shock due to future
payment recast. Default rates generally increase on option
ARM loans when payment recast results in a payment
increase. The expected increase in default rates is
considered in the Firm's quarterly impairment assessment.
JPMorgan Chase & Co./2014 Annual Report
115
Management's discussion and analysis
The following table provides a summary of lifetime principal
loss estimates included in either the nonaccretable
difference or the allowance for loan losses.
Summary of lifetime principal loss estimates
December 31,
(in billions)
Home equity
Prime mortgage
Subprime mortgage
Option ARMS
Total
Lifetime loss
estimates(a)
LTD liquidation
losses(b)
2014
Business banking: Business banking loans increased from
December 31, 2013 due to an increase in loan originations.
Nonaccrual loans improved compared with December 31,
2013. Net charge-offs for the year ended December 31,
2014 decreased from the prior year.
Current high-risk seconds
Auto: Auto loans increased from December 31, 2013 as
new originations outpaced paydowns and payoffs.
Nonaccrual loans improved compared with December 31,
2013. Net charge-offs for the year ended December 31,
2014 increased compared with the prior year, reflecting
higher average loss per default as national used car
valuations declined from historically strong levels. The auto
loan portfolio reflects a high concentration of prime-quality
credits.
At December 31, 2014 and 2013, the Firm's prime
mortgage portfolio included $16.3 billion and $15.6 billion,
respectively, of interest-only loans, which represented 15%
and 18%, respectively, of the prime mortgage portfolio.
These loans have an interest-only payment period generally
followed by an adjustable-rate or fixed-rate fully amortizing
payment period to maturity and are typically originated as
higher-balance loans to higher-income borrowers. To date,
losses on this portfolio generally have been consistent with
the broader prime mortgage portfolio and the Firm's
expectations. The Firm continues to monitor the risks
associated with these loans.
Junior liens subordinate to:
Modified current senior lien
Senior lien 30 - 89 days delinquent
Senior lien 90 days or more delinquent (a)
Total current high-risk seconds
2014
2013
$
0.7
0.5
0.9
0.6
0.6
0.8
$ 1.8 $
2.3
(a) Junior liens subordinate to senior liens that are 90 days or more past
due are classified as nonaccrual loans. At December 31, 2014 and
2013, excluded approximately $50 million and approximately $100
million, respectively, of junior liens that are performing but not
current, which were placed on nonaccrual in accordance with the
regulatory guidance.
Of the estimated $1.8 billion of current high-risk seconds at
December 31, 2014, the Firm owns approximately 10%
and services approximately 25% of the related senior lien
loans to the same borrowers. The performance of the Firm's
junior lien loans is generally consistent regardless of
whether the Firm owns, services or does not own or service
the senior lien. The increased probability of default
associated with these higher-risk junior lien loans was
considered in estimating the allowance for loan losses.
Mortgage: Prime mortgages, including option adjustable-
rate mortgages ("ARMS") and loans held-for-sale, increased
from December 31, 2013 due to higher retained
originations partially offset by paydowns, the run-off of
option ARM loans and the charge-off or liquidation of
delinquent loans. Excluding loans insured by U.S.
government agencies, both early-stage and late-stage
delinquencies showed improvement from December 31,
2013. Nonaccrual loans decreased from the prior year but
remain elevated primarily due to loss mitigation activities
and elongated foreclosure processing timelines. Net charge-
offs remain low, reflecting continued improvement in home
prices and delinquencies.
At December 31, 2014 and 2013, the Firm's prime
mortgage portfolio included $12.4 billion and $14.3 billion,
respectively, of mortgage loans insured and/or guaranteed
by U.S. government agencies, of which $9.7 billion and $9.6
billion, respectively, were 30 days or more past due (of
these past due loans, $7.8 billion and $8.4 billion,
respectively, were 90 days or more past due). The Firm has
entered into a settlement regarding loans insured under
federal mortgage insurance programs overseen by the FHA,
HUD, and VA; the Firm will continue to monitor exposure on
future claim payments for government insured loans, but
any financial impact related to exposure on future claims is
not expected to be significant and was considered in
estimating the allowance for loan losses. For further
discussion of the settlement, see Note 31.
Subprime mortgages continued to decrease due to portfolio
runoff. Early-stage and late-stage delinquencies have
improved from December 31, 2013, but remain at elevated
levels. Net charge-offs continued to improve as a result of
improvement in home prices and delinquencies.
9,027
67
11,876
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2014 and 2013, nonaccrual loans included $2.9
billion and $3.0 billion, respectively, of TDRS for which the borrowers
were less than 90 days past due. For additional information about
loans modified in a TDR that are on nonaccrual status, see Note 14.
Nonperforming assets
The following table presents information as of
December 31, 2014 and 2013, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets (a)
December 31, (in millions)
Nonaccrual loans (b)
Residential real estate
Other consumer
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total assets acquired in loan satisfactions
Total nonperforming assets
2014
2013
$ 5,845 $ 6,864
664
6,509
632
7,496
437
(b) At December 31, 2014 and 2013, $4.9 billion and $7.6 billion,
respectively, of loans modified subsequent to repurchase from Ginnie
Mae in accordance with the standards of the appropriate government
agency (i.e., FHA, VA, RHS) are not included in the table above. When
such loans perform subsequent to modification in accordance with
Ginnie Mae guidelines, they are generally sold back into Ginnie Mae
loan pools. Modified loans that do not re-perform become subject to
foreclosure. For additional information about sales of loans in
securitization transactions with Ginnie Mae, see Note 16.
614
(a) Amounts represent the carrying value of modified residential real
estate loans.
$26,895
6,309
ΝΑ
6,977
ΝΑ
NA
Subprime mortgage
3,647
ΝΑ
4,168
ΝΑ
Option ARMS
11,711
ΝΑ
13,131
ΝΑ
Total modified PCI
loans
$ 24,247
ΝΑ
ΝΑ
Prime mortgage
36
473
1,869
2,083
3,793
644
1,075
5,892
8,296
(987)
(1,678)
$
6,509 $
7,496
(a) Other reductions includes loan sales.
Returned to performing status
Foreclosures and other liquidations
Total reductions
Net additions/(reductions)
Ending balance
1,306
41
1,559
6,618
655
$ 6,982 $
8,151
(a) At December 31, 2014 and 2013, nonperforming assets excluded: (1)
mortgage loans insured by U.S. government agencies of $7.8 billion
and $8.4 billion, respectively, that are 90 or more days past due; (2)
student loans insured by U.S. government agencies under the FFELP of
$367 million and $428 million, respectively, that are 90 or more days
past due; and (3) real estate owned insured by U.S. government
agencies of $462 million and $2.0 billion, respectively. These amounts
have been excluded based upon the government guarantee.
(b) Excludes PCI loans that were acquired as part of the Washington
Mutual transaction, which are accounted for on a pool basis. Since
each pool is accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows, the past-due
status of the pools, or that of individual loans within the pools, is not
meaningful. Because the Firm is recognizing interest income on each
pool of loans, they are all considered to be performing.
Nonaccrual loans in the residential real estate portfolio
totaled $5.8 billion and $6.9 billion at December 31, 2014
and December 31, 2013, respectively, of which 32% and
34%, respectively, were greater than 150 days past due. In
the aggregate, the unpaid principal balance of residential
real estate loans greater than 150 days past due was
charged down by approximately 50% to the estimated net
realizable value of the collateral at both December 31,
2014 and 2013. The elongated foreclosure processing
timelines are expected to continue to result in elevated
levels of nonaccrual loans in the residential real estate
portfolios.
Active and suspended foreclosure: For information on
loans that were in the process of active or suspended
foreclosure, see Note 14.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2014 and 2013.
Nonaccrual loans
Year ended December 31,
(in millions)
Beginning balance
Additions
Reductions:
Principal payments and other (a)
Charge-offs
2014
2013
$
7,496 $
9,174
4,905
1,859
127,791
$ 2,619
$ 2,580
(b) Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to the
property. All other products are presented without consideration of subordinate liens on the property.
(c) Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of
the allowance for loan losses at December 31, 2014 and 2013 of $1.2 billion and $1.7 billion for prime mortgage, $194 million and $494 million for
option ARMS, respectively, and $1.8 billion for home equity and $180 million for subprime mortgage for both periods.
The current estimated average LTV ratios were 77% and
88% for California and Florida PCI loans, respectively, at
December 31, 2014, compared with 85% and 103%,
respectively, at December 31, 2013. Average LTV ratios
have declined consistent with recent improvements in home
prices. Although home prices have improved, home prices in
most areas of California and Florida are still lower than at
the peak of the housing market; this continues to negatively
contribute to current estimated average LTV ratios and the
ratio of net carrying value to current estimated collateral
value for loans in the PCI portfolio. Of the total PCI portfolio,
15% had a current estimated LTV ratio greater than 100%,
and 3% had a current LTV ratio of greater than 125% at
December 31, 2014, compared with 26% and 7%,
respectively, at December 31, 2013.
While the current estimated collateral value is greater than
the net carrying value of PCI loans, the ultimate
performance of this portfolio is highly dependent on
borrowers' behavior and ongoing ability and willingness to
continue to make payments on homes with negative equity,
as well as on the cost of alternative housing.
For further information on current estimated LTVS of
residential real estate loans, see Note 14.
Loan modification activities - residential real estate loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for the residential real estate portfolio, excluding
PCI loans, that have been modified and seasoned more than
six months show weighted-average redefault rates of 20%
for senior lien home equity, 22% for junior lien home
equity, 16% for prime mortgages including option ARMS,
and 29% for subprime mortgages. The cumulative
performance metrics for the PCI residential real estate
portfolio modified and seasoned more than six months
show weighted average redefault rates of 20% for home
equity, 17% for prime mortgages, 15% for option ARMS
and 32% for subprime mortgages. The favorable
performance of the PCI option ARM modifications is the
result of a targeted proactive program which fixed the
borrower's payment to the amount at the point of
modification. The cumulative redefault rates reflect the
performance of modifications completed under both the
Home Affordable Modification Program (“HAMP”) and the
Firm's proprietary modification programs (primarily the
Firm's modification program that was modeled after HAMP)
from October 1, 2009, through December 31, 2014.
Certain loans that were modified under HAMP and the
Firm's proprietary modification programs have interest rate
reset provisions (“step-rate modifications"). Interest rates
on these loans will generally increase beginning in 2014 by
1% per year until the rate reaches a specified cap, typically
at a prevailing market interest rate for a fixed-rate loan as
of the modification date. The carrying value of non-PCI
loans modified in step-rate modifications was $5 billion at
December 31, 2014, with $1 billion scheduled to
experience the initial interest rate increase in each of 2015
and 2016. The unpaid principal balance of PCI loans
modified in step-rate modifications was $10 billion at
December 31, 2014, with $2 billion and $3 billion
scheduled to experience the initial interest rate increase in
2015 and 2016, respectively. The impact of these potential
interest rate increases is considered in the Firm's allowance
for loan losses. The Firm will continue to monitor this risk
exposure to ensure that it is appropriately considered in the
Firm's allowance for loan losses.
JPMorgan Chase & Co./2014 Annual Report
117
Management's discussion and analysis
The following table presents information as of
December 31, 2014 and 2013, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. Modifications of PCI loans continue to be
accounted for and reported as PCI loans, and the impact of
the modification is incorporated into the Firm's quarterly
assessment of estimated future cash flows. Modifications of
consumer loans other than PCI loans are generally
accounted for and reported as troubled debt restructurings
("TDRS"). For further information on modifications for the
years ended December 31, 2014 and 2013, see Note 14.
Modified residential real estate loans
Home equity
666
2014
2013
On-
(a) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at
least quarterly based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual
data to the extent available and forecasted data where actual data is not available.
balance
74
82
83
10,312
72
Subprime mortgage
Option ARMS
4,652
16,496
82
3,493
62
5,471
91
3,995
66
74
15,514
70
19,223
17,421
ΝΑ
Nonaccrual
on-balance
sheet
ARMS
6,145
1,559
7,004
Subprime mortgage
2,878
931
3,698
1,737
1,127
Total modified
residential real
estate loans,
excluding PCI
loans
$ 11,428 $ 3,750
$ 13,167 $ 4,171
Modified PCI loans (c)
Home equity
including option
December 31,
Prime mortgage,
632
sheet
(in millions)
loans
loans (d)
On- Nonaccrual
balance on-balance
sheet sheet
loans
loans(d)
Modified residential
real estate loans,
excluding PCI
loans(a)(b)
Home equity -
senior lien
$ 1,101 $
628
$ 1,146 $
641
junior lien
1,304
1,319
131,048
326
3,021
41
Total assets acquired in
loan satisfactions
Total assets
ΝΑ
ΝΑ
559
751
865,391
831,060
7,967
9,706
1,056,172 1,031,672
$1,921,563 $1,862,732 $
103
8,070 $
206
9,912
Lending-related
commitments
Total credit portfolio
Credit Portfolio
Management derivatives
notional, net(a)
44
Liquid securities and other
cash collateral held
against derivatives
NA
710
78,975
65,759
275
415
customers and other
29,080
26,883
Total credit-related
assets
865,391
831,060
7,408
8,955
Assets acquired in loan
satisfactions
Real estate owned
Other
ΝΑ
NA
515
ΝΑ
8,540
Year ended December 31,
(in millions, except ratios)
Net charge-offs
Average retained loans
Loans - reported
(26,703) $ (27,996) $
0.65%
0.70
0.81%
0.87
112
(a) Represents the net notional amount of protection purchased and sold through
credit derivatives used to manage both performing and nonperforming wholesale
credit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on page 127 and
Note 6.
(b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(c) At December 31, 2014 and 2013, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $7.8 billion and $8.4 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $367 million and $428 million,
respectively, that are 90 or more days past due; and (3) real estate owned
("REO") insured by U.S. government agencies of $462 million and $2.0 billion,
respectively. These amounts have been excluded based upon the government
guarantee. In addition, the Firm's policy is generally to exempt credit card loans
from being placed on nonaccrual status as permitted by regulatory guidance
issued by the Federal Financial Institutions Examination Council ("FFIEC”).
(d) At December 31, 2014 and 2013, total nonaccrual loans represented 0.94%
and 1.16%, respectively, of total loans.
JPMorgan Chase & Co./2014 Annual Report
CONSUMER CREDIT PORTFOLIO
The Firm's consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
business banking loans, and student loans. The Firm's focus
is on serving the prime segment of the consumer credit
market. For further information on consumer loans, see
Note 14.
The credit performance of the consumer portfolio continues
to benefit from the improvement in the economy and home
prices. Both early-stage delinquencies (30-89 days
delinquent) and late-stage delinquencies (150+ days
delinquent) for residential real estate, excluding government
guaranteed loans, declined from December 31, 2013.
Although late-stage delinquencies declined, they remain
elevated due to loss-mitigation activities and to elongated
foreclosure processing timelines. Losses related to these
loans continue to be recognized in accordance with the
Firm's standard charge-off practices, but some delinquent
loans that would otherwise have been foreclosed upon
remain in the mortgage and home equity loan portfolios.
The Credit Card 30+ day delinquency rate remains near
historic lows.
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AM, and prime mortgage loans held by Corporate. For further information about the
Firm's nonaccrual and charge-off accounting policies, see Note 14.
Consumer credit portfolio
As of or for the year ended December 31,
(in millions, except ratios)
Consumer, excluding credit card
Loans reported, excluding PCI
$
Loans - reported
663,629
-
$
(5)
(19,604) (14,435)
NA
ΝΑ
2014
2013
$
4,759
$
5,802
729,876
720,152
Loans reported, excluding
residential real estate PCI loans
679,869
Net charge-off rates
Credit exposure
7,133
757,336
Managing criticized exposures and delinquent loans
Determining the allowance for credit losses and ensuring
appropriate credit risk-based capital management
Risk identification and measurement
The Credit Risk Management function identifies, measures,
limits, manages and monitors credit risk across our
businesses. To measure credit risk, the Firm employs
several methodologies for estimating the likelihood of
obligor or counterparty default. Methodologies for
measuring credit risk vary depending on several factors,
including type of asset (e.g., consumer versus wholesale),
risk measurement parameters (e.g., delinquency status and
borrower's credit score versus wholesale risk-rating) and
risk management and collection processes (e.g., retail
collection center versus centrally managed workout
groups). Credit risk measurement is based on the
probability of default of an obligor or counterparty, the loss
severity given a default event and the exposure at default.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probable
credit losses inherent in the consumer and wholesale loan
portfolios are reflected in the allowance for loan losses, and
probable credit losses inherent in lending-related
commitments are reflected in the allowance for lending-
related commitments. These losses are estimated using
statistical analyses and other factors as described in Note
15. In addition, potential and unexpected credit losses are
reflected in the allocation of credit risk capital and
represent the potential volatility of actual losses relative to
the established allowances for loan losses and lending-
related commitments. The analyses for these losses include
stress testing (considering alternative economic scenarios)
as described in the Stress testing section below.
The methodologies used to estimate credit losses depend
on the characteristics of the credit exposure, as described
below.
Scored exposure
The scored portfolio is generally held in CCB and
predominantly includes residential real estate loans, credit
card loans, certain auto and business banking loans, and
student loans. For the scored portfolio, credit loss estimates
are based on statistical analysis of credit losses over
discrete periods of time and are estimated using portfolio
modeling, credit scoring, and decision-support tools, which
consider loan-level factors such as delinquency status,
credit scores, collateral values, and other risk factors. Credit
loss analyses also consider, as appropriate, uncertainties
and other factors, including those related to current
macroeconomic and political conditions, the quality of
underwriting standards, and other internal and external
factors. The factors and analysis are updated on a quarterly
basis or more frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they have
characteristics similar to commercial loans. For the risk-
rated portfolio, credit loss estimates are based on estimates
of the probability of default ("PD") and loss severity given a
default. The estimation process begins with risk-ratings that
are assigned to each loan facility to differentiate risk within
the portfolio. These risk ratings are reviewed regularly by
Credit Risk management and revised as needed to reflect
the borrower's current financial position, risk profile and
related collateral. The probability of default is the likelihood
that a loan will default and not be fully repaid by the
borrower. The loss given default ("LGD") is the estimated
loss on the loan that would be realized upon the default of
the borrower and takes into consideration collateral and
structural support for each credit facility. The probability of
default is estimated for each borrower, and a loss given
default is estimated for each credit facility. The calculations
and assumptions are based on historic experience and
management judgment and are reviewed regularly.
110
JPMorgan Chase & Co./2014 Annual Report
Stress testing
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios, and the parameters underlying those
scenarios, are defined centrally, are articulated in terms of
macroeconomic factors, and applied across the businesses.
The stress test results may indicate credit migration,
changes in delinquency trends and potential losses in the
credit portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on industry concentrations.
Risk monitoring and management
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the line of
businesses.
For consumer credit risk, delinquency and other trends,
including any concentrations at the portfolio level, are
monitored, as certain of these trends can be modified
through changes in underwriting policies and portfolio
guidelines. Consumer Risk Management evaluates
delinquency and other trends against business
expectations, current and forecasted economic conditions,
and industry benchmarks. Historical and forecasted trends
are incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio. Under the Firm's model risk
policy, new significant risk management models, as well as
major changes to such models, are required to be reviewed
and approved by the Model Review Group prior to
implementation into the operating environment. Internal
Audit also periodically tests the internal controls around the
modeling process including the integrity of the data utilized.
For a discussion of the Model Review Group, see page 139.
For further discussion of consumer loans, see Note 14.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic
credit risk capital, are subject to stress-based loss
constraints.
Assigning and managing credit authorities in connection
with the approval of all credit exposure
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
Monitoring and managing credit risk across all portfolio
segments, including transaction and line approval
•
Other corporate functions and forums with risk
management-related responsibilities include:
The JPMorgan Chase Bank N.A. Board of Directors is
responsible for the oversight of management on behalf of
JPMorgan Chase Bank N.A. The JPMorgan Chase Bank N.A.
Board accomplishes this function acting directly and
through the principal standing committees of the Firm's
Board of Directors. Risk oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the Firm's
DRPC, Audit Committee and, with respect to compensation-
related matters, the Compensation & Management
Development Committee.
Risk appetite
The Firm's overall risk appetite is established by
management taking into consideration the Firm's capital
and liquidity positions, earnings power, and diversified
business model. The risk appetite framework is a tool to
measure the capacity to take risk and is expressed in loss
tolerance parameters at the Firm and/or LOB levels,
including net income loss tolerances, liquidity limits and
market limits. Performance against these parameters
informs management's strategic decisions and is reported
to the DRPC.
The Firm-level risk appetite parameters are set and
approved by the Firm's CEO, CFO, CRO and COO. LOB-level
risk appetite parameters are set by the LOB CEO, CFO, and
CRO and are approved by the Firm's functional heads as
noted above. Firmwide LOB diversification allows the sum of
the LOBS' loss tolerances to be greater than the Firmwide
loss tolerance.
Risk identification for large exposures
The Firm has certain potential low-probability but plausible
and material, idiosyncratic risks not well captured by its
other existing risk analysis and reporting for credit, market,
and other risks. These idiosyncratic risks may arise in a
number of forms, e.g. changes in legislation, an unusual
combination of market events, or specific counterparty
events. These identified risks are grouped under the term
Risk Identification for Large Exposures ("RIFLES"). The
identified and monitored RIFLES allow the Firm to monitor
earnings vulnerability that is not adequately covered by its
other standard risk measurements.
JPMorgan Chase & Co./2014 Annual Report
109
Management's discussion and analysis
CREDIT RISK MANAGEMENT
Credit risk is the risk of loss arising from the default of a
customer, client or counterparty. The Firm provides credit
to a variety of customers, ranging from large corporate and
institutional clients to individual consumers and small
businesses. In its consumer businesses, the Firm is exposed
to credit risk primarily through its residential real estate,
credit card, auto, business banking and student lending
businesses. Originated mortgage loans are retained in the
mortgage portfolio, or securitized or sold to U.S.
government agencies and U.S. government-sponsored
enterprises; other types of consumer loans are typically
retained on the balance sheet. In its wholesale businesses,
the Firm is exposed to credit risk through its underwriting,
lending and derivatives activities with and for clients and
counterparties, as well as through its operating services
activities, such as cash management and clearing activities.
A portion of the loans originated or acquired by the Firm's
wholesale businesses are generally retained on the balance
sheet; the Firm's syndicated loan business distributes a
significant percentage of originations into the market and is
an important component of portfolio management.
Credit risk organization
Credit risk management is overseen by the Firm's CRO. The
Firm's credit risk management governance consists of the
following activities:
•
•
•
Establishing a comprehensive credit risk policy
framework
738,418
•
•
Loans retained
Loans held-for-sale
Loans at fair value
Total loans-reported
Derivative receivables
Receivables from
Credit exposure
2014
2013
$ 747,508 $ 724,177
7,217
12,230
Nonperforming (b)(c)(d)
2014
2013
$
7,017 $ 8,317
95
26
2,611
2,011
21
197
December 31,
(in millions)
•
Total credit portfolio
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale
(which are carried at the lower of cost or fair value, with
valuation changes recorded in noninterest revenue); and
certain loans accounted for at fair value. In addition, the
Firm records certain loans accounted for at fair value in
trading assets. For further information regarding these
loans, see Note 3 and Note 4. For additional information on
the Firm's loans and derivative receivables, including the
Firm's accounting policies, see Note 14 and Note 6.
Loan underwriting and credit approval process
Loan syndications and participations
Loan sales and securitizations
Credit derivatives
Master netting agreements
Collateral and other risk-reduction techniques
In addition to Risk Management, Internal Audit performs
periodic exams, as well as continuous review, where
appropriate, of the Firm's consumer and wholesale
portfolios. For risk-rated portfolios, a credit review group
within Internal Audit is responsible for:
•
Independently assessing and validating the changing risk
grades assigned to exposures; and
Evaluating the effectiveness of business units' risk-
ratings, including the accuracy and consistency of risk
grades, the timeliness of risk grade changes and the
justification of risk grades in credit memoranda
Risk reporting
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior Credit Risk Management. Detailed
portfolio reporting of industry, customer, product and
geographic concentrations occurs monthly, and the
appropriateness of the allowance for credit losses is
reviewed by senior management at least on a quarterly
basis. Through the risk reporting and governance structure,
credit risk trends and limit exceptions are provided
regularly to, and discussed with, senior management and
the Board of Directors as appropriate.
JPMorgan Chase & Co./2014 Annual Report
111
Management's discussion and analysis
CREDIT PORTFOLIO
2014 Credit Risk Overview
In 2014, the consumer credit environment continued to
improve and the wholesale credit environment remained
favorable. Over the course of the year, the Firm continued
to actively manage its underperforming and nonaccrual
loans and reduce such exposures through loan
restructurings, loan sales and workouts. The Firm saw
decreased downgrade, default and charge-off activity and
improved consumer delinquency trends. The Firm increased
its overall lending activity in both wholesale and consumer
businesses. The combination of these factors resulted in an
improvement in the credit quality of the portfolio compared
with 2013 and contributed to the Firm's reduction in the
allowance for credit losses. For further discussion of the
consumer credit environment and consumer loans, see
Consumer Credit Portfolio on pages 113-119 and Note 14.
For further discussion of wholesale credit environment and
wholesale loans, see Wholesale Credit Portfolio on pages
120-127 and Note 14.
For further information regarding the credit risk inherent in
the Firm's investment securities portfolio, see Note 12.
Oversight Policy and contingency funding plan. ALCO also
reviews the Firm's overall structural interest rate risk
position, funding requirements and strategy, and the Firm's
securitization programs (and any required liquidity support
by the Firm of such programs).
Nonaccrual loans (f)(g)
Average annual net
charge-off/(recovery)
ΝΑ
NA
ΝΑ
Total loans - PCI
46,696
53,055
NA
NA
NA
3 3 3 3 3
금금금금금
Total loans - retained
294,979
288,449
6,418
7,496
1,318
17,915
1,907
15,708
NA
Home equity
17,095
18,927
ΝΑ
ΝΑ
ΝΑ
Prime mortgage
Subprime mortgage
Option ARMS
10,220
12,038
NA
ΝΑ
NA
3,673
4,175
NA
ΝΑ
Loans - PCI
0.46
ΝΑ
58,153
56,057
Receivables from customers(c)
108
Total consumer exposure, excluding credit card
353,635
139
345,259
Credit Card
Loans retained(d)
Loans held-for-sale
Total credit card loans
Lending-related commitments (b)
Total credit card exposure
Total consumer credit portfolio
Memo: Total consumer credit portfolio, excluding PCI
128,027
127,465
Lending-related commitments (b)
ΝΑ
0.66
1,907
ΝΑ
ΝΑ
ΝΑ
NA
NA
0.66
Loans held-for-sale
395
(e)
614
91
Total consumer, excluding credit card loans
295,374
289,063
6,509
7,496
1,318
0.46
Net charge-offs/
(recoveries)(h)
0.82
1,907
36,375
40,750
1,590
1,876
82 $ 132
391
0.50%
0.72%
834
1.03
1.90
104,921
87,162
2,190
2,666
39
59
0.04
Subprime mortgage
0.07
Prime mortgage, including option ARMS
$
rate(h)(i)
2014
2013
2014
2013
2014
2013
2014
2013
Loans, excluding PCI loans and loans held-for-sale
Home equity senior lien
$ 16,367
$
17,113
$
938 $
932
Home equity - junior lien
0.55
5,056
1,036
1.58
1.81
Student and other
10,970
11,557
270
86
347
297
3.07
2.51
Total loans, excluding PCI loans and loans held-for-sale
248,283
235,394
6,418
7,496
1,318
337
7,104
305
279
1,390
(27)
90
(0.43)
1.17
Auto(a)
54,536
52,757
115
161
181
158
0.34
0.31
Business banking
20,058
18,951
385
The Firmwide Oversight and Control Group is comprised of
dedicated control officers within each of the lines of
business and corporate functional areas, as well as a central
oversight team. The group is charged with enhancing the
Firm's controls by looking within and across the lines of
business and corporate functional areas to identify and
control issues. The group enables the Firm to detect control
problems more quickly, escalate issues promptly and get
the right people involved to understand common themes
and interdependencies among the various parts of the Firm.
The group works closely with the Firm's other control-
related functions, including Compliance, Legal, Internal
Audit and Risk Management, to effectively remediate
identified control issues across all affected areas of the
Firm. As a result, the group facilitates the effective
execution of the Firm's control framework and helps
support operational risk management across the Firm.
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm. The
VGF is chaired by the firmwide head of the Valuation Control
function (under the direction of the Firm's CFO), and also
includes sub-forums for the CIB, Consumer & Community
Banking, Commercial Banking, Asset Management and
certain corporate functions, including Treasury and CIO.
In addition to the committees, forums and groups listed
above, the Firm has other management committees and
forums at the LOB and regional levels, where risk-related
topics are discussed and escalated as necessary. The
membership of these committees is composed of senior
management of the Firm including representation from the
business and various control functions. The committees
meet regularly to discuss a broad range of topics.
JPMorgan Chase & Co./2014 Annual Report
118
128
(19)
(157)
(2)
5
-
(225)
(3)
224
110
250
8,229
Transportation
12,094
Machinery & Equipment Mfg
20
641
6,557
13,759
20,977
Technology
(1,071)
(11,297)
I
58
155
20,573
20,868
16,365
4,835
9,131
14,534
Media
(19)
(377)
18
504
6,562
8,845
15,911
Metals/Mining
(9)
11,444
5
10
15
224
7,512
8,450
16,201
Business Services
(107)
(34)
(3)
5
86
10
5,107
21,081
(193)
(1,232)
(4)
༄ ཤཱ ཁཿ ལྐ  ྴ
31
971
9,023
18,233
28,258
Retail & Consumer Services
102
837
30,919
(9,369)
31,858
1
57
4,436
31,880
36,374
Asset Managers
17
650
11,081
26,070
37,818
Consumer Products
State & Municipal Govt(b)
Central Govt
17
(244)
(155)
(3)
198
255
3,747
24,058
28,060
Utilities
(1)
(47)
4
56
(94)
(130)
24
69
(4,545)
(9)
(12)
38
(2)
(20)
(161)
(144)
2
15
(148)
266
30
1
All other(c)
(23)
(5)
6
124
478
2,023
2,937
5,562
Leisure
(71)
(4)
(4)
(1)
(216)
(102)
ཝ །
36
20
(6)
(813)
(2)
| 8 སྦྱ |
24
24
Subtotal
210,526
190,135
19,581
Real Estate
Top 25 industries(a)
(in millions)
December 31, 2013
As of or for the year ended
Noninvestment-grade
JPMorgan Chase & Co./2014 Annual Report
122
$ 910,917
Total
6,412
28,972
Receivables from customers and other
958
Loans held-for-sale and loans at fair
value
12 $ (26,703) $
2,301 $
977 $
9,244 $
174,591 $
690,721 $
$ 875,533 $
(11,345)
(21)
1,235
188
622
(1,089)
(19,604)
5,088
6,070
Aerospace/Defense
161
4,778
8,647
13,586
Automotive
(2,372)
(52)
-
162
80
2,605
10,790
1
13,637
(104)
ས
12
6
674
6,271
6,721
13,672
Building Materials/Construction
(6)
(69)
(1)
Insurance
1
(1)
Chemicals/Plastics
6
122
2,224
4,890
7,242
Agriculture/Paper Mfg
2
10
N8
10
2,726
6,198
(140)
8,936
546
4,303
8,277
13,136
Telecom Services
(14)
(2)
1
29
3,716
9,800
13,545
Securities Firms & Exchanges
82
14,685
33,547
241,666
$
77,814 $ 324,502
78,975
$ 112,411 $ 134,277 $
Total %
of IG
Total
BB+/Bal &
below
AAA/Aaa to
BBB-/Baa3
Total
Due after 5
years
-grade
Ratings profile
Noninvestment
Investment-
grade
Due after 1
year
through 5
years
Due in 1
year or less
Maturity profile(e)
Wholesale credit exposure - maturity and ratings profile
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2014 and
2013. The ratings scale is based on the Firm's internal risk ratings, which generally correspond to the ratings as defined by
S&P and Moody's.
JPMorgan Chase & Co./2014 Annual Report
120
(b) Includes unused advised lines of credit of $105.2 billion and $102.0
billion as of December 31, 2014 and 2013, respectively. An advised
line of credit is a revolving credit line which specifies the maximum
amount the Firm may make available to an obligor, on a nonbinding
basis. The borrower receives written or oral advice of this facility. The
Firm may cancel this facility at any time by providing the borrower
notice or, in some cases, without notice as permitted by law.
(c) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on page 127, and Note 6.
(d) Excludes assets acquired in loan satisfactions.
(a) Receivables from customers and other include $28.8 billion and $26.5
billion of margin loans at December 31, 2014 and 2013, respectively,
to prime and retail brokerage customers; these are classified in
accrued interest and accounts receivable on the Consolidated balance
sheets.
ΝΑ
NA
(14,435)
$
82,836
$ 324,502
74%
(3,132)
$
(23,571)
(6,000) $ (26,703) $
(2,050) $ (18,653) $
$ 891,313
$ 891,313
28,972
28,972
79
855,929
6,412
6,412
(19,604)
80
92,842
182,899
379,214
673,030
88
59,371
7,221
52,150
59,371
23,209
9,812 472,056
110,835 855,929
20,032 16,130
185,451 276,793
317,894 427,200
(19,604)
(19,604)
78,975
472,056
$ (5)
$ (26,703) $ (27,996) $
$910,917 $860,299 $ 1,002 $1,665
For additional information about loan modification
programs to borrowers, see Note 14.
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged-off.
However, the Firm establishes an allowance, which is offset
against loans and charged to interest income, for the
estimated uncollectible portion of accrued interest and fee
income.
At December 31, 2014 and 2013, the Firm had $2.0 billion
and $3.1 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. These
balances included both credit card loans with modified
payment terms and credit card loans that reverted back to
their pre-modification payment terms because the
cardholder did not comply with the modified payment
terms. The decrease in modified credit card loans
outstanding from December 31, 2013, was attributable to a
reduction in new modifications as well as ongoing payments
and charge-offs on previously modified credit card loans.
Modifications of credit card loans
5.6%
5.8%
Florida
Illinois
8.2%
Texas
New York
8.2%
California
13.5%
JPMorgan Chase & Co./2014 Annual Report
Illinois
5.9%
New York
8.5%
8.7%
Texas
All other
58.7%
14.0%
California
All other
57.1%
Top 5 States Credit Card - Retained
(at December 31, 2013)
Loans outstanding in the top five states of California, Texas,
New York, Illinois and Florida consisted of $54.9 billion in
receivables, or 43% of the retained loan portfolio, at
December 31, 2014, compared with $52.7 billion, or 41%,
at December 31, 2013. The greatest geographic
concentration of credit card retained loans is in California,
which represented 14% and 13% of total retained loans at
December 31, 2014 and 2013, respectively. For further
information on the geographic composition of the Firm's
credit card loans, see Note 14.
Top 5 States Credit Card - Retained
(at December 31, 2014)
Total credit card loans increased from December 31, 2013
due to higher new account originations and increased credit
card sales volume. The 30+ day delinquency rate decreased
to 1.44% at December 31, 2014, from 1.67% at
December 31, 2013. For the years ended December 31,
2014 and 2013, the net charge-off rates were 2.75% and
3.14%, respectively. Charge-offs have improved compared
with a year ago as a result of improvement in delinquent
loans. The credit card portfolio continues to reflect a well-
seasoned, largely rewards-based portfolio that has good
U.S. geographic diversification.
Credit Card
Florida
5.8%
$ (26,703)
119
WHOLESALE CREDIT PORTFOLIO
206
103
472,056 446,232
899 1,459
438,861 414,067
28,972 26,744
197
21
624 1,044
275
415
26
4
$ 599 $ 821
2013
Management's discussion and analysis
2014
Nonperforming (d)
held against derivatives
Liquid securities and
other cash collateral
Credit Portfolio
Management derivatives
notional, net(c)
Total wholesale credit
exposure
Receivables from
customers and other (a)
Total wholesale credit-
related assets
Lending-related
commitments (b)
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Loans - reported
Derivative receivables
December 31,
Credit exposure
Wholesale credit portfolio
The wholesale credit environment remained favorable
throughout 2014 driving an increase in client activity.
Growth in loans retained was driven primarily by activity in
Commercial Banking, while growth in lending-related
commitments reflected increased activity in both the
Corporate & Investment Bank and Commercial Banking.
Discipline in underwriting across all areas of lending
continues to remain a key point of focus, consistent with
evolving market conditions and the Firm's risk management
activities. The wholesale portfolio is actively managed, in
part by conducting ongoing, in-depth reviews of client credit
quality and transaction structure, inclusive of collateral
where applicable; and of industry, product and client
concentrations. During the year, wholesale criticized assets
decreased from 2013, including a reduction in nonaccrual
loans by 40%.
The Firm's wholesale businesses are exposed to credit risk
through underwriting, lending and trading activities with
and for clients and counterparties, as well as through
various operating services such as cash management and
clearing activities. A portion of the loans originated or
acquired by the Firm's wholesale businesses is generally
retained on the balance sheet. The Firm distributes a
significant percentage of the loans it originates into the
market as part of its syndicated loan business and to
manage portfolio concentrations and credit risk.
2014
2013
$324,502 $308,263
3,801 11,290
2,611 2,011
330,914 321,564
78,975 65,759
88%
December 31, 2014
(in millions, except ratios)
Noncriticized
JPMorgan Chase & Co./2014 Annual Report
(in millions)
Investment-
Credit
31, 2014
As of or for the year ended December
Liquid
securities
Selected metrics
Noninvestment-grade
Below are summaries of the top 25 industry exposures as of December 31, 2014 and 2013. For additional information on industry
concentrations, see Note 5.
Management's discussion and analysis
Criticized Criticized
performing nonperforming
121
its industry exposures, paying particular attention to
industries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
of the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value,
decreased by 16% to $10.2 billion at December 31, 2014,
from $12.2 billion at December 31, 2013.
The Firm focuses on the management and diversification of
Wholesale credit exposure - selected industry exposures
(f) The prior period amounts have been revised to conform with the current period presentation.
(e) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a
receivable position at December 31, 2014, may become a payable prior to maturity based on their cash flow profile or changes in market conditions.
(d) Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection, including Credit Portfolio Management derivatives, are executed with
investment grade counterparties.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which
protection has been purchased.
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not quality for hedge accounting under U.S. GAAP.
88%
$ (27,996)
(3,347)
$ 845,864
JPMorgan Chase & Co./2014 Annual Report
$
30 days or
more past
due and
accruing
loans
offs/
(recoveries)
48,315
193
42
488
7,816
49,361
57,707
69
508
9,266
58,360
68,203
Net charge-
Oil & Gas
Banks & Finance Cos
(27)
(36) $
(9) $
309 $
253 $
25,558 $ 1,356 $
$ 107,386 $ 80,219 $
Real Estate
Top 25 industries(a)
and other
cash
collateral
held against
derivative
receivables
Credit
derivative
hedges(e)
Healthcare
Banks & Finance Cos
(24,649)
(1,149) $ (19,516) $
Total %
of IG
Total
Ratings profile
Noninvestment-
grade
BB+/Bal &
below
$
226,070
$
AAA/Aaa to
BBB-/Baa3
Due after 5
years
Total
75,760 $308,263
65,759
$ 108,392 $ 124,111 $
year
through 5
years
Due in 1
year or less
Investment-
grade
82,193
Due after 1
Derivative receivables
Loans retained
(in millions, except ratios)
December 31, 2013
Credit Portfolio Management derivatives net
notional by reference entity ratings profile (b)(c)(d) $
Total exposure - net of liquid securities and
other cash collateral held against derivatives
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
Subtotal
Total derivative receivables, net of all collateral
Lending-related commitments
Less: Liquid securities and other cash collateral
held against derivatives
Derivative receivables
Loans retained
Maturity profile(e)
(7,331) $ (27,996) $
$ 308,263
65,759
Credit Portfolio Management derivatives net
notional by reference entity ratings profile (b)(c)(d) $
$ 845,864
Total exposure - net of liquid securities and
other cash collateral held against derivatives
26,744
26,744
13,301
77
79
80
51,324
446,232
805,819
(f)
10,220
92,258
184,671
73%
41,104
353,974
621,148
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
21,839
11,505
109,104
15,935
255,426
395,472
301,243
Subtotal
179,301
(f)
13,550
Total derivative receivables, net of all collateral
Lending-related commitments
(14,435)
(14,435)
Less: Liquid securities and other cash collateral
held against derivatives
51,324
446,232
805,819
13,301
Healthcare
exposure(d) grade
30 days or
12
(225)
241
$ 316,060 $ 307,340
151
(139)
2013
2014
Receivables from customers
Net charge-off rate
Net charge-offs
Average loans retained
Gross charge-offs
Gross recoveries
Year ended December 31,
(in millions, except ratios)
Loans - reported
Wholesale net charge-offs
The following table presents net charge-offs, which are
defined as gross charge-offs less recoveries, for the years
ended December 31, 2014 and 2013. The amounts in the
table below do not include gains or losses from sales of
nonaccrual loans.
Ending balance
1,044
624 $
$
(673)
(420)
Net reductions
1,966
1,302
Total reductions
371
95
16
-%
0.01%
Receivables from customers primarily represent margin
loans to prime and retail brokerage clients that are
collateralized through a pledge of assets maintained in
clients' brokerage accounts that are subject to daily
minimum collateral requirements. In the event that the
collateral value decreases, a maintenance margin call is
made to the client to provide additional collateral into the
account. If additional collateral is not provided by the client,
the client's position may be liquidated by the Firm to meet
the minimum collateral requirements.
12,227
8,177
16,790
21,253
1,516
1,838
25,782
33,725 $
$
2013
2014
Liquid securities and other cash collateral
held against derivative receivables
Total, net of all collateral
Sales
Total, net of cash collateral
Credit derivatives
Foreign exchange
Interest rate
Derivative receivables
December 31, (in millions)
The following table summarizes the net derivative
receivables for the periods presented.
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable customers to manage exposures to
fluctuations in interest rates, currencies and other markets.
The Firm also uses derivative instruments to manage its
own credit exposure. The nature of the counterparty and
the settlement mechanism of the derivative affect the credit
risk to which the Firm is exposed. For OTC derivatives the
Firm is exposed to the credit risk of the derivative
counterparty. For exchange-traded derivatives ("ETD") such
as futures and options, and “cleared" over-the-counter
("OTC-cleared") derivatives, the Firm is generally exposed
to the credit risk of the relevant CCP. Where possible, the
Firm seeks to mitigate its credit risk exposures arising from
derivative transactions through the use of legally
enforceable master netting arrangements and collateral
agreements. For further discussion of derivative contracts,
counterparties and settlement types, see Note 6.
Derivative contracts
The Firm provides clearing services for clients entering into
securities and derivative transactions. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share in losses incurred by central counterparties (“CCPs”).
Where possible, the Firm seeks to mitigate its credit risk to
its clients through the collection of adequate margin at
inception and throughout the life of the transactions and
can also cease provision of clearing services if clients do not
adhere to their obligations under the clearing agreement.
For further discussion of Clearing services, see Note 29.
In the Firm's view, the total contractual amount of these
wholesale lending-related commitments is not
representative of the Firm's actual future credit exposure or
funding requirements. In determining the amount of credit
risk exposure the Firm has to wholesale lending-related
commitments, which is used as the basis for allocating
credit risk capital to these commitments, the Firm has
established a "loan-equivalent" amount for each
commitment; this amount represents the portion of the
unused commitment or other contingent exposure that is
expected, based on average portfolio historical experience,
to become drawn upon in an event of a default by an
obligor. The loan-equivalent amount of the Firm's lending-
related commitments was $229.6 billion and $218.9 billion
as of December 31, 2014 and 2013, respectively.
Clearing services
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to meet the financing needs of its customers.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should the
counterparties draw down on these commitments or the
Firm fulfills its obligations under these guarantees, and the
counterparties subsequently fail to perform according to
the terms of these contracts.
Lending-related commitments
JPMorgan Chase & Co./2014 Annual Report
124
Equity
Commodity
279
303
Returned to performing status
(a) The industry rankings presented in the table as of December 31, 2013, are based on the industry rankings of the corresponding exposures at
December 31, 2014, not actual rankings of such exposures at December 31, 2013.
$ 860,299
13,301
26,744
Total
Receivables from customers and other
Loans held-for-sale and loans at fair
value
(14,435)
16 $ (27,996) $
1,894 $
1,442 $
10,733 $
$
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2014 and 2013, noted above, the
Firm held: $10.6 billion and $7.9 billion, respectively, of trading securities; $30.1 billion and $29.5 billion, respectively, of AFS securities; and $10.2
billion and $920 million, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
(c) All other includes: individuals, private education and civic organizations; SPES; and holding companies, representing approximately 68%, 21% and 5%,
respectively, at December 31, 2014, and 64%, 22% and 5%, respectively, at December 31, 2013.
173,792
$ 820,254 $ 634,287
Subtotal
(367)
(7,068)
(6)
1,249
235
692
19,911
180,460
201,298
(14)
$
13,982
(d) Credit exposure is net of risk participations and excludes the benefit of "Credit Portfolio Management derivatives net notional" held against derivative
receivables or loans and "Liquid securities and other cash collateral held against derivative receivables".
(f) The prior period amounts have been revised to conform with the current period presentation.
241
148
1,075
756
1,293
882
1,717
1,044 $
$
2013
2014
Gross charge-offs
(e) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The all other category includes purchased credit protection on certain credit indices.
Paydowns and other
Year ended December 31, (in millions)
Beginning balance
Wholesale nonaccrual loan activity
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2014 and
2013.
In the normal course of its wholesale business, the Firm
provides loans to a variety of customers, ranging from large
corporate and institutional clients to high-net-worth
individuals. For further discussion on loans, including
information on credit quality indicators, see Note 14.
The Firm actively manages its wholesale credit exposure.
One way of managing credit risk is through secondary
market sales of loans and lending-related commitments.
During the years ended December 31, 2014 and 2013, the
Firm sold $22.8 billion and $16.3 billion, respectively, of
loans and lending-related commitments.
Loans
Oil & Gas: Exposure to this industry increased by $1.4
billion in 2014 to $48.3 billion, of which $15.6 billion
was drawn at year-end. The portfolio largely consisted of
exposure in North America, and was concentrated in the
Exploration and Production subsector. The Oil & Gas
portfolio was comprised of 69% investment-grade
exposure, and was approximately 5% of the Firm's total
wholesale credit exposure as of December 31, 2014.
Real Estate: Exposure to this industry increased by
$20.3 billion or 23%, in 2014 to $107.4 billion. The
increase was largely driven by growth in multifamily
exposure in the CB. The credit quality of this industry
improved as the investment-grade portion of the
exposures to this industry increased to 75% in 2014
from 72% in 2013. The ratio of nonaccrual retained
loans to total retained loans decreased to 0.32% at
December 31, 2014 from 0.50% at December 31,
2013. For further information on commercial real estate
loans, see Note 14.
Presented below is a discussion of several industries to
which the Firm has significant exposure and/or present
actual or potential credit concerns. The Firm is actively
monitoring these exposures. For additional information,
refer to the tables on the previous pages.
Management's discussion and analysis
•
123
JPMorgan Chase & Co./2014 Annual Report
Additions
Reductions:
9,444
78,975
65,759
Credit portfolio management activities
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker; and second, as an
end-user, to manage the Firm's own credit risk associated
with various exposures. For a detailed description of credit
derivatives, see Credit derivatives in Note 6.
Credit derivatives
2013.
As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm's derivatives transactions subject to collateral
agreements - excluding foreign exchange spot trades, which
are not typically covered by collateral agreements due to
their short maturity - was 88% as of December 31, 2014,
largely unchanged compared with 86% as of December 31,
JPMorgan Chase & Co./2014 Annual Report
126
(a) The prior period amounts have been revised to conform with the current period presentation.
100%
51,324
100% $
59,371
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, "credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 6.
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm's capacity as a market maker in
credit derivatives, see Credit derivatives in Note 6.
$
7
3,415
1
837
CCC+/Caal and below
13
6,806
11
6,384
BB+/Bal to B-/B3
30
15,220
Total
32
Credit derivatives used in credit portfolio management
activities
Notional amount of
protection
Oil & Gas
The wholesale allowance for credit losses decreased from
December 31, 2013, reflecting a continued favorable credit
environment as evidenced by low charge-off rates, and
declining nonaccrual balances and other portfolio activity.
The consumer, excluding credit card, allowance for loan
losses reflected a reduction from December 31, 2013,
primarily due to the continued improvement in home prices
and delinquencies in the residential real estate portfolio
and the run-off of the student loan portfolio. For additional
information about delinquencies and nonaccrual loans in
the consumer, excluding credit card, loan portfolio, see
Consumer Credit Portfolio on pages 113-119 and Note 14.
The credit card allowance for loan losses reflected a
reduction from December 31, 2013, primarily related to a
decrease in the asset-specific allowance resulting from
increased granularity of the impairment estimates and
lower balances related to credit card loans modified in
TDRS. For additional information about delinquencies in the
credit card loan portfolio, see Consumer Credit Portfolio on
pages 113-119 and Note 14.
The allowance for credit losses was $14.8 billion at
December 31, 2014, a decrease of $2.2 billion from $17.0
billion at December 31, 2013.
The allowance for loan losses includes an asset-specific
component, a formula-based component, and a component
related to PCI loans. For a further discussion of the
components of the allowance for credit losses and related
management judgments, see Critical Accounting Estimates
Used by the Firm on pages 161-165 and Note 15.
At least quarterly, the allowance for credit losses is
reviewed by the Chief Risk Officer, the Chief Financial
Officer and the Controller of the Firm, and discussed with
the DRPC and Audit Committees of the Board of Directors of
the Firm. As of December 31, 2014, JPMorgan Chase
deemed the allowance for credit losses to be appropriate
and sufficient to absorb probable credit losses inherent in
the portfolio.
JPMorgan Chase's allowance for loan losses covers both the
consumer (primarily scored) portfolio and wholesale (risk-
rated) portfolio. The allowance represents management's
estimate of probable credit losses inherent in the Firm's
loan portfolio. Management also determines an allowance
for wholesale and certain consumer lending-related
commitments.
ALLOWANCE FOR CREDIT LOSSES
Management's discussion and analysis
127
JPMorgan Chase & Co./2014 Annual Report
The effectiveness of the Firm's credit default swap ("CDS")
protection as a hedge of the Firm's exposures may vary
depending on a number of factors, including the named
reference entity (i.e., the Firm may experience losses on
specific exposures that are different than the named
reference entities in the purchased CDS); the contractual
terms of the CDS (which may have a defined credit event
that does not align with an actual loss realized by the Firm);
and the maturity of the Firm's CDS protection (which in
some cases may be shorter than the Firm's exposures).
However, the Firm generally seeks to purchase credit
protection with a maturity date that is the same or similar
to the maturity date of the exposure for which the
protection was purchased, and remaining differences in
maturity are actively monitored and managed by the Firm.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
December 31, (in millions)
Credit derivatives used to manage:
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or index.
Credit portfolio management derivatives
notional, net
96
28,092
25,328
24,656
26,703
Total net protection purchased
Total net protection sold
2,047 $ 2,764
$
Loans and lending-related commitments
Derivative receivables
2013
2014
purchased and sold (a)
$ 26,703 $ 27,996
(10)
19,008
12,930
20
322°
30
DRE -
AVG -
40
Π
50
ㅁ
60
70
(in billions)
10
December 31, 2014
The fair value of the Firm's derivative receivables
incorporates an adjustment, the CVA, to reflect the credit
quality of counterparties. The CVA is based on the Firm's
AVG to a counterparty and the counterparty's credit spread
in the credit derivatives market. The primary components of
changes in CVA are credit spreads, new deal activity or
unwinds, and changes in the underlying market
environment. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm's
exposure to a counterparty (AVG) and the counterparty's
credit quality. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty's AVG. The Firm
risk manages exposure to changes in CVA by entering into
credit derivative transactions, as well as interest rate,
foreign exchange, equity and commodity derivative
transactions.
Finally, AVG is a measure of the expected fair value of the
Firm's derivative receivables at future time periods,
including the benefit of collateral. AVG exposure over the
total life of the derivative contract is used as the primary
metric for pricing purposes and is used to calculate credit
capital and the CVA, as further described below. The three
year AVG exposure was $37.5 billion and $35.4 billion at
December 31, 2014 and 2013, respectively, compared with
derivative receivables, net of all collateral, of $59.4 billion
and $51.3 billion at December 31, 2014 and 2013,
respectively.
Peak exposure to a counterparty is an extreme measure of
exposure calculated at a 97.5% confidence level. DRE
exposure is a measure that expresses the risk of derivative
exposure on a basis intended to be equivalent to the risk of
loan exposures. The measurement is done by equating the
unexpected loss in a derivative counterparty exposure
(which takes into consideration both the loss volatility and
the credit rating of the counterparty) with the unexpected
loss in a loan exposure (which takes into consideration only
the credit rating of the counterparty). DRE is a less extreme
measure of potential credit loss than Peak and is the
primary measure used by the Firm for credit approval of
derivative transactions.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
Management's discussion and analysis
125
JPMorgan Chase & Co./2014 Annual Report
Derivative receivables reported on the Consolidated balance
sheets were $79.0 billion and $65.8 billion at
December 31, 2014 and 2013, respectively. These amounts
represent the fair value of the derivative contracts, after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm. However,
in management's view, the appropriate measure of current
credit risk should also take into consideration additional
liquid securities (primarily U.S. government and agency
securities and other G7 government bonds) and other cash
collateral held by the Firm aggregating $19.6 billion and
$14.4 billion at December 31, 2014 and 2013,
respectively, that may be used as security when the fair
value of the client's exposure is in the Firm's favor.
In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral
(primarily: cash; G7 government securities; other liquid
government-agency and guaranteed securities; and
corporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related to
contracts that have a non-daily call frequency and collateral
that the Firm has agreed to return but has not yet settled as
of the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,
it is available as security against potential exposure that
could arise should the fair value of the client's derivative
transactions move in the Firm's favor. As of December 31,
2014 and 2013, the Firm held $48.6 billion and $50.8
billion, respectively, of this additional collateral. The prior
period amount has been revised to conform with the
current period presentation. The derivative receivables fair
value, net of all collateral, also does not include other credit
enhancements, such as letters of credit. For additional
information on the Firm's use of collateral agreements, see
Note 6.
59,371 $ 51,324
$
(14,435)
(19,604)
The accompanying graph shows exposure profiles to the
Firm's current derivatives portfolio over the next 10 years
as calculated by the DRE and AVG metrics. The two
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
25
0
2 years
24
25%
12,953
32% $
19,202
13,940
$
BBB+/Baal to BBB-/Baa3
A+/A1 to A-/A3
AAA/Aaa to AA-/Aa3
% of exposure
net of all
collateral
Exposure net of
all collateral
net of all
collateral
1 year
all collateral
% of exposure
2013(a)
2014
(in millions, except ratios)
Rating equivalent
Ratings profile of derivative receivables
The following table summarizes the ratings profile by derivative counterparty of the Firm's derivative receivables, including credit
derivatives, net of other liquid securities collateral, for the dates indicated. The ratings scale is based on the Firm's internal ratings,
which generally correspond to the ratings as defined by S&P and Moody's.
10 years
°
ㅁ
ㅁ
5 years
Exposure net of
5
December 31,
495
25,521
28,983
Utilities
22
492
8,453
16,101
25,068
Retail & Consumer Services
40
120
157
826
34,563
35,666
State & Municipal Govt(b)
(3,191)
(5)
(7)
217
-
38
6,477
26,991
33,506
3,045
411
6
40
7,549
11,154
19,078
Machinery & Equipment Mfg
20
825
6,771
13,787
21,403
Technology
(1,541)
(10,088)
Asset Managers
1
345
20,633
21,049
Central Govt
(306)
(445)
28
(91)
(144)
(161)
1
6 2
71
(1)
(149)
11
(125)
(66) $
6 $
178 $
347 $
2,286 $
$
21,505
9,707
56,675
66,881
$
$ 87,102 $ 62,964
431
derivative
receivables
and other
cash
collateral
Liquid
securities
derivative
hedges(e)
offs/
(recoveries)
Net charge- Credit
Selected metrics
accruing
loans
Criticized Criticized
performing nonperforming
Noncriticized
Credit Investment-
exposure(d) grade
more past
due and
89
held against
368
68
(22)
4
3
537
12,505
34,145
Consumer Products
(67)
(227)
13
34
11
436
14
11,779
46,934
(195)
(198)
3
49
6
317
7,952
37,635
45,910
(6,227)
(2,692)
34,708
Transportation
21,100
9,683
(f)
Securities Firms & Exchanges
(8)
(272)
7
10
482
4,284
9,130
13,906
Telecom Services
(83)
10,035
(13)
222
3,211
7,189
10,637
Chemicals/Plastics
(472)
(3)
3
2
159
4,490
7,881
15
12,532
4,208
14
2,950
1,797
13,975
5,331
All other(c)
Leisure
(1)
(142)
1,426
5,447
6,873
Aerospace/Defense
5,806
(4)
31
3
82
3,064
4,238
7,387
Agriculture/Paper Mfg
(175)
(4,169)
(68)
1
7
(4)
Automotive
(f)
(98)
66
594
7,508
9,266
17,434
Metals/Mining
(2)
(10)
(68)
15 ∞
9
10
1
(8)
(18)
20
(512)
2723
286
6,447
7,838
14,601
(1,935)
Business Services
100
4,165
(257)
16
30
13,858
84
2,757
Media
10,681
13,761
Insurance
(132)
(26)
(36)
(621)
163
15
(5)
239
5,658
(2)
7
315
7,783
6
102
Building Materials/Construction
12,901
5,701
6,354
839
36
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection purchased
or sold, net of the fair value of the recognized derivative
receivable or payable. Credit derivatives protection
purchased and sold in the Firm's market-making activities
is measured on a net basis, as such activities often result
in selling and purchasing protection related to the same
underlying reference entity; this reflects the manner in
which the Firm manages these exposures.
of all positions, including both long and short positions.
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the related collateral. Counterparty exposure on
derivatives can change significantly because of market
movements.
Debt and equity securities are measured at the fair value
Securities financing exposures are measured at their
receivable balance, net of collateral received.
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and cash and marketable securities
collateral received.
Country risk identification and measurement
•
•
Under the Firm's internal country risk measurement
framework:
The Firm is exposed to country risk through its lending,
investing, and market-making activities, whether cross-
border or locally funded. Country exposure includes activity
with both government and private-sector entities in a
country. Under the Firm's internal country risk management
approach, country exposure is reported based on the
country where the majority of the assets of the obligor,
counterparty, issuer or guarantor are located or where the
majority of its revenue is derived, which may be different
than the domicile (legal residence) or country of
incorporation of the obligor, counterparty, issuer or
guarantor. Country exposures are generally measured by
considering the Firm's risk to an immediate default of the
counterparty or obligor, with zero recovery. Assumptions
are sometimes required in determining the measurement
and allocation of country exposure, particularly in the case
of certain tranched credit derivatives. Different
measurement approaches or assumptions would affect the
amount of reported country exposure.
JPMorgan Chase & Co./2014 Annual Report
•
•
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2014. The
selection of countries is based solely on the Firm's largest
total exposures by country, based on the Firm's internal
country risk management approach, and does not represent
the Firm's view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period-
to-period due to normal client activity and market flows.
Management's discussion and analysis
Lending (a)
Providing country risk scenario analysis
Trading and
investing (b)(c)
December 31, 2014
(in billions)
United Kingdom
Germany
Top 20 country exposures
137
Country risk reporting
Country risk monitoring and control
concerns.
The country risk stress framework aims to identify potential
losses arising from a country crisis by capturing the impact
of large asset price movements in a country based on
market shocks combined with counterparty specific
assumptions. Country Risk Management periodically defines
and runs ad hoc stress scenarios for individual countries in
response to specific market events and sector performance
Country risk stress testing
The Firm's internal country risk reporting differs from the
reporting provided under the Federal Financial Institutions
Examination Council ("FFIEC") bank regulatory
requirements as there are significant differences in
reporting methodology. For further information on the
FFIEC's reporting methodology, see Cross-border
outstandings on page 325.
The Firm also has indirect exposures to country risk (for
example, related to the collateral received on securities
financing receivables or related to client clearing activities).
These indirect exposures are managed in the normal course
of business through the Firm's credit, market, and
operational risk governance, rather than through Country
Risk Management.
The Country Risk Management Group establishes guidelines
for sovereign ratings reviews and limit management.
Country stress and nominal exposures are measured under
a comprehensive country limit framework. Country ratings
and limits activity are actively monitored and reported on a
regular basis. Country limit requirements are reviewed and
approved by senior management as often as necessary, but
at least annually. In addition, the Country Risk Management
group uses surveillance tools for early identification of
potential country risk concerns, such as signaling models
and ratings indicators.
Developing surveillance tools for early identification of
potential country risk concerns
JPMorgan Chase's 12-month pretax core net interest
income sensitivity profiles.
Managing country limits and reporting trends and limit
•
Total
Differences in the timing among the maturity or repricing
of assets, liabilities and off-balance sheet instruments.
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are repricing at the same
time.
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve).
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change.
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, corporate-wide
basis. Business units transfer their interest rate risk to
Treasury through a transfer-pricing system, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.
The Firm manages structural interest rate risk generally
through its investment securities portfolio and related
derivatives.
The Firm conducts simulations of changes in structural
interest rate-sensitive revenue under a variety of interest
rate scenarios. Earnings-at-risk scenarios estimate the
potential change in this revenue, and the corresponding
impact to the Firm's pretax core net interest income, over
the following 12 months, utilizing multiple assumptions as
described below. These scenarios highlight exposures to
changes in interest rates, pricing sensitivities on deposits,
optionality and changes in product mix. The scenarios
include forecasted balance sheet changes, as well as
prepayment and reinvestment behavior. Mortgage
prepayment assumptions are based on current interest
rates compared with underlying contractual rates, the time
since origination, and other factors which are updated
periodically based on historical experience.
(Excludes the impact of trading activities and MSRS)
Instantaneous change in rates
(in millions)
December 31, 2014
+200 bps +100 bps -100 bps -200 bps
$ 4,667 $ 2,864
NM
NM
(a)
(a)
(a) Downward 100- and 200-basis-points parallel shocks result in a
federal funds target rate of zero and negative three- and six-month
U.S. Treasury rates. The earnings-at-risk results of such a low-
probability scenario are not meaningful.
breaches to senior management
The Firm's benefit to rising rates is largely a result of
reinvesting at higher yields and assets re-pricing at a faster
pace than deposits.
136
JPMorgan Chase & Co./2014 Annual Report
COUNTRY RISK MANAGEMENT
Country risk is the risk that a sovereign event or action
alters the value or terms of contractual obligations of
obligors, counterparties and issuers or adversely affects
markets related to a particular country. The Firm has a
comprehensive country risk management framework for
assessing country risks, determining risk tolerance, and
measuring and monitoring direct country exposures in the
Firm. The Country Risk Management group is responsible
for developing guidelines and policies for managing country
risk in both emerging and developed countries. The Country
Risk Management group actively monitors the various
portfolios giving rise to country risk to ensure the Firm's
country risk exposures are diversified and that exposure
levels are appropriate given the Firm's strategy and risk
tolerance relative to a country.
Country risk organization
The Country Risk Management group is an independent risk
management function which works in close partnership with
other risk functions to identify and monitor country risk
within the Firm. The Firmwide Risk Executive for Country
Risk reports to the Firm's CRO.
Country Risk Management is responsible for the following
functions:
•
•
•
•
•
Developing guidelines and policies consistent with a
comprehensive country risk framework
Assigning sovereign ratings and assessing country risks
Measuring and monitoring country risk exposure and
stress across the Firm
Additionally, another interest rate scenario used by the Firm
- involving a steeper yield curve with long-term rates rising
by 100 basis points and short-term rates staying at current
levels - results in a 12-month pretax core net interest
income benefit of $566 million. The increase in core net
interest income under this scenario reflects the Firm
reinvesting at the higher long-term rates, with funding costs
remaining unchanged.
Other(d)
(b)
$
38
66
21
43
49
24
35
(36)
(32)
NM
NM
(34)
NM
NM
36
(30)
(a)
(b)
(b)
(a)
(b)
(a)
13
6
18
11
14
14
5
•
(a)
exposure
13
18
25.8
$
31.1 $
1.4 $
58.3
23.5
21.6
0.2
45.3
Netherlands
6.1
19.2
2.1
27.4
8
France
15.2
0.2
(9) (a)
NM (b)
NM (b)
(9) (a)
NM (b)
NM (b)
(8) (a)
11
16
18
10
13
11.4
•
4
The VaR and stress-test measures described above illustrate
the total economic sensitivity of the Firm's Consolidated
balance sheets to changes in market variables. The effect of
interest rate exposure on the Firm's reported net income is
also important as interest rate risk represents one of the
Firm's significant market risks. Interest rate risk arises not
only from trading activities but also from the Firm's
traditional banking activities, which include extension of
loans and credit facilities, taking deposits and issuing debt.
The Firm evaluates its structural interest rate risk exposure
through earnings-at-risk, which measures the extent to
which changes in interest rates will affect the Firm's core
net interest income (see page 78 for further discussion of
core net interest income) and interest rate-sensitive fees.
Earnings-at-risk excludes the impact of trading activities
and MSR, as these sensitivities are captured under VaR.
The CIO, Treasury and Corporate (“CTC") Risk Committee
establishes the Firm's structural interest rate risk policies
and market risk limits, which are subject to approval by the
Risk Policy Committee of the Firm's Board of Directors. CIO,
working in partnership with the lines of business, calculates
the Firm's structural interest rate risk profile and reviews it
with senior management including the CTC Risk Committee
and the Firm's ALCO. In addition, oversight of structural
interest rate risk is managed through a dedicated risk
function reporting to the CTC CRO. This risk function is
responsible for providing independent oversight and
governance around assumptions; and establishing and
monitoring limits for structural interest rate risk.
(b)
(b)
(a)
(b)
(b)
(a)
(a)
(4)
NM
NM
(8)
NM
NM
(3)
(a)
(5)
27
14
6
28
6
7
(a)
(b)
(b)
(a)
(b)
(b)
(a)
(a)
5
Diversification benefit to CIB and other VaR
3
5
40
29
56
47
25
74
45
42
Mortgage Banking VaR
Treasury and CIO VAR (c)
Asset Management VaR
Diversification benefit to other VaR
Other VaR
10
2
743 C
28
12
8
24
6
6
3
14
34
5
4
4
4
2
232
Total VaR
$
(7)
43
Firm's Basel III Pillar 3 Regulatory Capital Disclosures
reports, which are based on Regulatory VaR applied to
covered positions. The chart shows that for the year ended
December 31, 2014, the Firm observed five VaR band
breaks and posted gains on 157 of the 260 days in this
period.
80
60
60
40
20
20
(40)
(60)
(80)
First Quarter
Second Quarter
(100)
2014
Risk Management VaR
2014
Fourth Quarter
2014
(20)
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in
measuring and controlling risk. While VaR reflects the risk
of loss due to adverse changes in markets using recent
historical market behavior as an indicator of losses, stress
testing is intended to capture the Firm's exposure to
unlikely but plausible events in abnormal markets. The Firm
runs weekly stress tests on market-related risks across the
lines of business using multiple scenarios that assume
significant changes in risk factors such as credit spreads,
equity prices, interest rates, currency rates or commodity
prices. The framework uses a grid-based approach, which
calculates multiple magnitudes of stress for both market
rallies and market sell-offs for each risk factor. Stress-test
results, trends and explanations based on current market
risk positions are reported to the Firm's senior management
and to the lines of business to allow them to better
understand the sensitivity of positions to certain defined
events and to enable them to manage their risks with more
transparency.
Stress scenarios are defined and reviewed by Market Risk,
and significant changes are reviewed by the relevant Risk
Committees. While most of the scenarios estimate losses
based on significant market moves, such as an equity
market collapse or credit crisis, the Firm also develops
scenarios to quantify risk arising from specific portfolios or
concentrations of risks, which attempt to capture certain
idiosyncratic market movements. Scenarios may be
redefined on an ongoing basis to reflect current market
conditions. Ad hoc scenarios are run in response to specific
market events or concerns. The Firm's stress testing
framework is utilized in calculating results under scenarios
mandated by the Federal Reserve's CCAR and ICAAP
("Internal Capital Adequacy Assessment Process")
processes.
JPMorgan Chase & Co./2014 Annual Report
135
Management's discussion and analysis
Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to
variables used to value positions, such as credit spread
sensitivities, interest rate basis point values and market
values. These measures provide granular information on the
Firm's market risk exposure. They are aggregated by line-of-
business and by risk type, and are used for tactical control
and monitoring limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools
used to highlight trading losses above certain levels of risk
tolerance. Profit and loss drawdowns are defined as the
decline in net profit and loss since the year-to-date peak
revenue level.
Earnings-at-risk
Third Quarter
2014
Market Risk-Related Gains and Losses
100
($millions)
NM
$ 30
NM
(9)
NM
NM
(5)
(5)
$ 70
$
52
$ 29
$
87
$ 46
$ 44
(a) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification.
The diversification effect reflects the fact that risks are not perfectly correlated.
(b) Designated as not meaningful ("NM"), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful
to compute a portfolio-diversification effect.
Year ended December 31, 2014
vs. Risk Management VaR (1-day, 95% Confidence level)
Daily Market Risk-Related Gains and Losses
The following chart compares the daily market risk-related
gains and losses on the Firm's Risk Management positions
for the year ended December 31, 2014. As the chart
presents market risk-related gains and losses related to
those positions included in the Firm's Risk Management
VaR, the results in the table below differ from the results of
backtesting disclosed in the Market Risk section of the
JPMorgan Chase & Co./2014 Annual Report
134
Structural interest rate risk can occur due to a variety of
factors, including:
The Firm's definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market risk-
related gains and losses are defined as: profits and losses
on the Firm's Risk Management positions, excluding fees,
commissions, certain valuation adjustments (e.g., liquidity
and DVA), net interest income, and gains and losses arising
from intraday trading.
VaR back-testing
The Firm's average Total VaR diversification benefit was $7
million or 16% of the sum for 2014, compared with $9
million or 17% of the sum for 2013. In general, over the
course of the year, VaR exposure can vary significantly as
positions change, market volatility fluctuates and
diversification benefits change.
Average Mortgage Banking VaR decreased during 2014 as a
result of reduced exposures due to lower loan originations.
Average Treasury and CIO VAR decreased during 2014,
compared with 2013. The decrease predominantly reflected
the unwind and roll-off of certain marked to market
positions, and lower market volatility in the historical one-
year look-back period.
Average CIB trading VaR decreased during 2014 primarily
due to lower VaR in Fixed Income (driven by unwinding of
risk and redemptions in the synthetic credit portfolio, and
lower volatility in the historical one-year look-back period)
and to reduced risk positions in commodities.
As presented in the table above, average Total VaR and
average CIB VaR decreased during 2014, compared with
2013. The decrease in Total VaR was primarily due to risk
reduction in CIB and Mortgage Banking as well as lower
volatility in the historical one-year look-back period during
2014 versus 2013.
(c) The Treasury and CIO VAR includes Treasury VaR as of the third quarter of 2013.
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses recognized on
market-risk related revenue.
Diversification benefit to CIB VaR
Trading assets/liabilities - debt
and equity instruments, and
derivatives, including hedges of
the retained loan portfolio and
CVA
CIB trading VaR
3,385
225 $
(2) $ 3,139 $
37 $
(85) $
$
3,387
188 $
3,224 $
$
Total
26.8
China
10.8
130
7.0
18.3
Japan
11.5
5.5
0.4
17.4
Australia
6.4
10.8
-
17.2
Canada
12.4
4.2
0.5
0.3
JPMorgan Chase & Co./2014 Annual Report
Market risk is the potential for adverse changes in the value
of the Firm's assets and liabilities resulting from changes in
market variables such as interest rates, foreign exchange
rates, equity prices, commodity prices, implied volatilities
or credit spreads.
The following table summarizes by LOB the predominant business activities that give rise to market risk, and the market risk
management tools utilized to manage those risks; CB is not presented in the table below as it does not give rise to significant
market risk.
Management's discussion and analysis
131
JPMorgan Chase & Co./2014 Annual Report
Earnings-at-risk
Profit and loss drawdowns
•
Limit breaches are required to be reported in a timely
manner by Risk Management to limit approvers, Market
Risk and senior management. In the event of a breach,
Market Risk consults with Firm senior management and
lines of business senior management to determine the
appropriate course of action required to return to
compliance, which may include a reduction in risk in order
to remedy the breach. Certain Firm or line of business-level
limits that have been breached for three business days or
longer, or by more than 30%, are escalated to senior
management and the Firmwide Risk Committee.
Limits are set by Market Risk and are regularly reviewed
and updated as appropriate, with any changes approved by
lines of business management and Market Risk. Senior
management, including the Firm's CEO and CRO, are
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. All limits that have not been
reviewed within specified time periods by Market Risk are
escalated to senior management. The lines of business are
responsible for adhering to established limits against which
exposures are monitored and reported.
Market risk is controlled primarily through a series of limits
set in the context of the market environment and business
strategy. In setting limits, the Firm takes into consideration
factors such as market volatility, product liquidity and
accommodation of client business and management
experience. The Firm maintains different levels of limits.
Corporate level limits include VaR and stress limits.
Similarly, line of business limits include VaR and stress
limits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be set within the lines of
business, as well at the portfolio or legal entity level.
Risk monitoring and control
• Loss advisories
• Nonstatistical risk measures
• Economic-value stress testing
MARKET RISK MANAGEMENT
• VaR
Tools used to measure risk
Risk measurement
Each line of business is responsible for the management of
the market risks within its units. The independent risk
management group responsible for overseeing each line of
business is charged with ensuring that all material market
risks are appropriately identified, measured, monitored and
managed in accordance with the risk policy framework set
out by Market Risk.
Risk identification and classification
Performance of stress testing and qualitative risk
assessments
Definition, approval and monitoring of limits
•
Establishment of a market risk policy framework
Independent measurement, monitoring and control of
line of business and firmwide market risk
•
•
•
Market Risk seeks to control risk, facilitate efficient risk/
return decisions, reduce volatility in operating performance
and provide transparency into the Firm's market risk profile
for senior management, the Board of Directors and
regulators. Market Risk is responsible for the following
functions:
Market Risk is an independent risk management function
that identifies and monitors market risks throughout the
Firm and defines market risk policies and procedures. The
Market Risk function reports to the Firm's CRO.
Market risk management
Because no single measure can reflect all aspects of market
risk, the Firm uses various metrics, both statistical and
nonstatistical, including:
Risk identification and classification for business activities
16.9
9.3
0.1
5.8
Taiwan
2.2
3.5
-
5.7
Singapore
3.1
1.9
0.5
5.5
Mexico
2.5
2.6
3.0
5.5
Luxembourg
3.5
0.3
4.9
Brazil
1.1
(a) Lending includes loans and accrued interest receivable, net of
collateral and the allowance for loan losses, deposits with banks,
acceptances, other monetary assets, issued letters of credit net of
participations, and undrawn commitments to extend credit. Excludes
intra-day and operating exposures, such as from settlement and
clearing activities.
(b) Includes market-making inventory, securities held in AFS accounts,
counterparty exposure on derivative and securities financings net of
collateral and hedging.
(c) Includes single-name and index and tranched credit derivatives for
which one or more of the underlying reference entities is in a country
listed in the above table.
(d) Includes capital invested in local entities and physical commodity
inventory.
The Firm's country exposure to Russia was $4.2 billion at
December 31, 2014. The Firm is closely monitoring events
in the region, and assessing the impact of falling oil prices,
a weakening currency, ongoing sanctions and potential
countermeasures such as capital controls. The Firm is also
focused on possible contagion effects, via trade, financial or
political channels.
138
JPMorgan Chase & Co./2014 Annual Report
-
Switzerland
3.1
6.0
1.7
2.3
13.3
India
5.8
6.2
0.6
12.6
6.3
6.3
-
12.6
Korea
5.1
Belgium
5.2
10.4
Spain
3.4
3.5
-
6.9
Hong Kong
1.7
4.1
1.0
6.8
Italy
2.4
0.2
0.1
LOB
Predominant business activities and
related market risks
Positions included in Risk
Management VaR
$
Fixed income
CIB trading VaR by risk type
2013
At December 31,
2014
Max
Min
Avg.
Max
Min
Avg.
(in millions)
2013
2014
34
As of or for the year ended December 31,
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level.
Basel III Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
respective backtesting) for the Firm, see JPMorgan Chase's
For additional information on Regulatory VaR and the other
components of market risk regulatory capital (e.g. VaR-
based measure, stressed VaR-based measure and the
Management's discussion and analysis
133
JPMorgan Chase & Co./2014 Annual Report
In addition, for certain products, specific risk parameters
are not captured in VaR due to the lack of inherent liquidity
and availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely that
using an actual price-based time series for these products,
if available, would affect the VaR results presented.
The Firm uses alternative methods to capture and measure
those risk parameters that are not otherwise captured in
VaR, including economic-value stress testing and
nonstatistical measures as described further below.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling techniques
and other factors. Such changes will also affect historical
comparisons of VaR results. Model changes go through a
review and approval process by the Model Review Group
prior to implementation into the operating environment.
For further information, see Model risk on page 139.
Separately, the Firm calculates a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III, which
may be different than the positions included in the Firm's
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm's Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
Since VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential losses, and
it is not used to estimate the impact of stressed market
conditions or to manage any impact from potential stress
events. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions. The Firm therefore considers
other measures in addition to VaR, such as stress testing, to
capture and manage its market risk positions.
VaR provides a consistent framework to measure risk
profiles and levels of diversification across product types
and is used for aggregating risks across businesses and
monitoring limits. These VaR results are reported to senior
management, the Board of Directors and regulators.
Data sources used in Var models may be the same as those
used for financial statement valuations. However, in cases
where market prices are not observable, or where proxies
are used in VaR historical time series, the sources may
differ. In addition, the daily market data used in Var models
may be different than the independent third-party data
collected for VCG price testing in their monthly valuation
process (see Valuation process in Note 3 for further
information on the Firm's valuation process). VaR model
calculations require daily data and a consistent source for
valuation and therefore it is not practical to use the data
collected in the VCG monthly valuation process.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual products and/or risk factors. To capture material
market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
Risk Management VaR is calculated assuming a one-day
holding period and an expected tail-loss methodology which
approximates a 95% confidence level. This means that,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “band breaks," defined as losses
greater than that predicted by VaR estimates, not more
than five times every 100 trading days. The number of VaR
band breaks observed can differ from the statistically
expected number of band breaks if the current level of
market volatility is materially different from the level of
market volatility during the twelve months of historical data
used in the VaR calculation.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stable
measure of VaR that closely aligns to the day-to-day risk
management decisions made by the lines of business and
provides necessary/appropriate information to respond to
risk events on a daily basis.
Total VaR
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in a
normal market environment. The Firm has a single
overarching VaR model framework used for calculating Risk
Management VaR and Regulatory VaR.
$ 23
$
Diversification benefit to CIB trading VaR
Commodities and other
14
22
21
9
13
23
10
15
Equities
9
8
11
+A
$ 36
$
62
$
35
7
25
4
8
Foreign exchange
$ 23
43
$
EA
45
34
Value-at-risk
JPMorgan Chase & Co./2014 Annual Report
132
Positions included in other risk
measures (Not included in Risk
Management VaR)
earnings, classified as derivatives
Primarily derivative positions
measured at fair value through
Treasury and CIO
Interest-only securities, classified as
trading assets and related hedges
classified as derivatives
Hedges of the MSRs and loans,
classified as derivatives
Warehouse loans, classified as
trading assets - debt instruments
MSRS
Mortgage pipeline loans, classified
as derivatives
Mortgage Banking
Derivative CVA
• Structured notes
• Certain securities loaned or sold
under repurchase agreements
• Certain securities purchased
under resale agreements and
securities borrowed
Market risk (a) related to:
•
Manages the Firm's liquidity,
funding, structural interest rate and
foreign exchange risks arising from
activities undertaken by the Firm's
four major reportable business
segments
Non-linear risk arises primarily
from prepayment options
embedded in mortgages and
changes in the probability of
newly originated mortgage
commitments actually closing
Complex, non-linear interest rate
and basis risk
•
.
•
Originates and services mortgage
loans
potential decline in net income as
a result of changes in market
prices; e.g. rates and credit
spreads
Market risk arising from a
•
Makes markets and services clients
across fixed income, foreign
exchange, equities and commodities
•
Corporate
CCB
CIB
Basis risk results from differences
in the relative movements of the
rate indices underlying mortgage
exposure and other interest rates
•
•
•
(a) Market risk for derivatives is generally measured after consideration of DVA and FVA on those positions; market risk for structured notes is generally
measured without consideration to such adjustments.
Deposits
•
Retained loan portfolio
Investments)
managed by AM (i.e., co-
distributed collective vehicles
party investors, typically in privately
Capital invested alongside third-
•
.
managed by AM
Initial seed capital investments and
related hedges classified as
derivatives
products, such as mutual funds,
initial capital investments in
•
Market risk arising from the Firm's
Principal investing activities
Retained loan portfolio
Deposits
DVA and FVA on derivatives and
structured notes
•
Retained loan portfolio
Deposits
Credit portfolio VaR
Private equity and other related
investments
Investment securities portfolio and
related hedges
Long-term debt and related hedges
•
Deposits
AM
•
CIB VaR
3.4
(5) (a)
100
NM
110
Allowance for loan losses to retained nonaccrual
loans excluding credit card
196
489
NM
113
617
202
NM
110
Allowance for loan losses to retained nonaccrual
loans(d)
2.25%
1.30%
2.98%
2.93%
617
153
113
NM
1.55
1.14
2.69
1.50
retained loans
Allowance for loan losses to
Credit ratios, excluding residential real estate
PCI loans
0.81
0.01
3.14
0.66
0.65
2.75
0.46
Net charge-off rates
150
489
1.90%
1.14%
2.69%
2.39%
$
$ 14,807
697 $ 705
$
$
8
$
622
609 $
$ 4,305
$ 3,439
$ 7,063
Total allowance for credit losses
Memo:
$
13 $
$
645
637
8,464
1.83
$
$ 4,710
Allowance for loan losses to retained loans
Credit ratios
720,152
53,061
6
$ 724,177
$ 308,263
307,340
$ 127,465
123,518
$ 288,449
289,294
53,055
$ 324,502 $747,508
316,060 729,876
46,700
4
$ 128,027
124,604
289,212
46,696
PCI loans, end of period
Retained loans, average
$ 294,979
Retained loans, end of period
$ 16,969
3,795
2.98
1.30
1.80
2013
1 $
5 $
$
302
414 $ (1,872) $
$
Consumer, excluding credit card
2014
2012
Total provision for credit losses
lending-related commitments
Provision for
Provision for loan losses
2014
2013
(in millions)
Year ended December 31,
The wholesale provision for credit losses for the year ended
December 31, 2014 reflected a continued favorable credit
environment as evidenced by low charge-off rates, and
declining nonaccrual balances and other portfolio activity.
For further information on the provision for credit losses,
see the Consolidated Results of Operations on pages 68-71.
reduction in the allowance for loan losses, as noted above in
the Allowance for Credit Losses discussion, which was lower
than the $1.7 billion reduction in the prior year. The lower
allowance reduction was partially offset by lower net
charge-offs in 2014.
2012
The increase in credit card provision for credit losses for the
year ended December 31, 2014 reflected a $350 million
2014
2012
Wholesale
5
3,746
307
3,493
Total consumer
3,444
2,179
3,079
-
3,444
2,179
3,079
Credit card
302
419 $ (1,871) $
$
2013
60
The increase in consumer, excluding credit card, provision
for credit losses for the year ended December 31, 2014
reflected a $904 million reduction in the allowance for loan
losses, as noted above in the Allowance for Credit Losses
discussion, which was lower than the $3.8 billion reduction
in the prior year. The lower allowance reduction was
partially offset by lower net charge-offs in 2014.
Provision for credit losses
57
106
617
NM
58
retained nonaccrual loans excluding credit
card
Allowance for loan losses to
146
489
NM
57
155
617
NM
58
retained nonaccrual loans (d)
Allowance for loan losses to
NM
For the year ended December 31, 2014, the provision for
credit losses was $3.1 billion, compared with $225 million
for the year ended December 31, 2013.
489
0.55%
Management's discussion and analysis
129
JPMorgan Chase & Co./2014 Annual Report
The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
(d)
The allowance for lending-related commitments is reported in other liabilities on the Consolidated balance sheets.
(c)
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g.,
upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded
investment in the Firm's PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact
to the Firm's Consolidated statements of income.
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. For additional information, see
Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 77-78.
0.87%
0.01%
3.14%
0.82%
0.70%
-%
2.75%
Net charge-off rates
$
60
$
$ 1,753
10,353
4,158
Total allowance for loan losses
$
7,050 $
3,439 $
3,696 $ 14,185
$
8,456 $ 3,795 $
4,013 $ 16,264
Allowance for lending-related commitments
Beginning balance at January 1,
$
8 $
- $
697
$
705
-
$
4,158
-
87
$
1,126
$
601 $
971
$
Formula-based
3,186
2,939
3,609
9,734
3,697
2,824
181
3,832
PCI
3,325
3,325
$
7 $
661
$
$
697
$
705
Impairment methodology
Asset-specific
Formula-based
Total allowance for lending-related
commitments(c)
$ - $ - $
13
60
549
$
60 $
+A
-
$
8
$
$
609 $
668
Provision for lending-related commitments
5
-
(90)
(85)
1
36
37
Other
-
2
2
Ending balance at December 31,
$
13 $
$
622
(269)
500
$
$
5,501 $ 4,143
$ 21,936
4,472
241
7,467
Gross recoveries
(814)
(402)
(139)
(1,355)
(847)
(593)
(225)
(1,665)
Net charge-offs
1,318
$ 12,292
2,754
3,429
151
3,831
8
Summary of changes in the allowance for credit losses
Year ended December 31,
(in millions, except ratios)
Allowance for loan losses
Consumer,
excluding
credit card
2014
2013
Credit card Wholesale
Total
Consumer,
excluding
credit card
Credit card Wholesale
Total
Beginning balance at January 1,
$ 8,456 $
Gross charge-offs
2,132
3,795 $ 4,013 $ 16,264
6,114
539 $
12
1,907
188
(6)
5
(5)
Ending balance at December 31,
$
7,050 $
3,439
$
3,696 $ 14,185
$
8,456 $
3,795
$
4,013 $ 16,264
Impairment methodology
Asset-specific (b)
(119)
4,759
2,179
(11)
3,879
16
5,802
Write-offs of PCI loans(a)
533
533
53
53
Provision for loan losses
414
3,079
(269)
3,224
Other
31
(6)
(36)
(1,872)
(4)
+A
(119)
(90)
(359)
(361)
(83)
(359)
562
3,746
308
3,498
1
36
(2)
Overview
Legal risk is the risk of loss or imposition of damages, fines,
penalties or other liability arising from failure to comply
with a contractual obligation or to comply with laws or
regulations to which the Firm is subject.
LEGAL RISK MANAGEMENT
Management's discussion and analysis
143
JPMorgan Chase & Co./2014 Annual Report
The Firm has established comprehensive tracking and
reporting of resiliency plans in order to proactively
anticipate and manage various potential disruptive
circumstances such as severe weather, technology and
communications outages, flooding, mass transit shutdowns
and terrorist threats, among others. The resiliency
measures utilized by the Firm include backup infrastructure
for data centers, a geographically distributed workforce,
dedicated recovery facilities, providing technological
capabilities to support remote work capacity for displaced
staff and accommodation of employees at alternate
locations. JPMorgan Chase continues to coordinate its
global resiliency program across the Firm and mitigate
business continuity risks by reviewing and testing recovery
procedures. The strength and proficiency of the Firm's
global resiliency program has played an integral role in
maintaining the Firm's business operations during and
quickly after various events in 2014 that have resulted in
business interruptions, such as severe winter weather in the
U.S., tropical storms in the Philippines, and geopolitical
events in Brazil and Hong Kong.
JPMorgan Chase & Co./2014 Annual Report
Business and Technology Resiliency
Cybersecurity attacks, like the one experienced by the Firm,
highlight the need for continued and increased cooperation
among businesses and the government, and the Firm
continues to work with the appropriate government and law
enforcement agencies and other businesses, including the
Firm's third-party service providers, to continue to enhance
defenses and improve resiliency to cybersecurity threats.
The Firm has established, and continues to establish,
defenses on an ongoing basis to mitigate this and other
possible future attacks. The cyberattacks experienced to
date have not resulted in any material disruption to the
Firm's operations or had a material adverse effect on the
Firm's results of operations. The Board of Directors and the
Audit Committee are regularly apprised regarding the
cybersecurity policies and practices of the Firm as well as
the Firm's efforts regarding this attack and other significant
cybersecurity events.
On September 10, 2014, the Firm disclosed that a
cyberattack against the Firm had occurred. On October 2,
2014, the Firm updated that information and disclosed
that, while user contact information (name, address, phone
number and email address) and internal JPMorgan Chase
information relating to such users had been compromised,
there had been no evidence that account information for
such affected customers account numbers, passwords,
user IDs, dates of birth or Social Security numbers -- was
compromised during the attack. The Firm continues to
vigilantly monitor the situation. In addition, as of the
October 2, 2014 announcement, as well as of the date of
this Annual Report, the Firm has not seen any unusual
customer fraud related to this incident. The Firm is
cooperating with government agencies in connection with
their investigation of the incident. The Firm also notified its
customers that they were not liable for unauthorized
transactions in their accounts attributable to this attack that
they promptly alerted the Firm about.
--
The Firm and several other U.S. financial institutions have
experienced significant distributed denial-of-service attacks
from technically sophisticated and well-resourced
unauthorized parties which are intended to disrupt online
banking services. The Firm and its clients are also regularly
targeted by unauthorized parties using malicious code and
viruses.
142
Third parties with which the Firm does business or that
facilitate the Firm's business activities (e.g., vendors,
exchanges, clearing houses, central depositories, and
financial intermediaries) could also be sources of
cybersecurity risk to the Firm, including with respect to
breakdowns or failures of their systems, misconduct by the
employees of such parties, or cyberattacks which could
affect their ability to deliver a product or service to the Firm
or result in lost or compromised information of the Firm or
its clients. In addition, customers with which or whom the
Firm does business can also be sources of cybersecurity risk
to the Firm, particularly when their activities and systems
are beyond the Firm's own security and control systems.
Customers will generally be responsible for losses incurred
due to their own failure to maintain the security of their
own systems and processes.
JPMorgan Chase's global resiliency and crisis management
program is intended to ensure that the Firm has the ability
to recover its critical business functions and supporting
assets (i.e., staff, technology and facilities) in the event of a
business interruption, and to remain in compliance with
global laws and regulations as they relate to resiliency risk.
The program includes corporate governance, awareness and
training, as well as strategic and tactical initiatives aimed to
ensure that risks are properly identified, assessed, and
managed.
In addition to providing legal services and advice to the
Firm, and communicating and helping the lines business
adjust to the legal and regulatory changes they face,
including the heightened scrutiny and expectations of the
Firm's regulators, the global Legal function is responsible
for working with the businesses and corporate functions to
fully understand and assess their adherence to laws and
regulations, as well as potential exposures on key litigation
and transactional matters. In particular, Legal assists
Oversight & Control, Risk, Finance, Compliance and Internal
Audit in their efforts to ensure compliance with all
applicable laws and regulations and the Firm's corporate
standards for doing business. The Firm's lawyers also advise
the Firm on potential legal exposures on key litigation and
transactional matters, and perform a significant defense
and advocacy role by defending the Firm against claims and
potential claims and, when needed, pursuing claims against
others.
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel's leadership team includes a General
Counsel for each line of business, the heads of the Litigation
and Corporate & Regulatory practices, as well as the Firm's
Corporate Secretary. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible for
managing legal risk across all lines of business and
functions in the region.
Legal works with various committees (including new
business initiative and reputation risk committees) and the
Firm's businesses to protect the Firm's reputation beyond
any particular legal requirements. In addition, the Firm's
Conflicts Office examines the Firm's wholesale transactions
that may have the potential to create conflicts of interest
for the Firm.
The Firmwide Fiduciary Risk Committee ("FFRC") is a forum
for risk matters related to the Firm's fiduciary activities and
oversees the firmwide fiduciary risk governance framework.
It supports the consistent identification and escalation of
fiduciary risk matters by the relevant lines of business or
corporate functions responsible for managing fiduciary
activities. The committee escalates significant issues to the
Firmwide Risk Committee and any other committee
considered appropriate.
Fiduciary Risk Management is the responsibility of the
relevant LOB risk and/or other governance committees.
Senior business, legal, risk and compliance managers, who
have particular responsibility for fiduciary matters, work
with the relevant LOB risk committees with the goal of
ensuring that businesses providing investment, trusts and
estates, or other fiduciary products or services that give rise
to fiduciary duties to clients perform at the appropriate
standard relative to their fiduciary relationship with a client.
Each LOB and its respective risk and/or other governance
committees are responsible for the oversight and
management of the fiduciary risks in their businesses. Of
particular focus are the policies and practices that address
a business's responsibilities to a client, including
performance and service requirements and expectations;
client suitability determinations; and disclosure obligations
and communications. In this way, the relevant LOB risk and/
or other governance committees provide oversight of the
Firm's efforts to monitor, measure and control the
performance and delivery of the products or services to
clients that may give rise to such fiduciary duties, as well as
the Firm's fiduciary responsibilities with respect to the
Firm's employee benefit plans.
Fiduciary risk governance
Depending on the fiduciary activity and capacity in which
the Firm is acting, federal and state statutes and
regulations, and common law require the Firm to adhere to
specific duties in which the Firm must always place the
client's interests above its own.
applicable high standard of care, to act in the best interests
of clients or to treat clients fairly, as required under
applicable law or regulation.
Fiduciary risk is the risk of a failure to exercise the
FIDUCIARY RISK MANAGEMENT
Governance and Oversight
JPMorgan Chase & Co./2014 Annual Report
The Firm has in place a Code of Conduct (the "Code"), and
each employee is given annual training in respect of the
Code and is required annually to affirm his or her
compliance with the Code. The Code sets forth the Firm's
core principles and fundamental values, including that no
employee should ever sacrifice integrity - or give the
impression that he or she has - even if one thinks it would
help the Firm's business. The Code requires prompt
reporting of any known or suspected violation of the Code,
any internal Firm policy, or any law or regulation applicable
to the Firm's business. It also requires the reporting of any
illegal conduct, or conduct that violates the underlying
principles of the Code, by any of the Firm's customers,
suppliers, contract workers, business partners, or agents.
Specified employees are specially trained and designated as
"code specialists" who act as a resource to employees on
Code of Conduct matters. In addition, concerns may be
reported anonymously and the Firm prohibits retaliation
against employees for the good faith reporting of any actual
or suspected violations of the Code.
Compliance operates independent of the lines of business,
and is led by the Chief Compliance Officer ("CCO") who
reports directly to the Firm's COO. The Firm maintains
oversight and coordination in its Compliance Risk
Management practices globally through ongoing dialog and
reporting between the lines of business, Regional Chief
Compliance Officers and the CCO regarding significant
compliance and regulatory management matters, as well as
implementation of the Compliance program across the lines
of business and Regions.
While each line of business is accountable for managing its
compliance risk, the Firm's Compliance teams work closely
with the Operating Committee and senior management to
provide independent review and oversight of the lines of
business operations, with a focus on compliance with
applicable global, regional and local laws and regulations.
In recent years, the Firm has experienced heightened
scrutiny by its regulators of its compliance with regulations,
and with respect to its controls and operational processes.
The Firm expects such regulatory scrutiny will continue.
Governance and Oversight
Global Compliance Risk Management's ("Compliance") role
is to identify, measure, monitor, and report on and provide
oversight regarding compliance risks arising from business
operations, and provide guidance on how the Firm can
mitigate these risks.
Overview
Compliance risk is the risk fines or sanctions or of financial
damage or loss due to the failure to comply with laws, rules,
and regulations.
COMPLIANCE RISK MANAGEMENT
144
The Firm devotes significant resources to maintain and
regularly update its systems and processes that are
designed to protect the security of the Firm's computer
systems, software, networks and other technology assets
against attempts by unauthorized parties to obtain access
to confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
In 2014, the Firm spent more than $250 million, and had
approximately 1,000 people focused on cybersecurity
efforts, and these efforts are expected to grow significantly
over the coming years.
Internal Audit utilizes a risk-based program of audit
coverage to provide an independent assessment of the
design and effectiveness of key controls over the Firm's
operations, regulatory compliance and reporting. This
includes reviewing the operational risk framework, the
effectiveness of the RCSA process, and the loss data-
collection and reporting activities.
Insurance
The lines of business and corporate functions are
responsible for implementing the ORMF. The Firmwide
Oversight and Control Group, comprised of dedicated
control officers within each of the lines of business and
corporate functional areas, as well as a central oversight
team, is responsible for day to day review and monitoring of
ORMF execution.
Risk Management is responsible for prescribing the ORMF to
the lines of business and corporate functions and to provide
independent oversight of its implementation. In 2014,
Operational Risk Officers ("OROS") were appointed across
each line of business and corporate function to provide this
independent oversight.
To monitor and control operational risk, the Firm maintains
an overall Operational Risk Management Framework
("ORMF") which comprises governance oversight, risk
assessment, capital measurement, and reporting and
monitoring. The ORMF is intended to enable the Firm to
function with a sound and well-controlled operational
environment.
Overview
Operational risk is the risk of loss resulting from inadequate
or failed processes or systems or due to external events
that are neither market nor credit-related. Operational risk
is inherent in the Firm's activities and can manifest itself in
various ways, including fraudulent acts, business
interruptions, inappropriate behavior of employees, failure
to comply with applicable laws and regulations or failure of
vendors to perform in accordance with their arrangements.
These events could result in financial losses, litigation and
regulatory fines, as well as other damage to the Firm. The
goal is to keep operational risk at appropriate levels, in light
of the Firm's financial strength, the characteristics of its
businesses, the markets in which it operates, and the
competitive and regulatory environment to which it is
subject.
OPERATIONAL RISK MANAGEMENT
JPMorgan Chase & Co./2014 Annual Report
Operational risk management framework
140
The Firm's principal investments are managed under
various lines of business and are captured within the
respective LOB's financial results. The Firm's approach to
managing principal risk is consistent with the Firm's general
risk governance structure. A Firmwide risk policy framework
exists for all principal investing activities. All investments
are approved by investment committees that include
executives who are independent from the investing
businesses. The Firm's independent control functions are
responsible for reviewing the appropriateness of the
carrying value of principal investments in accordance with
relevant policies. Targeted levels for total and annual
investments are established in order to manage the overall
size of the portfolios. Industry, geographic, and position
level concentration limits are in place intended to ensure
diversification of the portfolios. The Firm also conducts
stress testing on these portfolios using specific scenarios
that estimate losses based on significant market moves
and/or other risk events.
Principal investments are predominantly privately-held
financial assets and instruments, typically representing an
ownership or junior capital position, that have unique risks
due to their illiquidity or for which there is less observable
market or valuation data. Such investing activities are
typically intended to be held over extended investment
periods and, accordingly, the Firm has no expectation for
short-term gain with respect to these investments. Principal
investments cover multiple asset classes and are made
either in stand-alone investing businesses or as part of a
broader business platform. Asset classes include tax-
oriented investments including affordable housing and
alternative energy investments, private equity, and
mezzanine/junior debt investments.
PRINCIPAL RISK MANAGEMENT
Management's discussion and analysis
139
JPMorgan Chase & Co./2014 Annual Report
For a summary of valuations based on models, see Critical
Accounting Estimates Used by the Firm and Note 3.
The Firm has taken steps to reduce its exposure to principal
investments, selling portions of Corporate's One Equity
Partners private equity portfolio and the CIB's Global
Special Opportunities Group equity and mezzanine
financing portfolio.
The components of the Operational Risk Management
Framework are:
Oversight and governance
Control committees oversee the operational risks and
control environment of the respective line of business,
function or region. These committees escalate operational
risk issues to their respective line of business, function or
regional Risk committee and also escalate significant risk
issues (and/or risk issues with potential Firmwide impact)
to the Firmwide Control Committee ("FCC"). The FCC
provides a monthly forum for reviewing and discussing
Firmwide operational risk metrics and management,
including existing and emerging issues, and reviews
execution against the ORMF. It escalates significant issues to
the Firmwide Risk Committee, as appropriate. For additional
information on the Firmwide Control Committee, see Risk
Governance on pages 106-109.
Audit alignment
The LDA is supplemented by both management's view of
plausible tail risk, which is captured as part of the Scenario
Analysis process, and evaluation of key LOB internal control
metrics (BEICF). The Firm may further supplement such
analysis to incorporate management judgment and
feedback from its bank regulators. For information related
to operational risk RWA, see Regulatory capital on pages
146-153.
and the calculation generally continues to reflect such
losses even after the issues or business activities giving rise
to the losses have been remediated or reduced.
Management's discussion and analysis
141
The primary component of the operational risk capital
estimate is the result of a statistical model, the LDA, which
simulates the frequency and severity of future operational
risk losses based on historical data. The LDA model is used
to estimate an aggregate operational loss over a one-year
time horizon, at a 99.9% confidence level. The LDA model
incorporates actual operational losses in the quarter
following the period in which those losses were realized,
Business environment and internal control factors
("BEICF").
Scenario analysis, and
External losses,
•
Operational risk capital is measured primarily using a
statistical model based on the Loss Distribution Approach
("LDA"). The operational risk capital model uses actual
losses (internal and external to the Firm), an inventory of
material forward-looking potential loss scenarios and
adjustments to reflect changes in the quality of the control
environment in determining Firmwide operational risk
capital. This methodology is designed to comply with the
Advanced Measurement rules under the Basel framework.
The Firm's capital methodology incorporates four required
elements of the Advanced Measurement Approach ("AMA"):
Internal losses,
Capital measurement
Operational risk management and control reports provide
information, including actual operational loss levels, self-
assessment results and the status of issue resolution to the
lines of business and senior management. The purpose of
these reports is to enable management to maintain
operational risk at appropriate levels within each line of
business, to escalate issues and to provide consistent data
aggregation across the Firm's businesses and functions.
The Firm has a process for capturing, tracking and
monitoring operational risk events. The Firm analyzes
errors and losses and identifies trends. Such analysis
enables identification of the causes associated with risk
events faced by the lines of business.
Risk reporting and monitoring
In order to evaluate and monitor operational risk, the lines
of business and functions utilize the Firm's standard risk
and control self-assessment ("RCSA") process and
supporting architecture. The RCSA process requires
management to identify material inherent operational risks,
assess the design and operating effectiveness of relevant
controls in place to mitigate such risks, and evaluate
residual risk. Action plans are developed for control issues
that are identified, and businesses are held accountable for
tracking and resolving issues on a timely basis. Commencing
in 2015, Risk Management will perform sample
independent challenge of the RCSA program.
Risk self-assessment
JPMorgan Chase & Co./2014 Annual Report
One of the ways operational loss is mitigated is through
insurance maintained by the Firm. The Firm purchases
insurance to be in compliance with local laws and
regulations (e.g., workers compensation), as well as to
serve other needs (e.g., property loss and public liability).
Insurance may also be required by third parties with whom
the Firm does business. The insurance purchased is
reviewed and approved by senior management.
Cybersecurity
REPUTATION RISK MANAGEMENT
JPMorgan Chase & Co./2014 Annual Report
145
Basel III Transitional Capital(a)
2019+
2018
2015-2017
Fully Phased-In
Transitional period
Approach
Basel III Capital
Advanced
Standardized
Approach
RWA (Denominator)
2014
Capital (Numerator)
The basis to calculate the Firm's capital ratios (both risk-based and leverage) under Basel III during the transitional period and
when fully phased-in are shown in the table below.
Capital ratios
Management's discussion and analysis
Basel I with 2.5(b)
Basel III Standardized
Basel III Advanced
(a)
JPMorgan Chase & Co./2014 Annual Report
148
Basel III also establishes a minimum 6.5% CET1 standard
for the definition of "well capitalized" under the Prompt
Corrective Action ("PCA") requirements of the FDIC
Improvement Act ("FDICIA"). The CET1 standard is effective
beginning with the first quarter of 2015.
Consequently, based upon the final rules currently in effect,
the minimum Basel III CET1 capital ratio requirement for
the Firm is expected to be 9.5%, comprised of the
minimum ratio of 4.5% plus the 2.5% capital conservation
buffer and the 2.5% G-SIB requirement both beginning
January 1, 2019.
The Basel Committee has stated that G-SIBS could in the
future be required to hold 3.5% or more of additional
capital if their relative systemic importance were to
increase. Currently, no G-SIB is required to hold more than
the additional 2.5% of capital.
In addition to the regulatory minimum capital
requirements, certain banking organizations, including the
Firm, will be required to hold an additional 2.5% of CET1
capital to serve as a "capital conservation buffer." The
capital conservation buffer is intended to be used to absorb
potential losses in times of financial or economic stress; if
not maintained, the Firm could be limited in the amount of
capital that may be distributed, including dividends and
common equity repurchases. The capital conservation
buffer will be phased-in beginning January 1, 2016.
Moreover, G-SIBS will be required to maintain, in addition to
the capital conservation buffer, further amounts of capital
ranging from 1% to 2.5% across all tiers of regulatory
capital. In November 2014, based upon data as of
December 31, 2013, the Financial Stability Board ("FSB")
indicated that certain G-SIBS, including the Firm, would be
required to hold the additional 2.5% of capital; the
requirement will be phased-in beginning January 1, 2016.
The Basel III rules include minimum capital ratio
requirements that are also subject to phase-in periods
through January 1, 2019.
Risk-based capital regulatory minimums
Adjusted average assets, for purposes of calculating the leverage ratio and SLR, includes total quarterly average assets adjusted for unrealized gains/(losses) on securities,
less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity
investments that are subject to deductions from Tier 1 capital.
Trust preferred securities ("TruPS") are being phased out from inclusion in Basel III capital commencing January 1, 2014, continuing through the end of 2021.
Defined as Basel III Standardized Transitional for 2014. Beginning January 1, 2015, Basel III Standardized RWA is calculated under the Basel III definition of the Standardized
Approach.
Adjusted average assets (c) + off-balance sheet exposures
Adjusted average assets (c)
Supplementary
leverage
Tier 1 Leverage
Leverage (Denominator)
(c)
(b)
147
Reputation risk is the risk that an action, transaction,
investment or event will reduce the trust that clients,
shareholders, employees or the broader public has in the
Firm's integrity or competence. Maintaining the Firm's
reputation is the responsibility of each individual employee
of the Firm. The Firm's Reputation Risk policy explicitly
vests each employee with the responsibility to consider the
reputation of the Firm when engaging in any activity. Since
the types of events that could harm the Firm's reputation
are so varied across the Firm's lines of business, each line of
business has a separate reputation risk governance
infrastructure in place, which comprises three key elements:
clear, documented escalation criteria appropriate to the
business footprint; a designated primary discussion forum -
in most cases, one or more dedicated reputation risk
committees; and a list of designated contacts. Line of
business reputation risk governance is overseen by a
Firmwide Reputation Risk Governance function, which
provides oversight of the governance infrastructure and
process to support the consistent identification, escalation,
management and reporting of reputation risk issues
firmwide.
JPMorgan Chase & Co./2014 Annual Report
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate a SLR. The SLR, a non-GAAP financial measure, is
defined as Tier 1 capital under Basel III divided by the
Firm's total leverage exposure. Total leverage exposure is
calculated by taking the Firm's total average on-balance
sheet assets, less amounts permitted to be deducted for
Tier 1 capital, and adding certain off-balance sheet
exposures, such as undrawn commitments and derivatives
potential future exposure.
Capital strategy and governance
These objectives are achieved through ongoing monitoring
of the Firm's capital position, regular stress testing, and a
capital governance framework. Capital management is
intended to be flexible in order to react to a range of
potential events. JPMorgan Chase has firmwide and LOB
processes for ongoing monitoring and active management
of its capital position.
Distribute excess capital to shareholders while balancing
other stated objectives.
Maintain sufficient capital in order to continue to build
and invest in its businesses through the cycle and in
stressed environments; and
Maintain debt ratings that enable the Firm to optimize its
funding mix and liquidity sources while minimizing costs;
Retain flexibility to take advantage of future investment
opportunities;
Maintain "well-capitalized" status under regulatory
requirements;
Cover all material risks underlying the Firm's business
activities;
The Firm's CEO, in conjunction with the Board and its
subcommittees, establish principles and guidelines for
capital planning, capital issuance, usage and distributions,
and establish capital targets for the level and composition
of capital in both business-as-usual and highly stressed
environments.
•
•
•
•
The Firm's capital management objectives are to hold
capital sufficient to:
A strong capital position is essential to the Firm's business
strategy and competitive position. The Firm's capital
strategy focuses on long-term stability, which enables the
Firm to build and invest in market-leading businesses, even
in a highly stressed environment. Prior to making any
decisions on future business activities, senior management
considers the implications on the Firm's capital. In addition
to considering the Firm's earnings outlook, senior
management evaluates all sources and uses of capital with
a view to preserving the Firm's capital strength. Maintaining
a strong balance sheet to manage through economic
volatility is considered a strategic imperative by the Firm's
Board of Directors, CEO and Operating Committee. The
Firm's balance sheet philosophy focuses on risk-adjusted
returns, strong capital and reserves, and robust liquidity.
CAPITAL MANAGEMENT
Management's discussion and analysis
•
The Firm's senior management recognizes the importance
of a capital management function that supports strategic
decision-making. The Firm has established the Capital
Governance Committee and the Regulatory Capital
Management Office ("RCMO") as key components in support
of this objective. The Capital Governance Committee is
responsible for reviewing the Firm's Capital Management
Policy and the principles underlying capital issuance and
distribution alternatives. The Committee is also responsible
146
for governing the capital adequacy assessment process,
including overall design, assumptions and risk streams, and
ensuring that capital stress test programs are designed to
adequately capture the idiosyncratic risks across the Firm's
businesses. RCMO, which reports to the Firm's CFO, is
responsible for reviewing, approving and monitoring the
implementation of the Firm's capital policies and strategies,
as well as its capital adequacy assessment process. The
DRPC assesses the Firm's capital adequacy process and its
components. This review determines the effectiveness of
the capital adequacy process, the appropriateness of the
risk tolerance levels, and the strength of the control
infrastructure. For additional discussion on the DRPC, see
Enterprise-wide Risk Management on pages 105-109.
Capital disciplines
Supplementary leverage ratio (“SLR”)
Basel III establishes two comprehensive methodologies for
calculating RWA (a Standardized approach and an
Advanced approach) which include capital requirements for
credit risk, market risk, and in the case of Basel III
Advanced, also operational risk. Key differences in the
calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced, both of which incorporate the requirements set
forth in Basel 2.5. In addition to the RWA calculated under
these methodologies, the Firm may supplement such
amounts to incorporate management judgment and
feedback from its bank regulators.
Risk-weighted assets
Basel III revises Basel I and II by narrowing the definition of
capital and increasing the capital requirements for specific
exposures. Under Basel III, CET1 capital predominantly
includes common stockholders' equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined benefit pension and other post-
retirement employee benefit ("OPEB") plans), less certain
deductions for goodwill, MSRs and deferred tax assets that
arise from net operating loss ("NOL") and tax credit
carryforwards. Tier 1 capital is predominantly comprised of
CET1 capital as well as perpetual preferred stock. Tier 2
capital includes long-term debt qualifying as Tier 2 and
qualifying allowance for credit losses. Total capital is Tier 1
capital plus Tier 2 capital. The revisions to CET1 capital,
Tier 1 capital and Tier 2 capital are subject to phase-in
periods that began January 1, 2014, and continue through
the end of 2018, and during that period, CET1 capital, Tier
1 capital and Tier 2 capital represent Basel III Transitional
capital.
Definition of capital
Prior to the implementation of Basel III Advanced, the Firm
was required to complete a qualification period (“"parallel
run") during which it needed to demonstrate that it met the
requirements of the rule to the satisfaction of its U.S.
banking regulators. On February 21, 2014, the Federal
Reserve and the OCC informed the Firm and its national
bank subsidiaries that they had satisfactorily completed the
parallel run requirements and were approved to calculate
capital under Basel III Advanced, in addition to Basel III
Standardized, as of April 1, 2014. In conjunction with its
exit from the parallel run, the capital adequacy of the Firm
and its national bank subsidiaries is evaluated against the
Basel III approach (Standardized or Advanced) which
results, for each quarter beginning with the second quarter
of 2014, in the lower ratio (the "Collins Floor"), as required
by the Collins Amendment of the Dodd-Frank Act.
JPMorgan Chase & Co./2014 Annual Report
Basel III, for U.S. bank holding companies and banks,
revises, among other things, the definition of capital and
introduces a new common equity Tier 1 capital ("CET1
capital") requirement; presents two comprehensive
methodologies for calculating risk-weighted assets ("RWA"),
a general (Standardized) approach, which replaces Basel I
RWA ("Basel III Standardized") and an advanced approach,
which replaces Basel II RWA ("Basel III Advanced"); and sets
out minimum capital ratios and overall capital adequacy
standards. Certain of the requirements of Basel III are
subject to phase-in periods that began January 1, 2014 and
continue through the end of 2018 (“Transitional period")
as described below. Both Basel III Standardized and Basel III
Advanced became effective commencing January 1, 2014
for large and internationally active U.S. bank holding
companies and banks, including the Firm and its insured
depository institution ("IDI") subsidiaries.
The U.S. capital requirements follow the Capital Accord of
the Basel Committee, as amended from time to time. Prior
to January 1, 2014, the Firm and its banking subsidiaries
were subject to the capital requirements of Basel I and
Basel 2.5. Effective January 1, 2014, the Firm became
subject to Basel III (which incorporates Basel 2.5).
Basel III overview
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The Office of the Comptroller of
the Currency ("OCC") establishes similar capital
requirements and standards for the Firm's national banks,
including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Regulatory capital
Line of business equity
Economic capital
Regulatory capital
•
•
In its capital management, the Firm uses three primary
disciplines, which are further described below:
On September 3, 2014, the U.S. banking regulators
adopted a final rule for the calculation of the SLR. The U.S.
final rule requires public disclosure of the SLR beginning
with the first quarter of 2015, and also requires U.S. bank
holding companies, including the Firm, to have a minimum
SLR of at least 5% and IDI subsidiaries, including JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A., to have a
minimum SLR of at least 6%, both beginning January 1,
2018.
In the event that the Model Risk function does not approve a
model, the model owner is required to remediate the model
within a time period agreed upon with the Model Risk
function. The model owner is also required to resubmit the
model for review to the Model Risk function and to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
The Firm may also implement other appropriate risk
measurement tools to augment the model that is subject to
remediation. In certain circumstances, exceptions to the
Firm's model risk policy may be granted by the head of the
Model Risk function to allow a model to be used prior to
review or approval.
Models are owned by various functions within the Firm
based on the specific purposes of such models. For
example, VaR models and certain regulatory capital models
are owned by the line of business-aligned risk management
functions. Owners of models are responsible for the
development, implementation and testing of their models,
as well as referral of models to the Model Risk function
(within the Model Risk and Development unit) for review
and approval. Once models have been approved, model
owners are responsible for the maintenance of a robust
operating environment and must monitor and evaluate the
performance of the models on an ongoing basis. Model
owners may seek to enhance models in response to changes
in the portfolios and for changes in product and market
developments, as well as to capture improvements in
available modeling techniques and systems capabilities.
The Model Risk review and governance functions are
independent of the model owners and they review and
approve a wide range of models, including risk
management, valuation and regulatory capital models used
by the Firm. The Model Risk review and governance
functions are part of the Firm's Model Risk and
Development unit, and the Firmwide Model Risk and
Development Executive reports to the Firm's CRO.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the Model Risk function. A model review
conducted by the Model Risk function considers the model's
suitability for the specific uses to which it will be put. The
factors considered in reviewing a model include whether the
model accurately reflects the characteristics of the product
and its significant risks, the selection and reliability of
model inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, and
sensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, the
Model Risk function analyzes and challenges the model
methodology and the reasonableness of model assumptions
and may perform or require additional testing, including
back-testing of model outcomes. Model reviews are
approved by the appropriate level of management within
the Model Risk function based on the relevant tier of the
model.
Under the Firm's model risk policy, new models, as well as
material changes to existing models, are reviewed and
approved by the Model Risk function prior to
implementation in the operating environment.
MODEL RISK MANAGEMENT
Model risk
Model risk is the potential for adverse consequences from
decisions based on incorrect or misused model outputs and
reports.
The Firm uses models, for many purposes, but primarily for
the measurement, monitoring and management of risk
positions. Valuation models are employed by the Firm to
value certain financial instruments that cannot otherwise be
valued using quoted prices. These valuation models may
also be employed as inputs to risk management models,
including VaR and economic stress models. The Firm also
makes use of models for a number of other purposes,
including the calculation of regulatory capital requirements
and estimating the allowance for credit losses.
153
Equity for a line of business represents the amount the Firm
believes the business would require if it were operating
independently, considering capital levels for similarly rated
peers, regulatory capital requirements (as estimated under
Basel III Advanced Fully Phased-In) and economic risk
measures. Capital is also allocated to each line of business
for, among other things, goodwill and other intangibles
associated with acquisitions effected by the line of business.
ROE is measured and internal targets for expected returns
are established as key measures of a business segment's
performance.
(a) Reflects refined capital allocations effective January 1, 2015.
$ 212.0 $ 200.0
$ 212.0
75.0
77.0
76.0
158
9.0
9.0
9.0
13.5
14.0
14.0
Management's discussion and analysis
Capital actions
Dividends
The Firm's common stock dividend policy reflects JPMorgan
Chase's earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.
The Firm's current expectation is to continue to target a
payout ratio of approximately 30% of normalized earnings
over time. Following the Federal Reserve's non-objection to
the Firm's 2014 capital plan, the Board of Directors
increased the quarterly common stock dividend on May 20,
2014, from $0.38 to $0.40 per share, effective beginning
with the dividend paid on July 31, 2014, to stockholders of
record on July 3, 2014.
Total number of warrants repurchased
Aggregate purchase price of warrant
repurchases
Aggregate purchase price of common
stock repurchases
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2014,
2013 and 2012, on a trade-date basis. There were no
warrants repurchased during the years ended December
31, 2014, and 2013.
On March 13, 2012, the Board of Directors authorized a
$15.0 billion common equity (i.e., common stock and
warrants) repurchase program. As of December 31, 2014,
$3.8 billion (on a trade-date basis) of authorized
repurchase capacity remained under the program. The
amount of equity that may be repurchased by the Firm is
also subject to the amount that is set forth in the Firm's
annual capital plan submitted to the Federal Reserve as
part of the CCAR process. In conjunction with the Federal
Reserve's release of its 2014 CCAR results, the Firm's Board
of Directors has authorized the Firm to repurchase $6.5
billion of common equity between April 1, 2014, and March
31, 2015. As of December 31, 2014, $2.1 billion (on a
trade-date basis) of such repurchase capacity remains. This
authorization includes shares repurchased to offset
issuances under the Firm's equity-based compensation
plans.
Common equity
During the year ended December 31, 2014, the Firm issued
$8.9 billion of noncumulative preferred stock. Preferred
stock dividends declared were $1.1 billion for the year
ended December 31, 2014. Assuming all preferred stock
issuances were outstanding for the entire year and
quarterly dividends were declared on such issuances,
preferred stock dividends would have been $1.3 billion for
the year ended December 31, 2014. For additional
information on the Firm's preferred stock, see Note 22.
Redemption of outstanding trust preferred securities
On May 8, 2013, the Firm redeemed approximately
$5.0 billion, or 100% of the liquidation amount, of the
following eight series of trust preferred securities:
JPMorgan Chase Capital X, XI, XII, XIV, XVI, XIX, XXIV, and
BANK ONE Capital VI. For a further discussion of trust
preferred securities, see Note 21.
56.5
2012
23%
29%
2014
Preferred stock
Common dividend payout ratio
Year ended December 31,
The following table shows the common dividend payout
ratio based on reported net income.
For information regarding dividend restrictions, see Note 22
and Note 27.
2013
33%
61.0
As of December 31, 2014, total deposits for the Firm were
$1,363.4 billion, compared with $1,287.8 billion at
December 31, 2013 (58% of total liabilities at both
December 31, 2014 and 2013). The increase was due to
growth in both wholesale and consumer deposits. For
further information, see Balance Sheet Analysis on pages
72-73.
$ 51.0 $ 51.0 $ 46.0
47.5
56.5
61.0
$ 43.0
46.0
$
$ 51.0
14.0
2012
2014
Yearly average
Total common stockholders' equity
Asset Management
Corporate
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Year ended December 31,
(in billions)
Line of business equity
2013
13.5
9.5
9.0
December 31,
2013
2014
January 1,
2015(a)
Total common stockholders'
equity
Asset Management
Corporate
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Line of business equity
(in billions)
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital to
its lines of business and updates the equity allocations to its
lines of business as refinements are implemented.
Effective January 1, 2013, the Firm refined the capital
allocation framework to align it with the revised line of
business structure that became effective in the fourth
quarter of 2012. The change in equity levels for the lines of
businesses was largely driven by the evolving regulatory
requirements and higher capital targets the Firm had
established under the Basel III Advanced Approach.
$ 184.4
$ 196.4
$ 207.4
77.4
71.4
72.4
7.0
9.0
2014
62.0
2013
96.1
As of December 31, 2014, HQLA was estimated to be
approximately $600 billion, as determined under the U.S.
LCR final rule, compared with $522 billion as of December
31, 2013, which was calculated using the Basel
Committee's definition of HQLA. The increase in HQLA was
due to higher cash balances largely driven by higher deposit
balances, partially offset by the impact of the application of
the U.S. LCR rule which excludes certain types of securities
that are permitted under the Basel Rules. HQLA may
fluctuate from period-to-period primarily due to normal
flows from client activity.
HQLA is the estimated amount of assets that qualify for
inclusion in the U.S. LCR. HQLA primarily consists of cash
and certain unencumbered high quality liquid assets as
defined in the rule.
On October 31, 2014, the Basel Committee issued the final
standard for the NSFR which will become a minimum
standard by January 1, 2018. At December 31, 2014, the
Firm was compliant with the NSFR based on its current
understanding of the final Basel rule. The U.S. Banking
Regulators are expected to issue a proposal on the NSFR
that would outline requirements specific to U.S. banks.
HQLA
On September 3, 2014, the U.S. banking regulators
approved the final LCR rule (“U.S. LCR"), which became
effective on January 1, 2015. Under the final rules, the LCR
is required to be 80% at January 1, 2015, increasing by
10% each year until reaching 100% at January 1, 2017. At
December 31, 2014, the Firm was compliant with the fully
phased-in U.S. LCR based on its current understanding of
the final rule. The Firm's LCR may fluctuate from period-to-
period due to normal flows from client activity.
JPMorgan Chase & Co./2014 Annual Report
In December 2010, the Basel Committee introduced two
new measures of liquidity risk: the liquidity coverage ratio
("LCR"), which is intended to measure the amount of "high-
quality liquid assets” (“HQLA”) held by the Firm in relation
to estimated net cash outflows within a 30-day period
during an acute stress event; and the net stable funding
ratio ("NSFR") which is intended to measure the "available"
amount of stable funding relative to the "required" amount
of stable funding over a one-year horizon. The standards
require that the LCR be no lower than 100% and the NSFR
be greater than 100%.
LCR and NSFR
The parent holding company acts as a source of funding to
its subsidiaries. The Firm's liquidity management is
intended to maintain liquidity at the parent holding
company, in addition to funding and liquidity raised at the
subsidiary operating level, at levels sufficient to fund the
operations of the parent holding company and its
subsidiaries for an extended period of time in a stress
environment where access to normal funding sources is
disrupted. The parent holding company currently holds
more than 18 months of pre-funding assuming no access to
wholesale funding markets.
Parent holding company and subsidiary funding
The Firm's contingency funding plan (“CFP"), which is
reviewed by ALCO and approved by the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify the emergence of risks or vulnerabilities in the
Firm's liquidity position. The CFP identifies the alternative
contingent liquidity resources available to the Firm in a
stress event.
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Contingency funding plan
appetite tolerances and limits;
Managing liquidity within approved liquidity risk
Defining and monitoring firmwide and legal entity
liquidity strategies, policies, guidelines, and contingency
funding plans;
characteristics of the Firm, lines of business and legal
entities' assets and liabilities, taking into account legal,
regulatory, and operational restrictions;
The following table presents the estimated HQLA included
in the U.S. LCR broken out by HQLA-eligible cash and HQLA-
eligible securities as of December 31, 2014.
(in billions)
Eligible cash (a)
HQLA
A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. As of December 31, 2014,
the Firm's loans-to-deposits ratio was 56%, compared with
57% at December 31, 2013.
Deposits
In addition to funding capital markets assets, proceeds from
the Firm's debt and equity issuances are used to fund
certain loans, and other financial and non-financial assets,
or may be invested in the Firm's investment securities
portfolio. See the discussion below for additional
disclosures relating to Deposits, Short-term funding, and
Long-term funding and issuance.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm's loan portfolio (aggregating
approximately $757.3 billion at December 31, 2014), is
funded with a portion of the Firm's deposits (aggregating
approximately $1,363.4 billion at December 31, 2014)
and through securitizations and, with respect to a portion of
the Firm's real estate-related loans, with secured
borrowings from the FHLBS. Deposits in excess of the
amount utilized to fund loans are primarily invested in the
Firm's investment securities portfolio or deployed in cash or
other short-term liquid investments based on their interest
rate and liquidity risk characteristics. Capital markets
secured financing assets and trading assets are primarily
funded by the Firm's capital markets secured financing
liabilities, trading liabilities and a portion of the Firm's long-
term debt and stockholders' equity.
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
Sources of funds
window and the various other central banks as a primary
source of liquidity. As of December 31, 2014, the Firm's
remaining borrowing capacity at various FHLBS and the
Federal Reserve Bank discount window was approximately
$143 billion. This borrowing capacity excludes the benefit
of securities included above in HQLA or other
unencumbered securities held at the Federal Reserve Bank
discount window for which the Firm has not drawn liquidity.
Funding
Analyzing and understanding the liquidity
In addition to HQLA, as of December 31, 2014, the Firm has
approximately $321 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required.
Furthermore, the Firm maintains borrowing capacity at
various Federal Home Loan Banks ("FHLBS”), the Federal
Reserve Bank discount window and various other central
banks as a result of collateral pledged by the Firm to such
banks. Although available, the Firm does not view the
borrowing capacity at the Federal Reserve Bank discount
Prompt Corrective
Action well-
$ 600
146
$ 454
December 31, 2014
Total HQLA
Eligible securities(b)
(a) Predominantly cash on deposit at central banks.
(b) Predominantly includes U.S. agency mortgage-backed securities, U.S.
Treasuries, and sovereign bonds.
•
.
In the context of the Firm's liquidity management, Treasury
is responsible for:
JPMorgan Chase & Co./2014 Annual Report
At December 31, 2014, J.P. Morgan Securities plc had
estimated total capital of $30.1 billion; its estimated CET1
capital ratio was 10.7% and its estimated Total capital ratio
was 14.1%. Both ratios exceeded the minimum transitional
standards (4.0% and 8.0% for the CET1 ratio and Total
capital ratio, respectively) as established by the Capital
Requirements Directive and Regulation (the European
Union ("EU") implementation of Basel III) as well as
additional minimum requirements specified by the
Prudential Regulatory Authority as Individual Capital
Guidance and PRA Buffer requirements.
In addition to its minimum net capital requirement,
JPMorgan Securities is required to hold tentative net capital
in excess of $1.0 billion and is also required to notify the
Securities and Exchange Commission ("SEC") in the event
that tentative net capital is less than $5.0 billion, in
accordance with the market and credit risk standards of
Appendix E of the Net Capital Rule. As of December 31,
2014, JPMorgan Securities had tentative net capital in
excess of the minimum and notification requirements.
J.P. Morgan Securities plc is a wholly owned subsidiary of
JPMorgan Chase Bank, N.A. and is the Firm's principal
operating subsidiary in the U.K. It has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority ("PRA") and Financial
Conduct Authority ("FCA"). Commencing January 1, 2014,
J.P. Morgan Securities plc became subject to the U.K. Basel
III capital rules.
JPMorgan Securities and JPMorgan Clearing have elected to
compute their minimum net capital requirements in
accordance with the "Alternative Net Capital Requirements"
of the Net Capital Rule. At December 31, 2014,
JPMorgan Securities' net capital, as defined by the Net
Capital Rule, was $12.8 billion, exceeding the minimum
requirement by $10.6 billion, and JPMorgan Clearing's net
capital was $7.5 billion, exceeding the minimum
requirement by $5.6 billion.
JPMorgan Chase's principal U.S. broker-dealer subsidiaries
are J.P. Morgan Securities LLC ("JPMorgan Securities") and
J.P. Morgan Clearing Corp. ("JPMorgan Clearing").
JPMorgan Clearing is a subsidiary of JPMorgan Securities
and provides clearing and settlement services. JPMorgan
Securities and JPMorgan Clearing are each subject to Rule
15c3-1 under the Securities Exchange Act of 1934 (the
"Net Capital Rule"). JPMorgan Securities and JPMorgan
Clearing are also each registered as futures commission
merchants and subject to Rule 1.17 of the Commodity
Futures Trading Commission (“CFTC”).
Broker-dealer regulatory capital
JPMorgan Chase & Co./2014 Annual Report
155
154
The authorization to repurchase common equity will be
utilized at management's discretion, and the timing of
purchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; the
Firm's capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does not
include specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 programs;
and may be suspended at any time.
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
"blackout periods." All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
when the Firm is not aware of material nonpublic
information.
$ - $ - $ 238
$ 4,789
-18.5
$ 1,329
$ 4,834
30.9
For additional information regarding repurchases of the
Firm's equity securities, see Part II, Item 5: Market for
registrant's common equity, related stockholder matters
and issuer purchases of equity securities on pages 18-19.
2012
Management's discussion and analysis
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent obligations. Liquidity risk
management is intended to ensure that the Firm has the
appropriate amount, composition and tenor of funding and
liquidity in support of its assets.
availability of liquidity sources. The Firm manages liquidity
and funding using a centralized, global approach in order to
optimize liquidity sources and uses.
156
Treasury is responsible for liquidity management. The
primary objectives of effective liquidity management are to
ensure that the Firm's core businesses are able to operate
in support of client needs, meet contractual and contingent
obligations through normal economic cycles as well as
during stress events, ensure funding mix optimization, and
Liquidity stress tests are intended to ensure sufficient
liquidity for the Firm under a variety of adverse scenarios.
Results of stress tests are therefore considered in the
formulation of the Firm's funding plan and assessment of its
liquidity position. Liquidity outflow assumptions are
modeled across a range of time horizons and contemplate
both market and idiosyncratic stress. Standard stress tests
are performed on a regular basis and ad hoc stress tests are
performed in response to specific market events or
concerns. In addition, stress scenarios are produced for the
parent holding company and the Firm's major subsidiaries.
Liquidity stress tests assume all of the Firm's contractual
obligations are met and then take into consideration
varying levels of access to unsecured and secured funding
markets. Additionally, assumptions with respect to potential
non-contractual and contingent outflows are contemplated.
Liquidity Management
Specific committees responsible for liquidity governance
include firmwide ALCO as well as lines of business and
regional ALCOS, and the CTC Risk Committee. For further
discussion of the risk and risk-related committees, see
Enterprise-wide Risk Management on pages 105-109.
Internal Stress testing
Risk Governance and Measurement
Conducting ad hoc analysis to identify potential
emerging liquidity risks.
LIQUIDITY RISK MANAGEMENT
sheet variances and funding activities;
Establishing and monitoring limits, indicators, and
thresholds, including liquidity appetite tolerances;
Defining and monitoring internal Firmwide and legal
entity stress tests and regulatory defined stress testing;
•
•
•
•
The Firm has an independent liquidity risk oversight
function whose primary objective is to provide assessment,
measurement, monitoring, and control of liquidity risk
across the Firm. Liquidity risk oversight is managed through
a dedicated firmwide Liquidity Risk Oversight group
reporting into the CIO, Treasury, and Corporate ("CTC")
Chief Risk Officer ("CRO"). The CTC CRO has responsibility
for firmwide Liquidity Risk Oversight and reports to the
Firm's CRO. Liquidity Risk Oversight's responsibilities
include but are not limited to:
Liquidity Risk Oversight
Reporting and monitoring liquidity positions, balance
83.4
Measure performance consistently across all lines of
business; and
JPMorgan Chase & Co./2014 Annual Report
Total Tier 1 capital
184,910
Basel III Advanced Fully Phased-In CET1 capital at
December 31, 2014
$ 164,852
Long-term debt and other instruments
qualifying as Tier 2 capital
17,504
Basel | Tier 1 capital at December 31, 2013
$ 165,663
Qualifying allowance for credit losses
4,266
Effect of rule changes(b)
(3,295)
Other
(86)
Total Tier 2 capital
21,684
Basel III Advanced Fully Phased-In Tier 1 capital at
December 31, 2013
5
162,368
Other Tier 1 adjustments
Increase in CET1 capital
Net purchases of treasury stock
Changes in additional paid-in capital
(3,009)
(558)
Other CET1 capital adjustments
1,163
Changes related to AOCI
1,327
CET1 capital
164,852
Adjustment related to FVA/DVA
580
Preferred stock
20,063
Other
751
Less:
13,650
1,062
Total capital
Change in CET1 capital
$ 33,623
(11,644)
21,979
Change in long-term debt and other instruments qualifying
as Tier 2
Change in allowance for credit losses
809
(1,063)
Other
Decrease in Tier 2 capital
(41)
(295)
Basel III Advanced Fully Phased-In Tier 2 capital at
December 31, 2014
$ 21,684
Basel III Advanced Fully Phased-In Total capital at
December 31, 2014
$ 206,594
(a) Predominantly represents: (1) the addition of certain exposures, which
were deducted from capital under Basel I, that are risk-weighted under
Basel III; (2) adjustments related to AOCI for AFS securities and
defined benefit pension and OPEB plans; and (3) a deduction for
deferred tax assets related to NOL carryforwards.
(b) Predominantly represents the exclusion of TruPS from Tier 1 capital
under Basel III.
(c) Predominantly represents a change in the calculation of qualifying
allowance for credit losses under Basel III.
JPMorgan Chase & Co./2014 Annual Report
Basel III Advanced Fully Phased-In Tier 2 capital at
December 31, 2013
$ 206,594
Effect of rule changes(c)
150
13,650
Credit risk RWA
$ 1,040,087
Market risk RWA
Operational risk RWA
Total RWA
179,200
400,000
Net issuance of noncumulative perpetual preferred stock
Other
8,905
Increase in Tier 1 capital
(13)
22,542
$ 1,619,287
SLR leverage exposure
$ 3,320,404
Basel III Advanced Fully Phased-In Tier 1 capital at
December 31, 2014
$ 184,910
(a) Goodwill and other intangible assets are net of any associated deferred
tax liabilities.
Basel I Tier 2 capital at December 31, 2013
Other intangible assets(a)
44,925
Goodwill(a)
Basel III Advanced Fully Phased-In
Based on the U.S. capital rules currently in effect, Basel III
capital rules will become fully phased-in on January 1,
2019, at which point the Firm will continue to calculate its
capital ratios under both the Basel III Standardized and
Advanced Approaches, and the Firm will continue to have
its capital adequacy evaluated against the approach that
results in the lower ratio. While the Firm has recently
imposed Basel III Standardized Fully Phased-In RWA limits
on the lines of business in adapting its capital framework,
the Firm currently expects to manage each of the
businesses (including line of business equity allocations), as
well as the corporate functions, primarily on a Basel III
Advanced Fully Phased-In basis.
The Firm's capital, RWA and capital ratios that are
presented under Basel III Advanced Fully Phased-In (and
CET1 under Basel I as of December 31, 2013), are non-
GAAP financial measures. However, such measures are used
by bank regulators, investors and analysts to assess the
Firm's capital position and to compare the Firm's capital to
that of other financial services companies.
The Firm's estimates of its Basel III Advanced Fully Phased-
In capital, RWA and capital ratios and of the Firm's,
JPMorgan Chase Bank, N.A.'s, and Chase Bank USA, N.A.'s
SLRs reflect management's current understanding of the
U.S. Basel III rules based on the current published rules and
JPMorgan Chase & Co./2014 Annual Report
on the application of such rules to the Firm's businesses as
currently conducted. The actual impact on the Firm's capital
ratios and SLR as of the effective date of the rules may
differ from the Firm's current estimates depending on
changes the Firm may make to its businesses in the future,
further implementation guidance from the regulators, and
regulatory approval of certain of the Firm's internal risk
models (or, alternatively, regulatory disapproval of the
Firm's internal risk models that have previously been
conditionally approved).
The following table presents the estimated Basel III
Advanced Fully Phased-In Capital ratios for JPMorgan Chase
at December 31, 2014. Also included in the table are the
regulatory minimum ratios currently expected to be in
effect beginning January 1, 2019.
Basel III
Advanced Fully
Phased-In
Fully phased-in
well-capitalized
ratios (b)
December 31,
2014
Fully phased-in
minimum
capital ratios (a)
Risk-based capital
ratios:
CET1 capital
10.2%
9.5%
6.5%
Tier 1 capital
(a) G-SIB surcharge presented does not reflect the December 9, 2014, U.S. NPR.
On December 9, 2014, the Federal Reserve issued a Notice
of Proposed Rulemaking ("NPR") that would establish a
new capital surcharge across all tiers of regulatory capital
for G-SIBS in the U.S., including the Firm. The Firm
estimates its fully phased-in G-SIB surcharge (based upon
data as of December 31, 2013) would be 4.5% under the
NPR, compared to a fully phased-in G-SIB surcharge of
2.5% as estimated under the Basel III rules currently in
effect.
11.4
1/1/2019
1/1/2017
capitalized level
Captial
conservation
buffer
4.5%
4.0%
4.0%
2.0%
4.0%
4.5%
4.5%
4.5%
4.5%
4.5%
Basel III
CET1
minimum
0.0%
1/1/2014
1/1/2015
1/1/2016
1/1/2018
11.0
8.0
Total capital
Leverage ratio:
Tier 1
SLR
Less:
Basel III Advanced
Fully Phased-In
December 31, 2014
$
Capital rollforward
The following table presents the changes in CET1 capital,
Tier 1 capital and Tier 2 capital for the year ended
December 31, 2014. Under Basel I CET1 represents Tier 1
common capital.
Year ended December 31, (in millions)
2014
Basel I CET1 capital at December 31, 2013
$ 148,887
Effect of rule changes(a)
2,315
Basel III Advanced Fully Phased-In CET1 capital at
December 31, 2013
151,202
Net income applicable to common equity
20,637
Dividends declared on common stock
(6,078)
Common stockholders' equity
Less: Preferred stock
Total stockholders' equity
(in millions)
12.8
13.0
10.0
7.5
5.6
4.0
5.0
3.0
RWA rollforward
5.0
(b) Represents the minimum Basel III Fully Phased-In capital ratios
applicable to the Firm under the PCA requirements of FDICIA.
149
Management's discussion and analysis
232,065
20,063
212,002
A reconciliation of total stockholders' equity to Basel III
Advanced Fully Phased-In CET1 capital, Tier 1 capital and
Total qualifying capital is presented in the table below.
Risk-based capital components and assets
(a) Represents the minimum capital ratios applicable to the Firm under
fully phased-in Basel III rules currently in effect.
The following table presents changes in the components of
RWA under Basel III Advanced Fully Phased-In for the year
ended December 31, 2014. The amounts in the rollforward
categories are estimates, based on the predominant driver
of the change.
Year ended December 31, (in millions)
Credit
Basel III Transitional
JPMorgan Chase & Co./2014 Annual Report
151
Management's discussion and analysis
The following table presents the regulatory capital ratios as
of December 31 2014, under Basel III Standardized
Transitional and Basel III Advanced Transitional. Also
included in the table are the regulatory minimum ratios in
effect as of December 31, 2014.
December 31, 2014
Basel III
Standardized
Transitional
Basel III
Advanced
Transitional
Minimum Well-
capital capitalized
ratios(b) ratios(c)
Risk-based
capital ratios (a).
CET1 capital
11.2%
10.2%
Tier 1 capital
12.7
11.6
1,619,287
4.0%
5.5
$
Adjustment related to change in risk-weighting(f)
Basel III Advanced Fully Phased-In RWA
(b) Predominantly includes regulatory adjustments related to changes in
FVA/DVA, as well as CET1 deductions for defined benefit pension plan
assets and DTA related to net operating loss carryforwards.
(c) Relates to intangible assets, other than goodwill and MSRs, that are
required to be deducted from CET1 capital upon full phase-in.
(d) Includes minority interest and the Firm's investments in its own CET1
capital instruments.
(e) Includes the Firm's investments in its own Tier 2 capital instruments
and unrealized gains on AFS equity securities.
(f) Primarily relates to the risk-weighting of items not subject to capital
deduction thresholds including MSRs.
Basel III Advanced Fully Phased-In Tier 1 capital
Basel III Advanced Transitional Tier 2 capital
Non-qualifying instruments phase-out
Other adjustments to Tier 2 capital(e)
Basel III Advanced Fully Phased-In Tier 2 capital
Basel III Advanced Fully Phased-In Total capital
Basel III Advanced Transitional RWA
$
184,910
$
24,390
(2,670)
(36)
$
21,684
$
206,594
$
1,608,240
11,047
NA
6.0%
Total capital
15.0
Minimum Total Loss Absorbing Capacity ("TLAC”)
In November 2014, the FSB, in consultation with the Basel
Committee on Banking Supervision, issued a consultative
document proposing that, in order for G-SIBS to have
sufficient loss absorbing and recapitalization capacity to
support an orderly resolution, they would be required to
have outstanding a sufficient amount and type of debt and
capital instruments. This amount and type of debt and
capital instruments (or "total loss absorbing capacity" or
TLAC) is intended to effectively absorb losses, as necessary,
upon a failure of a G-SIB, without imposing such losses on
taxpayers of the relevant jurisdiction or causing severe
systemic disruptions, and thereby ensuring the continuity of
the G-SIBS critical functions. The document identifies
specific criteria that must be met for instruments to be
considered eligible under TLAC and sets out minimum
requirements that include existing Basel III minimum capital
requirements, excluding capital buffers. The FSB's proposed
range for a common minimum TLAC requirement is
16-20% of the financial institution's RWA and at least twice
its Basel III Tier 1 leverage ratio. The Firm estimated that it
has approximately 15% minimum TLAC as a percentage of
152
JPMorgan Chase & Co./2014 Annual Report
Basel III Advanced Fully Phased-in RWA, excluding capital
buffers currently in effect, at year end 2014 based on its
understanding of how the FSB proposal may be
implemented in the United States. The FSB is expected to
revise its proposal following a period of public consultation
and findings from a quantitative impact study and market
survey to be conducted in the first quarter of 2015. The
final proposal is expected to be submitted to the G-20 in
advance of the G-20 Summit scheduled for fourth quarter
of 2015. U.S. banking regulators are expected to issue an
NPR that would outline TLAC requirements specific to U.S.
banks.
Regulatory capital outlook
The Firm expects to continue to accrete capital in the near
term and believes its current capital levels enable it to
retain market access, continue its strategy to invest in and
grow its businesses and maintain flexibility to distribute
excess capital. The Firm intends to balance return of capital
to shareholders with achieving higher capital ratios over
time. Additionally, the Firm expects the capital ratio
calculated under the Basel III Standardized Fully Phased-In
Approach to become its binding constraint by the end of
2015, or slightly thereafter. As a result, the Firm expects to
reach Basel III Advanced and Standardized Fully Phased-In
CET1 ratios of approximately 11% by the end of 2015 and
is targeting reaching a Basel III CET1 ratio of approximately
12% by the end of 2018.
The Firm's capital targets take into consideration the
current U.S. Basel III requirements and contemplate the
requirements under the U.S. G-SIB proposal issued on
December 9, 2014 and therefore, assume a 4.5% G-SIB
capital surcharge. These targets are subject to revision in
the future as a result of changes that may be introduced by
banking regulators to the required minimum ratios to which
the Firm is subject. In particular, if the Firm's G-SIB capital
surcharge is determined to be lower than 4.5%, the capital
targets would be adjusted accordingly. The Firm intends to
manage its capital so that it achieves the required capital
levels and composition in line with or in advance of the
required timetables of current and proposed rules.
Economic risk capital
Economic risk capital is another of the disciplines the Firm
uses to assess the capital required to support its
businesses. Economic risk capital is a measure of the capital
needed to cover JPMorgan Chase's business activities in the
event of unexpected losses. The Firm measures economic
risk capital using internal risk-assessment methodologies
and models based primarily on four risk factors: credit,
market, operational and private equity risk and considers
factors, assumptions and inputs that differ from those
required to be used for regulatory capital requirements.
Accordingly, economic risk capital provides a
complementary measure to regulatory capital. As economic
risk capital is a separate component of the capital
framework for Advanced Approach banking organizations
under Basel III, the Firm continues to enhance its economic
risk capital framework.
JPMorgan Chase & Co./2014 Annual Report
Line of business equity
The Firm's framework for allocating capital to its business
segments is based on the following objectives:
•
•
Integrate firmwide and line of business capital
management activities;
The process assesses the potential impact of alternative
economic and business scenarios on the Firm's earnings and
capital. Economic scenarios, and the parameters underlying
those scenarios, are defined centrally and applied uniformly
across the businesses. These scenarios are articulated in
terms of macroeconomic factors, which are key drivers of
business results; global market shocks, which generate
short-term but severe trading losses; and idiosyncratic
operational risk events. The scenarios are intended to
capture and stress key vulnerabilities and idiosyncratic risks
facing the Firm. However, when defining a broad range of
scenarios, realized events can always be worse. Accordingly,
management considers additional stresses outside these
scenarios, as necessary. ICAAP results are reviewed by
management and the Board of Directors.
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which
provides management with a view of the impact of severe
and unexpected events on earnings, balance sheet
positions, reserves and capital. The Firm's ICAAP integrates
stress testing protocols with capital planning.
The Firm's CCAR process is integrated into and employs the
same methodologies utilized in the Firm's Internal Capital
Adequacy Assessment Process ("ICAAP”) process, as
discussed below.
On January 5, 2015, the Firm submitted its 2015 capital
plan to the Federal Reserve under the Federal Reserve's
2015 CCAR process. The Firm expects to receive the Federal
Reserve's final response to its plan no later than March 31,
2015.
13.1
8.0
10.0
Leverage ratio:
Tier 1 leverage
7.6
7.6
4.0
(a) Includes the remaining balance of AOCI related to AFS debt securities
and defined benefit pension and OPEB plans that will qualify as Basel
III CET1 capital upon full phase-in.
(a) For each of the risk-based capital ratios the lower of the Standardized
Transitional or Advanced Transitional ratio represents the Collins Floor.
(b) Represents the minimum capital ratios for 2014 currently applicable to the
Firm under Basel III.
(c) Represents the minimum capital ratios for 2014 currently applicable to the
Firm under the PCA requirements of the FDICIA.
(d) The CET1 capital ratio became a relevant measure of capital under the
prompt corrective action requirements on January 1, 2015.
At December 31, 2014, JPMorgan Chase maintained Basel
III Standardized Transitional and Basel III Advanced
Transitional capital ratios in excess of the well-capitalized
standards established by the Federal Reserve.
Additional information regarding the Firm's capital ratios
and the U.S. federal regulatory capital standards to which
the Firm is subject is presented in Note 28. For further
information on the Firm's Basel III measures, see the Firm's
consolidated Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
Supplementary leverage ratio
The Firm estimates that if the U.S. SLR final rule were in
effect at December 31, 2014, the Firm's SLR would have
been approximately 5.6% and JPMorgan Chase Bank, N.A.'s
and Chase Bank USA, N.A.'s SLRs would have been
approximately 5.9% and 8.1%, respectively, at that date.
Comprehensive Capital Analysis and Review ("CCAR")
The Federal Reserve requires large bank holding
companies, including the Firm, to submit a capital plan on
an annual basis. The Federal Reserve uses the CCAR and
Dodd-Frank Act stress test processes to ensure that large
bank holding companies have sufficient capital during
periods of economic and financial stress, and have robust,
forward-looking capital assessment and planning processes
in place that address each BHC's unique risks to enable
them to have the ability to absorb losses under certain
stress scenarios. Through the CCAR, the Federal Reserve
evaluates each BHC's capital adequacy and internal capital
adequacy assessment processes, as well as its plans to
make capital distributions, such as dividend payments or
stock repurchases.
(d)
On March 26, 2014, the Federal Reserve informed the Firm
that it did not object, on either a quantitative or qualitative
basis, to the Firm's 2014 capital plan. For information on
actions taken by the Firm's Board of Directors following the
2014 CCAR results, see Capital actions on page 154.
5.0
Provide comparability with peer firms for each of the
lines of business
(d) Movement in portfolio levels for credit risk RWA refers to changes in
book size, composition, credit quality, and market movements; and for
market risk RWA, refers to changes in position and market movements.
(b) Model & data changes refer to movements in levels of RWA as a result
of revised methodologies and/or treatment per regulatory guidance
(exclusive of rule changes).
$ 1,388
Effect of rule changes(a)
(168)
(4)
375
203
CET1 capital deduction phased-in (b)
Intangibles deduction phase-in (c)
(1,212)
(850)
Basel III Advanced Fully
Phased-In RWA at
Other adjustments to CET1 capital(d)
(99)
December 31, 2013
1,055
161
ΝΑ
375
$ 165
31, 2013
Basel III Transitional capital requirements became effective
on January 1, 2014, and will become fully phased-in on
January 1, 2019. The following table presents a
reconciliation of the Firm's Basel III Advanced Transitional
capital and RWA to the Firm's estimated Basel III Advanced
Fully Phased-In capital and RWA as of December 31, 2014.
December 31, 2014
risk
Market
risk
(in billions)
RWA
RWA
Operational
risk RWA
Total
(in millions)
RWA
Basel III Advanced Transitional CET1 capital
$
164,764
Basel I RWA at December
AOCI phase-in (a)
2,249
$1,223
1,591
Basel III Advanced Fully Phased-In CET1 capital
$
18
25
28
Tier 1 capital deduction phased-out(b)
1,212
Basel III Advanced Fully
Other adjustments to Tier 1 capital(d)
(352)
Phased-In RWA at
December 31, 2014
$1,040 $ 179
$
400 $1,619
Basel III Advanced Fully Phased-In Additional Tier 1
capital
$
20,058
(a) Effect of rule changes refers to movements in levels of RWA as a result
of changing to calculating RWA under the Basel III Advanced Fully
Phased-In rules. See Risk-weighted assets on page 147 for additional
information on the calculation of RWA under Basel III.
(15)
Changes in RWA
(2,670)
Non-qualifying instruments phase-out
164,852
Model & data changes(b)
56
36
25
117
Portfolio runoff(c)
(22)
(c) Portfolio runoff for credit risk RWA reflects lower loan balances in
Mortgage Banking and reduced risk from position rolloffs in legacy
portfolios, and for market risk RWA reflects reduced risk from position
rolloffs in legacy portfolios.
(22)
Basel III Advanced Transitional Additional Tier 1
capital
$
21,868
Movement in portfolio
levels(d)
(49)
4
(45)
(44)
157
JPMorgan Chase & Co./2014 Annual Report
The Firm typically experiences higher customer deposit inflows at period-ends. Therefore, the Firm believes average deposit
balances are more representative of deposit trends. The table below summarizes, by line of business, the period-end and
average deposit balances as of and for the years ended December 31, 2014 and 2013.
27,955
30,021
28,603
30,311
29,517
$
207,469 $
29,082
199,380 $ 204,571 $ 202,312
31,239 $
2,008
64,994
26,580 $ 28,935 $
3,253
61,876
27,834
2,734
3,501
$
60,667
29,578
Other long-term secured funding(f)
26,068
Total senior notes
$
142,480 $
135,754 $ 139,707 $ 137,662
Trust preferred securities
5,496
29,472
5,445
7,178
Subordinated debt
Structured notes
Total long-term unsecured funding
Credit card securitization
Other securitizations (e)
FHLB advances
5,471
19,509
22,586
175,317 $ 203,772 $ 233,174
55,487
Total long-term secured funding
1.25%
Minimum requirement
1.88%
7.00%
G-SIB surcharge(a)
2.50%
8.25%
5.75%
9.50%
8.0%
estimate: 10.2%
4Q14 CET1
10.0%
12.0%
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect. It is the Firm's current expectation that its Basel III CET1 ratio will exceed the
regulatory minimums, both during the transition period and upon full implementation in 2019 and thereafter.
Management's discussion and analysis
6.0%
6,633
2.50%
1.88%
$
102,614 $
98,342
5,031
97,367 $ 93,106
6,284
Preferred stock (g)
$
0.63%
Common stockholders' equity(s)
20,063 $
212,002 $ 200,020
11,158
17,018 $ 10,960
207,400 $196,409
(a) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(b) Excludes federal funds purchased.
(c) Excluded long-term structured repurchase agreements of $2.7 billion and $4.6 billion as of December 31, 2014 and 2013, respectively, and average
balance of $4.2 billion for the years ended December 31, 2014 and 2013.
0.63%
1.25%
$
188,875 $
4,373
Total securities loaned or sold under agreements to repurchase (b)(c)(d)
453,304
446,237
417,517
384,289
213,682
206,127
190,425
486,919 $
184,409
146,183
150,121
139,707
27,433
$
23,555
24,806
19,319
1,363,427 $ 1,287,765 $ 1,264,301 $ 1,189,142
A significant portion of the Firm's deposits are consumer deposits (37% and 36% at December 31, 2014 and 2013,
respectively), which are considered particularly stable as they are less sensitive to interest rate changes or market volatility.
Additionally, the majority of the Firm's institutional deposits are also considered to be stable sources of funding since they are
generated from customers that maintain operating service relationships with the Firm. For further discussions of deposit and
liability balance trends, see the discussion of the results for the Firm's business segments and the Balance Sheet Analysis on
pages 79-104 and pages 72-73, respectively.
155,247
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2014 and 2013,
and average balances for the years ended December 31, 2014 and 2013. For additional information, see the Balance Sheet
Analysis on pages 72-73 and Note 21.
464,412 $
$
Deposits
$
As of or for the period ended December 31,
(in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
502,520 $
Asset Management
Total Firm
Year ended December 31,
Average
2014
2013
2014
2013
Corporate
Sources of funds (excluding deposits)
468,423
Other borrowed funds
$
12,047 $
14,892 $
10,427 $
15,504
$
30,222 $
53,717
27,994 $
Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase
$
167,077 $
155,808 $ 181,186 $ 207,106
As of or for the year ended December 31,
Securities loaned
31,721 $ 30,449
35,932
Obligations of Firm-administered multi-seller conduits (a)
2013
(in millions)
Commercial paper:
Wholesale funding
2014
2013
Average
2014
19,442 $ 17,785
40,474
59,916 $
$
21,798
Client cash management
42,292
Total commercial paper
$
66,344 $
17,249
40,599
57,848 $
$
24,052 $
A+
Stable
F1
Stable
A+
F1
Fitch Ratings
Short-term
issuer
F1
Stable
Downgrades of the Firm's long-term ratings by one or two
notches could result in a downgrade of the Firm's short-
term ratings. If this were to occur, the Firm believes its cost
of funds could increase and access to certain funding
markets could be reduced as noted above. The nature and
magnitude of the impact of ratings downgrades depends on
numerous contractual and behavioral factors (which the
Firm believes are incorporated in its liquidity risk and stress
testing metrics). The Firm believes it maintains sufficient
liquidity to withstand a potential decrease in funding
capacity due to ratings downgrades.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, rating
uplift assumptions surrounding government support, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm's credit ratings.
On September 18, 2014, S&P revised its ratings
methodology for hybrid capital securities issued by financial
institutions, and on September 29, 2014, the ratings of the
Firm's hybrid capital securities (including trust preferred
securities and preferred stock) were lowered by 1 notch
from BBB to BBB-, reflecting the new methodology.
Furthermore, S&P has announced a Request for Comment
on a proposed change to rating criteria related to additional
loss absorbing capacity. In addition, Moody's and Fitch are
in the process of reviewing their ratings methodologies:
Moody's has announced a Request for Comment on the
revision to its Bank Rating Methodology and Fitch has
announced a review of the ratings differential that it applies
between bank holding companies and their bank
subsidiaries.
Stable
Although the Firm closely monitors and endeavors to
manage, to the extent it is able, factors influencing its credit
ratings, there is no assurance that its credit ratings will not
be changed in the future.
A+
A-1
Outlook
Stable
160
Moody's Investor Services
A3
P-2
Stable
Aa3
P-1
Stable
Aa3
P-1
Stable
Standard & Poor's
A
A-1
Negative
A+
A-1
A+
JPMorgan Chase & Co./2014 Annual Report
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loans and credit card loss estimates,
management believes that its current estimate of the
allowance for credit loss is appropriate.
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
•
For PCI loans, a combined 5% decline in housing prices
and a 1% increase in unemployment from current levels
could imply an increase to modeled credit loss estimates
of approximately $1.2 billion.
For the residential real estate portfolio, excluding PCI
loans, a combined 5% decline in housing prices and a
1% increase in unemployment from current levels could
162
JPMorgan Chase & Co./2014 Annual Report
•
•
•
imply an increase to modeled annual loss estimates of
approximately $100 million.
A 50 basis point deterioration in forecasted credit card
loss rates could imply an increase to modeled
annualized credit card loan loss estimates of
approximately $600 million.
A one-notch downgrade in the Firm's internal risk
ratings for its entire wholesale loan portfolio could imply
an increase in the Firm's modeled loss estimates of
approximately $1.8 billion.
A 100 basis point increase in estimated loss given
default for the Firm's entire wholesale loan portfolio
could imply an increase in the Firm's modeled loss
estimates of approximately $140 million.
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management's expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then current circumstances and
conditions.
Fair value of financial instruments, MSRS and commodities
inventory
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
loans, where the carrying value is based on the fair value of
the underlying collateral.
issuer
As noted above, the Firm's allowance for credit losses is
sensitive to numerous factors, depending on the portfolio.
Changes in economic conditions or in the Firm's
assumptions could affect its estimate of probable credit
losses inherent in the portfolio at the balance sheet date.
For example, changes in the inputs below would have the
following effects on the Firm's modeled loss estimates as of
December 31, 2014, without consideration of any
offsetting or correlated effects of other inputs in the Firm's
allowance for loan losses:
Allowance for credit losses sensitivity
Management also applies its judgment to adjust the
modeled loss estimates, taking into consideration model
imprecision, external factors and economic events that have
occurred but are not yet reflected in the loss factors.
Historical experience of both LGD and PD are considered
when estimating these adjustments. Factors related to
concentrated and deteriorating industries also are
incorporated where relevant. These estimates are based on
management's view of uncertainties that relate to current
macroeconomic and political conditions, quality of
underwriting standards and other relevant internal and
external factors affecting the credit quality of the current
portfolio.
The Firm applies judgment in estimating PD and LGD used
in calculating the allowances. Wherever possible, the Firm
uses independent, verifiable data or the Firm's own
historical loss experience in its models for estimating the
allowances, but differences in loan characteristics between
the Firm's specific loan portfolio and those reflected in
external and Firm-specific historical data could affect loss
estimates. Estimates of PD and LGD are subject to periodic
refinement based on any changes to underlying external
and Firm-specific historical data. The use of different inputs
would change the amount of the allowance for credit losses
determined appropriate by the Firm.
Allowance for credit losses
JPMorgan Chase's allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm's consumer and wholesale lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm's loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lending-
related commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
The allowance for loan losses includes an asset-specific
component, a formula-based component, and a component
related to PCI loans. The determination of each of these
components involves significant judgment on a number of
matters, as discussed below. For further discussion of the
methodologies used in establishing the Firm's allowance for
credit losses, see Note 15.
Asset-specific component
The asset-specific allowance for loan losses for each of the
Firm's portfolio segments is generally measured as the
difference between the recorded investment in the impaired
loan and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Estimating the timing and amounts of future cash
flows is highly judgmental as these cash flow projections
rely upon estimates such as redefault rates, loss severities,
the amounts and timing of prepayments and other factors
that are reflective of current and expected future market
conditions. These estimates are, in turn, dependent on
factors such as the level of future home prices, the duration
of current overall economic conditions, and other
macroeconomic and portfolio-specific factors. All of these
estimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
JPMorgan Chase & Co./2014 Annual Report
Formula-based component - Consumer loans and lending-
related commitments, excluding PCI loans
The formula-based allowance for credit losses for the
consumer portfolio, including credit card, is calculated by
applying statistical credit loss factors to outstanding
principal balances over an estimated loss emergence period
to arrive at an estimate of incurred credit losses in the
portfolio. The loss emergence period represents the time
period between the date at which the loss is estimated to
have been incurred and the ultimate realization of that loss
(through a charge-off). Estimated loss emergence periods
may vary by product and may change over time;
management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers portfolio and collateral valuation trends to review
the appropriateness of the primary statistical loss estimate.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are
not yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality of
underwriting standards, borrower behavior, the potential
impact of payment recasts within the HELOC portfolio, and
other relevant internal and external factors affecting the
credit quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. For example, the performance of a HELOC
that experiences a payment recast may be affected by both
the quality of underwriting standards applied in originating
the loan and the general economic conditions in effect at
the time of the payment recast. For junior lien products,
management considers the delinquency and/or
modification status of any senior liens in determining the
adjustment. The application of different inputs into the
statistical calculation, and the assumptions used by
management to adjust the statistical calculation, are
subject to management judgment, and emphasizing one
input or assumption over another, or considering other
inputs or assumptions, could affect the estimate of the
allowance for loan losses for the consumer credit portfolio.
Overall, the allowance for credit losses for the consumer
portfolio, including credit card, is sensitive to changes in the
economic environment (e.g., unemployment rates),
delinquency rates, the realizable value of collateral (e.g.,
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
161
housing prices), FICO scores, borrower behavior and other
risk factors. While all of these factors are important
determinants of overall allowance levels, changes in the
various factors may not occur at the same time or at the
same rate, or changes may be directionally inconsistent
such that improvement in one factor may offset
deterioration in the other. In addition, changes in these
factors would not necessarily be consistent across all
geographies or product types. Finally, it is difficult to
predict the extent to which changes in these factors would
ultimately affect the frequency of losses, the severity of
losses or both.
PCI loans
In connection with the Washington Mutual transaction,
JPMorgan Chase acquired certain PCI loans, which are
accounted for as described in Note 14. The allowance for
loan losses for the PCI portfolio is based on quarterly
estimates of the amount of principal and interest cash flows
expected to be collected over the estimated remaining lives
of the loans.
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home price declines, and the duration of current overall
economic conditions, among other factors. These estimates
and assumptions require significant management judgment
and certain assumptions are highly subjective.
Formula-based component - Wholesale loans and lending-
related commitments
The Firm's methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments requires the early identification of credits
that are deteriorating. The formula-based component of the
allowance calculation for wholesale loans and lending-
related components is the product of an estimated PD and
estimated LGD. These factors are determined based on the
credit quality and specific attributes of the Firm's loans and
lending-related commitments to each obligor.
The Firm uses a risk rating system to determine the credit
quality of its wholesale loans and lending-related
commitments. In assessing the risk rating of a particular
loan or lending-related commitment, among the factors
considered are the obligor's debt capacity and financial
flexibility, the level of the obligor's earnings, the amount
and sources for repayment, the level and nature of
contingencies, management strength, and the industry and
geography in which the obligor operates. These factors are
based on an evaluation of historical and current information
and involve subjective assessment and interpretation.
Emphasizing one factor over another or considering
additional factors could affect the risk rating assigned by
the Firm to that loan.
PD estimates are based on observable external through-
the-cycle data, using credit rating agency default statistics.
A LGD estimate is assigned to each loan or lending-related
commitment. The estimate represents the amount of
economic loss if the obligor were to default. The type of
obligor, quality of collateral, and the seniority of the Firm's
loans in the obligor's capital structure affect LGD. LGD
estimates are based on the Firm's history of actual credit
losses over more than one credit cycle. Changes to the time
period used for PD and LGD estimates (for example, point-
in-time loss versus longer views of the credit cycle) could
also affect the allowance for credit losses.
Management's discussion and analysis
Outlook
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. Securities loaned or sold under agreements to
repurchase are secured predominantly by high-quality
securities collateral, including government-issued debt,
agency debt and agency MBS, and constitute a significant
portion of the federal funds purchased and securities
loaned or sold under purchase agreements. The amounts of
securities loaned or sold under agreements to repurchase
at December 31, 2014, increased predominantly due to a
change in the mix of the Firm's funding sources. The
decrease in average balances for the year ended
December 31, 2014, compared with December 31, 2013,
was predominantly due to less secured financing of the
Firm's investment securities portfolio, and a change in the
mix of the Firm's funding sources. The balances associated
with securities loaned or sold under agreements to
repurchase fluctuate over time due to customers'
investment and financing activities; the Firm's demand for
financing; the ongoing management of the mix of the Firm's
liabilities, including its secured and unsecured financing
(for both the investment securities and market-making
portfolios); and other market and portfolio factors.
issuer
11,221
8,843
27,594
28,678
4,979
3,232
19,806
16,979
$ 52,379 $ 48,889
$ 21,169 $ 18,418
5,052
4,487
18,554
2,418
17,785
$ 44,210 $ 43,673
In addition, from January 1, 2015, through February 24,
2015, the Firm issued $10.1 billion of senior notes.
The Firm raises secured long-term funding through
securitization of consumer credit card loans and advances
from the FHLBS. It may also in the future raise long-term
funding through securitization of residential mortgages,
auto loans and student loans, which will increase funding
and investor diversity.
$ 16,373 $ 19,835
2013
2014
Total long-term unsecured funding -
maturities/redemptions
(d) Excluded long-term securities loaned of $483 million as of December 31, 2013, and average balance of $24 million and $414 million for the years ended
December 31, 2014 and 2013, respectively. There were no long-term securities loaned as of December 31, 2014.
(e) Other securitizations includes securitizations of residential mortgages and student loans. The Firm's wholesale businesses also securitize loans for client-
driven transactions; those client-driven loan securitizations are not considered to be a source of funding for the Firm and are not included in the table.
(f) Includes long-term structured notes which are secured.
(g) For additional information on preferred stock and common stockholders' equity see Capital Management on pages 146-155, Consolidated statements of
changes in stockholders' equity, Note 22 and Note 23.
Short-term funding
A significant portion of the Firm's total commercial paper
liabilities, approximately 64% as of December 31, 2014,
were not sourced from wholesale funding markets, but were
originated from deposits that customers choose to sweep
into commercial paper liabilities as a cash management
program offered to customers of the Firm.
Assets measured at fair value
Long-term funding and issuance
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm's long-term
funding plan is driven by expected client activity, liquidity
considerations, and regulatory requirements. Long-term
funding objectives include maintaining diversification,
maximizing market access and optimizing funding costs, as
well as maintaining a certain level of pre-funding at the
parent holding company. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
The following table summarizes the securitization issuance
and FHLB advances and their respective maturities or
redemption for the years ended December 31, 2014 and
2013.
The significant majority of the Firm's long-term unsecured
funding is issued by the parent holding company to provide
maximum flexibility in support of both bank and nonbank
subsidiary funding. The following table summarizes long-
term unsecured issuance and maturities or redemptions for
the years ended December 31, 2014 and 2013. For
additional information, see Note 21.
Year ended December 31,
(in millions)
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
Subordinated debt
Structured notes
Total long-term unsecured funding -
issuance
Maturities/redemptions
Total senior notes
Trust preferred securities
Subordinated debt
Structured notes
Long-term unsecured funding
issuer
Long-term secured funding
Credit card
securitization
The Firm's wholesale businesses also securitize loans for
client-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding
for the Firm and are not included in the table above. For
further description of the client-driven loan securitizations,
see Note 16.
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm's funding requirements for VIES and other third
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIES, and on derivatives and collateral agreements, see
Special-purpose entities on page 74, and Credit risk,
liquidity risk and credit-related contingent features in
Note 6.
The credit ratings of the parent holding company and the Firm's principal bank and nonbank subsidiaries as of December 31,
2014, were as follows.
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
J.P. Morgan Securities LLC
Long-term
Short-term
Long-term
Short-term
Long-term
December 31, 2014
issuer
issuer
Outlook
Management's discussion and analysis
159
JPMorgan Chase & Co./2014 Annual Report
(a) Other securitizations includes securitizations of residential mortgages
and student loans.
Year ended
December 31,
Issuance
Maturities/Redemptions
2014
2013
2014
2013
$ 8,350 $ 8,434
(in millions)
$
3,774 $
309
12,079
11,853
427
3,815
$ 802 $ 751 $
3,076 $
159
$24,352 $32,835 $ 19,238 $
16,254
Other securitizations (a)
FHLB advances
Other long-term
secured funding
Total long-term
secured funding
15,200 23,650
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, see Note 3.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
Trading assets
Liability
December 31, 2014 (in millions)
Maturity less than 1 year
Maturity 1-3 years
(in billions, except ratio data)
position
$
15,635
$
16,376
6,561
8,459
1,230
1,790
727
512
Maturity 4-5 years
Maturity in excess of 5 years
Asset
position
Asset
Liability
position
The following table indicates the maturities of
nonexchange-traded commodity derivative contracts at
December 31, 2014.
Year ended December 31, 2014
Revenue recognition – revenue from contracts with
customers
In May 2014, the FASB issued revenue recognition guidance
that is intended to create greater consistency with respect
to how and when revenue from contracts with customers is
shown in the statements of income. The guidance requires
that revenue from contracts with customers be recognized
upon delivery of a good or service based on the amount of
consideration expected to be received, and requires
additional disclosures about revenue. The guidance will be
effective in the first quarter of 2017 and early adoption is
prohibited. The Firm is currently evaluating the potential
impact on the Consolidated Financial Statements.
Reporting discontinued operations and disclosures of
disposals of components of an entity
In April 2014, the FASB issued guidance regarding the
reporting of discontinued operations. The guidance changes
the criteria for determining whether a disposition qualifies
for discontinued operations presentation. It also requires
enhanced disclosures about discontinued operations and
significant dispositions that do not qualify to be presented
as discontinued operations. The guidance will become
effective in the first quarter of 2015. The adoption of this
guidance is not expected to have a material impact on the
Firm's Consolidated Financial Statements.
166
JPMorgan Chase & Co./2014 Annual Report
Investments in qualified affordable housing projects
In January 2014, the FASB issued guidance regarding the
accounting for investments in affordable housing projects
that qualify for the low-income housing tax credit. The
guidance replaces the effective yield method and allows
companies to make an accounting policy election to
amortize the initial cost of its investments in proportion to
the tax credits and other benefits received if certain criteria
are met, and to present the amortization as a component of
income tax expense. The guidance will become effective in
the first quarter of 2015 and is required to be applied
retrospectively, such that the Firm's results of operations
for prior periods will be revised to reflect the guidance.
The Firm intends to adopt the guidance for all qualifying
investments. The adoption of this guidance is estimated to
reduce retained earnings by approximately $230 million.
The Firm expects that reported other income and income
tax expense will each increase as a result of presenting the
amortization of the initial cost of its investments as
component of income tax expense. The amount of this
increase in each period depends on the size and
characteristics of the Firm's portfolio of affordable housing
investments; the estimated increase for 2014 is
approximately $900 million. The effect of this guidance on
the Firm's net income is not expected to be material.
167
JPMorgan Chase & Co./2014 Annual Report
Management's discussion and analysis
NONEXCHANGE-TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUE
In the normal course of business, JPMorgan Chase trades
nonexchange-traded commodity derivative contracts. To
determine the fair value of these contracts, the Firm uses
various fair value estimation techniques, primarily based on
internal models with significant observable market
parameters. The Firm's nonexchange-traded commodity
derivative contracts are primarily energy-related.
The following table summarizes the changes in fair value for
nonexchange-traded commodity derivative contracts for the
year ended December 31, 2014.
(in millions)
Gross fair value of contracts outstanding at
December 31, 2014
24,153
27,137
13,954
15,664
Changes in fair values attributable to changes in
valuation techniques and assumptions
Other changes in fair value
1,440
1,783
Gross fair value of contracts outstanding at
December 31, 2014
24,153
27,137
Effect of legally enforceable master netting
agreements
(14,327)
(13,211)
Net fair value of contracts outstanding at
December 31, 2014
$
9,826 $ 13,926
168
JPMorgan Chase & Co./2014 Annual Report
Fair value of new contracts
(15,557)
(14,451)
Contracts realized or otherwise settled
Net fair value of contracts outstanding at January 1,
Effect of legally enforceable master netting
agreements
(14,327)
(13,211)
2014
$
8,128 $
9,929
In June 2014, the FASB issued guidance that amends the
accounting for certain secured financing transactions, and
requires enhanced disclosures with respect to transactions
recognized as sales in which exposure to the derecognized
asset is retained through a separate agreement with the
counterparty. In addition, the guidance requires enhanced
disclosures with respect to the types and quality of financial
assets pledged in secured financing transactions. The
guidance will become effective in the first quarter of 2015,
except for the disclosures regarding the types and quality of
financial assets pledged, which will become effective in the
second quarter of 2015. The adoption of this guidance is
not expected to have a material impact on the Firm's
Consolidated Financial Statements.
Effect of legally enforceable master netting
agreements
$
9,826 $
13,926
15,082
15,318
Gross fair value of contracts outstanding at
January 1, 2014
23,210
25,247
Net fair value of contracts outstanding at
December 31, 2014
Repurchase agreements and similar transactions
position
In August 2014, the FASB issued guidance to address
diversity in the accounting for differences in the
measurement of the fair values of financial assets and
liabilities of consolidated financing VIES. The new guidance
provides an alternative for consolidated financing VIES to
elect: (1) to measure their financial assets and liabilities
separately under existing U.S. GAAP for fair value
measurement with any differences in such fair values
reflected in earnings; or (2) to measure both their financial
assets and liabilities using the more observable of the fair
value of the financial assets or the fair value of the financial
liabilities. The guidance will become effective in the first
quarter of 2016, with early adoption permitted. The
7.4
7.4
5.7
2.5
36.2
2.4
749.7
50.9
4.5
3.2
$ 754.2
$ 2,573.1
$
54.1
Private equity investments (a)
Other
Total assets measured at fair value on
a recurring basis
Total assets measured at fair value on a
nonrecurring basis
2.5
Total assets measured at fair value
Total Firm assets
2.6
298.8
AFS securities
Loans
MSRS
December 31, 2014
Total assets at
fair value
Total level 3
assets
Trading debt and equity instruments
$
320.0
$
22.5
Derivative receivables
79.0
12.6
adoption of this guidance is not expected to have a material
impact on the Firm's Consolidated Financial Statements.
35.1
1.0
Level 3 assets as a percentage of total
Firm assets
399.0
2.1%
taxes may materially affect the Firm's results of operations
in any reporting period.
The Firm's provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management's
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain NOLs. The Firm performs regular
reviews to ascertain whether deferred tax assets are
realizable. These reviews include management's estimates
and assumptions regarding future taxable income, which
also incorporates various tax planning strategies, including
strategies that may be available to utilize NOLS before they
expire. In connection with these reviews, if it is determined
that a deferred tax asset is not realizable, a valuation
allowance is established. The valuation allowance may be
reversed in a subsequent reporting period if the Firm
determines that, based on revised estimates of future
taxable income or changes in tax planning strategies, it is
more likely than not that all or part of the deferred tax
asset will become realizable. As of December 31, 2014,
management has determined it is more likely than not that
the Firm will realize its deferred tax assets, net of the
existing valuation allowance.
JPMorgan Chase does not record U.S. federal income taxes
on the undistributed earnings of certain non-U.S.
subsidiaries, to the extent that such earnings have been
reinvested abroad for an indefinite period of time. Changes
to the income tax rates applicable to these non-U.S.
subsidiaries may have a material impact on the effective tax
rate in a future period if such changes were to occur.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase's
unrecognized tax benefits may have a material impact on its
effective tax rate in the period in which the reassessment
occurs.
For additional information on income taxes, see Note 26.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, see
Note 31.
JPMorgan Chase & Co./2014 Annual Report
Management's discussion and analysis
ACCOUNTING AND REPORTING DEVELOPMENTS
Amendments to the consolidation analysis
In February 2015, the Financial Accounting Standards
Board ("FASB") issued guidance regarding consolidation of
legal entities such as limited partnerships, limited liability
corporations, and securitization structures. The guidance
eliminates the deferral issued by the FASB in February
2010 of the accounting guidance for VIES for certain
investment funds, including mutual funds, private equity
funds and hedge funds. In addition, the guidance amends
the evaluation of fees paid to a decision maker or a service
provider, and exempts certain money market funds from
consolidation. The guidance will be effective in the first
quarter of 2016 with early adoption permitted. The Firm is
currently evaluating the potential impact on the
Consolidated Financial Statements.
Reclassification of residential real estate collateralized
consumer mortgage loans upon foreclosure and
classification of certain government-guaranteed
mortgage loans upon foreclosure
In January 2014, the FASB issued guidance which clarified
the timing of when a creditor is considered to have taken
physical possession of residential real estate collateral for a
consumer mortgage loan, resulting in the reclassification of
the loan receivable to real estate owned. The final standard
also requires disclosure of outstanding foreclosed
residential real estate and the amount of the recorded
investment in residential real estate mortgage loans in the
process of foreclosure. In August 2014, the FASB issued
separate guidance clarifying the classification and
measurement of certain foreclosed government-guaranteed
mortgage loans. Under the final standard, certain
foreclosed government-insured mortgage loan amounts
were reclassified on the balance sheet as a receivable from
the guarantor at the guaranteed amount. The Firm early
adopted both of these new standards in the third quarter of
2014 with a cumulative-effect adjustment as of January 1,
2014; the adoption of these standards (and related
reclassification adjustment) had no material impact on the
Firm's Consolidated Financial Statements.
Measuring the financial assets and financial liabilities of a
consolidated collateralized financing entity
Level 3 assets as a percentage of total
Firm assets at fair value
JPMorgan Chase & Co./2014 Annual Report
164
165
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
7.2%
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax laws,
legal interpretations and tax planning strategies. It is
possible that revisions in the Firm's estimate of income
(a) Private equity instruments represent investments within the Corporate
line of business.
Valuation
Details of the Firm's processes for determining fair value
are set out in Note 3. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed models that use
significant unobservable inputs and are therefore classified
within level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's credit-worthiness, market funding rates, liquidity
considerations, unobservable parameters, and for portfolios
that meet specified criteria, the size of the net open risk
JPMorgan Chase & Co./2014 Annual Report
163
Management's discussion and analysis
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate model to use. Second, the lack of observability
of certain significant inputs requires management to assess
all relevant empirical data in deriving valuation inputs -
including, for example, transaction details, yield curves,
interest rates, prepayment rates, default rates, volatilities,
correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves. For further discussion of the valuation of level 3
instruments, including unobservable inputs used, see
Note 3.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies or
assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm's valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, see Note 3.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm's
process and methodology used to conduct goodwill
impairment testing is described in Note 17.
Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of (a) the future earnings
potential of the Firm's reporting units, including the
estimated effects of regulatory and legislative changes,
such as the Dodd-Frank Act, (b) long-term growth rates and
(c) the relevant cost of equity. Imprecision in estimating
these factors can affect the estimated fair value of the
reporting units.
During 2014, the Firm recognized an impairment of the
Private Equity business' goodwill totaling $276 million.
Remaining goodwill of $101 million at December 31, 2014
associated with the Private Equity business was disposed of
as part of the Private Equity sale completed in January
2015. For further information on the Private Equity sale,
see Note 2.
Based upon the updated valuations for all of its reporting
units, the Firm concluded that the goodwill allocated to its
other reporting units was not impaired at December 31,
2014. The fair values of these reporting units exceeded
their carrying values. Except for the Firm's mortgage
banking business, the excess fair value as a percentage of
carrying value ranged from approximately 20-210% for the
other reporting units and did not indicate a significant risk
of goodwill impairment based on current projections and
valuations. The fair value of the Firm's Mortgage Banking
business exceeded its carrying value by less than 5% and
accordingly, the associated goodwill of approximately $2
billion remains at an elevated risk for goodwill impairment.
position. The judgments made are typically affected by the
type of product and its specific contractual terms, and the
level of liquidity for the product or within the market as a
whole. For further discussion of valuation adjustments
applied by the Firm see Note 3.
The projections for all of the Firm's reporting units are
consistent with the short-term assumptions discussed in the
Business outlook on pages 66-67, and in the longer term,
incorporate a set of macroeconomic assumptions and the
Firm's best estimates of long-term growth and returns of its
businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Deterioration in economic market conditions, increased
estimates of the effects of recent regulatory or legislative
changes, or additional regulatory or legislative changes may
result in declines in projected business performance beyond
management's current expectations. For example, in the
Firm's Mortgage Banking business, such declines could
result from increases in primary mortgage interest rates,
lower mortgage origination volume, higher costs to resolve
foreclosure-related matters or from deterioration in
economic conditions, including decreases in home prices
that result in increased credit losses. Declines in business
performance, increases in equity capital requirements, or
increases in the estimated cost of equity, could cause the
estimated fair values of the Firm's reporting units or their
associated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associated
goodwill.
For additional information on goodwill, see Note 17.
Income taxes
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
1,392
3,502
2,050
176
Note 1 - Basis of presentation
Notes to consolidated financial statements
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the United States of
America ("U.S."), with operations worldwide. The Firm is a
leader in investment banking, financial services for
consumers and small business, commercial banking,
financial transaction processing and asset management. For
a discussion of the Firm's business segments, see Note 33.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to accounting principles
generally accepted in the U.S. ("U.S. GAAP"). Additionally,
where applicable, the policies conform to the accounting
and reporting guidelines prescribed by regulatory
authorities.
11,161
JPMorgan Chase & Co./2014 Annual Report
53,723
272
59,602
(5,879)
(13,952)
53,723
27,831 $ 39,771
$ 8,194 $ 9,573 $
$
39,771
(11,940)
1,160
(1,125)
87,707
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
$
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
Offsetting assets and liabilities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in other income.
28,324
JPMorgan Chase & Co./2014 Annual Report
178
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivatives transactions, repurchase and reverse
repurchase agreements, and securities borrowed and
loaned agreements. A master netting agreement is a single
contract with a counterparty that permits multiple
transactions governed by that contract to be terminated
and settled through a single payment in a single currency in
the event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due after expiration of any grace period).
Upon the exercise of termination rights by the non-
defaulting party (i) all transactions are terminated, (ii) all
transactions are valued and the positive value or "in the
money" transactions are netted against the negative value
or "out of the money" transactions and (iii) the only
remaining payment obligation is of one of the parties to pay
the netted termination amount. Upon exercise of
repurchase agreement and securities loaned default rights
(i) all securities loan transactions are terminated and
accelerated, (ii) all values of securities or cash held or to be
delivered are calculated, and all such sums are netted
against each other and (iii) the only remaining payment
obligation is of one of the parties to pay the netted
termination amount.
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the balance sheet when a legally enforceable
master netting agreement exists. U.S. GAAP also permits
securities sold and purchased under repurchase agreements
to be presented net when specified conditions are met,
including the existence of a legally enforceable master
netting agreement. The Firm has elected to net such
balances when the specified conditions are met.
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in other
comprehensive income/(loss) ("OCI") within stockholders'
equity. Gains and losses relating to nonfunctional currency
transactions, including non-U.S. operations where the
functional currency is the U.S. dollar, are reported in the
Consolidated statements of income.
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Foreign currency translation
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Use of estimates in the preparation of consolidated
financial statements
In February 2010, the Financial Accounting Standards
Board ("FASB") issued an amendment which deferred the
requirements of the accounting guidance for VIES for
certain investment funds, including mutual funds, private
equity funds and hedge funds. For the funds to which the
deferral applies, the Firm continues to apply other existing
authoritative accounting guidance to determine whether
such funds should be consolidated.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivative or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
Notes to consolidated financial statements
177
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE's
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
The most common type of VIE is a special purpose entity
(“SPE”). SPEs are commonly used in securitization
transactions in order to isolate certain assets and distribute
the cash flows from those assets to investors. The basic SPE
structure involves a company selling assets to the SPE; the
SPE funds the purchase of those assets by issuing securities
to investors. The legal documents that govern the
transaction specify how the cash earned on the assets must
be allocated to the SPE's investors and other parties that
have rights to those cash flows. SPEs are generally
structured to insulate investors from claims on the SPE's
assets by creditors of other entities, including the creditors
of the seller of the assets.
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Variable Interest Entities
The Firm's investment companies have investments in both
publicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for under
investment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fair
value, and are recorded in other assets.
partners or members have the ability to remove the Firm as
the general partner or managing member without cause
(i.e., kick-out rights), based on a simple majority vote, or
the non-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these funds. In the limited cases where
the nonaffiliated partners or members do not have
substantive kick-out or participating rights, the Firm
consolidates the funds.
JPMorgan Chase & Co./2014 Annual Report
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity (“VIE”).
Voting Interest Entities
118,228
Noninterest expense
(1,050)
Losses recorded in/(reclassified from) accumulated other comprehensive income
(113)
(1) $
(2) $
$
Total other-than-temporary impairment losses
Debt securities the Firm does not intend to sell that have credit losses
2012
2013
2014
Year ended December 31, (in millions)
172
(a) The following other-than-temporary impairment losses are included in securities gains for the periods presented.
1.20
$
1.44
1.58 $
85
$
Total credit losses recognized in income
(1)
Translation adjustments, net of hedges
Unrealized gains/(losses) on investment securities
Other comprehensive income/(loss), after-tax
Net income
Year ended December 31, (in millions)
Consolidated statements of comprehensive income
The Notes to Consolidated Financial Statements are an integral part of these statements.
(43)
(21) $
(4) $
$
Total other-than-temporary impairment losses recognized in income
(15)
(20)
(2)
Securities the Firm intends to sell
(28)
(2)
3,822.2
3,814.9
3,797.5
21,762 $
$
Net income
7,633
7,991
8,030
28,917
25,914
29,792
64,729
70,467
61,274
14,989
20,398
11,146
Income tax expense
Income before income tax expense
17,923 $
21,284
Net income applicable to common stockholders
$
3,809.4
3,782.4
3,763.5
5.20
4.35
5.29
5.22
4.39 $
Cash flow hedges
5.34
Weighted-average diluted shares
Weighted-average basic shares
Diluted earnings per share
Basic earnings per share
Net income per common share data
19,877
16,593 $
20,093 $
Cash dividends declared per common share
2014
2013
2012
111,465
110,435
248,116
215,803
316,051
484,477
39,771
27,831 $
$
2013
2014
Deposits (included $8,807 and $6,624 at fair value)
Liabilities
Other assets (included $12,366 and $15,187 at fair value and assets pledged of $1,396 and $2,066)
Total assets (a)
Other intangible assets
Mortgage servicing rights
Goodwill
398,988
374,664
348,004
354,003
110,101
102,950
1,618
1,192
9,614
7,436
48,081
47,647
Premises and equipment
14,891
65,160
70,079
722,154
743,151
(16,264)
(14,185)
738,418
757,336
15,133
Total noninterest expense
Accrued interest and accounts receivable
Allowance for loan losses
990
(145)
1,467
(1,018)
69
(259)
44
(69)
(41)
(11)
3,303
(4,070)
1,975
21,284
17,923 $
21,762 $
$
(2,903)
3,158
$
22,752
Loans (included $2,611 and $2,011 at fair value)
Securities (included $298,752 and $329,977 at fair value and assets pledged of $24,912 and $23,446)
Trading assets (included assets pledged of $125,034 and $116,499)
Federal funds sold and securities purchased under resale agreements (included $28,585 and $25,135 at fair value)
Securities borrowed (included $992 and $3,739 at fair value)
Deposits with banks
Cash and due from banks
Assets
December 31, (in millions, except share data)
Loans, net of allowance for loan losses
Consolidated balance sheets
JPMorgan Chase & Co./2014 Annual Report
The Notes to Consolidated Financial Statements are an integral part of these statements.
Comprehensive income
Total other comprehensive income/(loss), after-tax
Defined benefit pension and OPEB plans
24,442
15,020 $
$
173
Other expense
2,577
2,500
Management's report on internal control over financial reporting
169
JPMorgan Chase & Co./2014 Annual Report
Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, and
JPMorgan Chase does not undertake to update forward-
looking statements to reflect the impact of circumstances or
events that arise after the date the forward-looking
statements were made. The reader should, however, consult
any further disclosures of a forward-looking nature the Firm
may make in any subsequent Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, or Current Reports on
Form 8-K.
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm's Annual Report on Form 10-
K for the year ended December 31, 2014.
Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing and
other operating systems and facilities;
•
•
Occurrence of natural or man-made disasters or
calamities or conflicts;
Ability of the Firm to determine accurate values of
certain assets and liabilities;
Changes in applicable accounting policies;
•
Adverse judicial or regulatory proceedings;
Adequacy of the Firm's risk management framework,
disclosure controls and procedures and internal control
over financial reporting;
Changes in the credit quality of the Firm's customers and
counterparties;
Competitive pressures;
Ability of the Firm to control expense;
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America.
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the Firm are being made only
in accordance with authorizations of JPMorgan Chase's
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Firm's
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2014. In making the assessment, management used the
framework in "Internal Control - Integrated Framework
(2013)" promulgated by the Committee of Sponsoring
Organizations of the Treadway Commission, commonly
referred to as the "COSO" criteria.
Based upon the assessment performed, management
concluded that as of December 31, 2014, JPMorgan Chase's
internal control over financial reporting was effective based
upon the COSO 2013 criteria. Additionally, based upon
management's assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2014.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes
those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are
being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on
the financial statements.
design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a
reasonable basis for our opinions.
In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity and
cash flows present fairly, in all material respects, the
financial position of JPMorgan Chase & Co. and its
subsidiaries (the "Firm") at December 31, 2014 and 2013
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2014 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2014 based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Firm's management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
"Management's report on internal control over financial
reporting". Our responsibility is to express opinions on
these financial statements and on the Firm's internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement
and whether effective internal control over financial
reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the
To the Board of Directors and Stockholders of JPMorgan
Chase & Co.:
pwc
Report of independent registered public accounting firm
JPMorgan Chase & Co./2014 Annual Report
employees;
170
Executive Vice President and Chief Financial Officer
Marianne Lake
Mamalh
Chairman and Chief Executive Officer
спие
James Dimon
Jome Don
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2014, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
February 24, 2015
Pricewatnhouse Crayons LLP
Ability of the Firm to attract and retain qualified
Acceptance of the Firm's new and existing products and
Changes in laws and regulatory requirements;
Local, regional and international business, economic and
political conditions and geopolitical events;
•
•
•
•
•
•
•
•
•
•
•
•
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ
from those in the forward-looking statements:
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements
often use words such as “anticipate,” “target," "expect,"
"estimate," "intend,” “plan,” “goal," "believe," or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this Annual Report contain
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Firm
also may make forward-looking statements in its other
documents filed or furnished with the Securities and
Exchange Commission. In addition, the Firm's senior
management may make forward-looking statements orally
to investors, analysts, representatives of the media and
others.
FORWARD-LOOKING STATEMENTS
Changes in trade, monetary and fiscal policies and laws;
Securities and capital markets behavior, including
changes in market liquidity and volatility;
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by
banking regulators;
requirements affecting its consumer businesses;
Ability of the Firm to address enhanced regulatory
•
•
•
•
•
•
services by the marketplace and the ability of the Firm to
increase market share;
•
Ability of the Firm to develop new products and services,
and the extent to which products or services previously
sold by the Firm (including but not limited to mortgages
and asset-backed securities) require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;
The success of the Firm's business simplification
initiatives and the effectiveness of its control agenda;
counterparties or competitors;
Technology changes instituted by the Firm, its
slowdown or other economic or market disruption;
Ability of the Firm to deal effectively with an economic
Damage to the Firm's reputation;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
•
$ 2,573,126 $ 2,415,689
February 24, 2015
.
96,606
94,205
44,910
43,319
43,634
11,043
9,350
7,897
55,953
52,669
51,531
52,121
53,287
50,571
4,258
3,847
2,106
97,031
3,139
225
3,385
2,550
Marketing
7,429
7,641
7,705
Professional and outside services
5,224
5,425
5,658
5,804
3,925
3,693
3,909
Occupancy expense
30,585
30,810
30,160
Compensation expense
Technology, communications and equipment expense
PricewaterhouseCoopers LLP
6,022
8,687
Interest expense
Interest income
Noninterest revenue
Other income
Card income
Mortgage fees and related income
Securities gains(a)
Asset management, administration and commissions
Lending- and deposit-related fees
Principal transactions
Investment banking fees
Revenue
Year ended December 31, (in millions, except per share data)
Consolidated statements of income
171
JPMorgan Chase & Co./2014 Annual Report
300 Madison Avenue New York, NY 10017
Net interest income
Total net revenue
Provision for credit losses
2014
5,205
3,563
2,110
667
77
13,868
15,106
15,931
6,020
6,196
5,801
5,536
10,141
5,808
6,354 $
6,542
10,531
2012
2013
5,945
(189)
$ 1,363,427 $ 1,287,765
192,101
(24,814)
33,202
73,566
71,407
(34,026)
(75,928)
(67,525)
2,545
2,219
2,190
(2,110)
(667)
(77)
1,130
8,003
4,210
5,147
89,110
5,306
(5,379)
7,562
36,593
(3,613)
(2,037)
442
(13,069)
(5,743)
6,065
(3,921)
(9,772)
26,818
(4,683)
526
(9,166)
1,732
(2,340)
(3,637)
23,455
1,020
4,759
3,385
225
Provision for credit losses
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net income
Operating activities
Year ended December 31, (in millions)
Consolidated statements of cash flows
175
JPMorgan Chase & Co./2014 Annual Report
The Notes to Consolidated Financial Statements are an integral part of these statements.
$ 232,065 $ 211,178 $ 204,069
Total stockholders' equity
(12,002)
(14,847)
(17,856)
(6)
2,574
(1,415)
Depreciation and amortization
Deferred tax expense
Investment securities gains
Stock-based compensation
3,139
$ 21,762 $ 17,923 $ 21,284
2012
2013
2014
Net change in:
Investing activities
Net cash provided by operating activities
107,953
Other operating adjustments
Trading liabilities
Other assets
Accrued interest and accounts receivable
Securities borrowed
Trading assets
Net change in:
Proceeds from sales, securitizations and paydowns of loans held-for-sale
Originations and purchases of loans held-for-sale
Accounts payable and other liabilities
25,079
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Net cash provided by financing activities
All other financing activities, net
Dividends paid
Treasury stock and warrants repurchased
Redemption of preferred stock
Proceeds from issuance of preferred stock
Payments of long-term borrowings
Excess tax benefits related to stock-based compensation
Proceeds from long-term borrowings
345
(10,433)
(834)
Beneficial interests issued by consolidated variable interest entities
9,315
2,784
9,242
Commercial paper and other borrowed funds
Effect of exchange rate changes on cash and due from banks
Net decrease in cash and due from banks
Cash and due from banks at the beginning of the period
Cash and due from banks at the end of the period
Cash interest paid
(1,175)
(5,194)
(6,056)
(6,990)
(1,653)
(4,789)
(4,760)
(1,800)
26,546
-
255
137
3,873
(96,473)
86,271
83,546
(60,497)
78,515
(65,275)
407
8,847
The Notes to Consolidated Financial Statements are an integral part of these statements.
Cash income taxes paid, net
1,234
(13,155)
(58,867)
Federal funds purchased and securities loaned or sold under repurchase agreements
Other changes in loans, net
Proceeds from sales and securitizations of loans held-for-investment
Purchases
Proceeds from sales
Proceeds from paydowns and maturities
Available-for-sale securities:
4
189
(24,214)
4,169
(10,345)
Purchases
Proceeds from paydowns and maturities
Held-to-maturity securities:
(60,821)
47,726
(36,595)
(194,363)
(168,426)
30,848
Net cash received from/(used in) business acquisitions or dispositions
All other investing activities, net
Net cash used in investing activities
90,664
38,411
(121,504)
20,115
(51,749)
843
67,250
81,476
89,346
Deposits
Net change in:
Financing activities
88
(3,400)
(119,825)
(150,501)
10,905
(165,636)
1,338
(149)
(30,491)
(23,721)
6.430
12,033
112,633
81,957
(189,630)
89,631
73,312
(130,266)
(679)
(12,002)
(4,789)
1,944
(14,847)
(4,760)
1,751
(21)
9,090 $
68,880
$
Total liabilities
All other liabilities
Beneficial interests issued by consolidated variable interest entities
Liabilities
Total assets
All other assets
Loans
Trading assets
Assets
2013
2014
December 31, (in millions)
(a) The following table presents information on assets and liabilities related to VIES that are consolidated by the Firm at December 31, 2014 and 2013. The difference between total
VIE assets and liabilities represents the Firm's interests in those entities, which were eliminated in consolidation.
$ 2,573,126 $ 2,415,689
Total liabilities and stockholders' equity
$
1,815
79,785 $
6,366
70,072
2,168
78,606
2014
Redemption of preferred stock
Issuance of preferred stock
Balance at January 1
Preferred stock
Year ended December 31, (in millions, except per share data)
Consolidated statements of changes in stockholders' equity
JPMorgan Chase & Co./2014 Annual Report
211,178
174
The assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan
Chase. At December 31, 2014 and 2013, the Firm provided limited program-wide credit enhancement of $2.0 billion and $2.6 billion, respectively, related to its Firm-administered
multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 16.
50,678
53,311 $
$
1,061
49,617
52,362 $
949
$
The Notes to Consolidated Financial Statements are an integral part of these statements.
2013
232,065
(17,856)
267,889
276,836
Long-term debt (included $30,226 and $28,878 at fair value)
49,617
52,362
Beneficial interests issued by consolidated variable interest entities (included $2,162 and $1,996 at fair value)
194,491
206,954
Accounts payable and other liabilities (included $36 and $25 at fair value)
137,744
152,815
27,994
30,222
181,163
57,848
66,344
Other borrowed funds (included $14,739 and $13,306 at fair value)
Trading liabilities
Commercial paper
Total liabilities (a)
2,341,061
2,204,511
Commitments and contingencies (see Notes 29, 30 and 31)
1,199
2,189
(21)
Total stockholders' equity
Treasury stock, at cost (390,144,630 and 348,825,583 shares)
Shares held in RSU trust, at cost (472,953 and 476,642 shares)
115,756
130,315
93,828
(21)
(14,847)
93,270
Retained earnings
Additional paid-in capital
4,105
4,105
11,158
20,063
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,006,250 and 1,115,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Stockholders' equity
Accumulated other comprehensive income
Federal funds purchased and securities loaned or sold under repurchase agreements (included $2,979 and $5,426 at fair
value)
2012
11,158 $ 9,058 $ 7,800
3,158
(2,903)
990
944
4,102
1,199
Other comprehensive income/(loss)
Balance at January 1
Accumulated other comprehensive income/(loss)
104,223
115,756
130,315
(4,729)
(5,585)
(6,078)
Common stock ($1.58, $1.44 and $1.20 per share for 2014, 2013 and 2012, respectively)
Balance at December 31
(647)
2,189
1,199
4,102
Balance at December 31
(21)
(21)
17
-
-
(38)
(21)
(21)
(805)
Balance at December 31
Reissuance from treasury stock
Purchase of treasury stock
Balance at January 1
Treasury stock, at cost
Balance at December 31
Reissuance from RSU Trust
Balance at January 1
Shares held in RSU Trust, at cost
Share repurchases related to employee stock-based compensation awards
$
(1,125)
Dividends declared:
93,828
Balance at January 1
Additional paid-in capital
4,105
4,105
4,105
Balance at January 1 and December 31
Common stock
Balance at December 31
9,058
11,158
20,063
(1,800)
-
1,258
3,900
8,905
95,602
Shares issued and commitments to issue common stock for employee stock-based compensation awards, and
related tax effects
(508)
(752)
21,284
17,923
21,762
88,315
104,223
115,756
Net income
Balance at January 1
Preferred stock
Retained earnings
93,828
93,270
Balance at December 31
(262)
(24)
(50)
Other
(736)
94,604
JPMorgan Chase & Co./2014 Annual Report
94,604
107,667
Level 1
Classifications in the valuation
hierarchy
In the absence of quoted market prices, securities are valued based on:
Quoted market prices are used where available.
Valuation methodology, inputs and assumptions
Securities
Product/instrument
JPMorgan Chase & Co./2014 Annual Report
182
Predominantly level 2
Level 3
Fair value is based upon observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
Credit costs allowance for loan losses is considered a reasonable
proxy for the credit cost based on the short-term nature of credit
card receivables
•
Level 2 or 3
• Discount rate - based on cost of funding and expected return on
receivables
(1,102,835)
(1,102,835)
• Projected interest income and late fee revenue, servicing and
credit costs, and loan repayment rates
.
Trading loans Conforming
residential mortgage loans
expected to be sold
Held for investment credit card Valuations are based on discounted cash flows, which consider:
receivables
For information regarding the valuation of loans measured at
collateral value, see Note 14.
• Market liquidity
⚫ Servicing costs
• Expected lifetime credit losses (considering expected and current
default rates for existing portfolios, collateral prices, and
economic environment expectations (e.g., unemployment rates))
• Estimated prepayments
Discount rates (derived from primary origination rates and market
activity)
Predominantly level 3
Predominantly level 3
Valuations are based on discounted cash flows, which consider:
•
Estimated life of receivables (based on projected loan payment
rates)
•
Observable market prices for similar securities
•
are modeled on a transaction basis and calibrated to liquid
benchmark tranche indices)
Credit correlation between the underlying debt instruments (levels
•
• CDS spreads and recovery rates
Structured credit derivatives specific inputs include:
In addition, the following specific inputs are used for the following
derivatives that are valued based on models with significant
unobservable inputs:
Correlation levels
•
• Market funding levels
• Credit quality of the counterparty and of the Firm
⚫ Readily observable parameters including interest rates and volatility
• Contractual terms including the period to maturity
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models,
that use observable or unobservable valuation inputs (e.g., plain vanilla
options and interest rate and credit default swaps). Inputs include:
Exchange-traded derivatives that are actively traded and valued using
the exchange price, and over-the-counter contracts where quoted prices
are available in an active market.
Valued using observable market prices or data
Physical commodities
Derivatives
Credit rating data
Relevant broker quotes
• Discounted cash flows
In addition, the following inputs to discounted cash flows are used for
the following products:
Mortgage- and asset-backed securities specific inputs:
•
Collateral characteristics
Held for investment consumer
loans, excluding credit card
⚫Deal-specific payment and loss allocations
Collateralized loan obligations ("CLOS"), specific inputs:
• Collateral characteristics
•Deal-specific payment and loss allocations
• Expected prepayment speed, conditional default rates, loss severity
• Credit spreads
•
• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
Loans consumer
For information regarding the valuation of loans measured at
collateral value, see Note 14.
Lending-related commitments are valued similar to loans and reflect
the portion of an unused commitment expected, based on the Firm's
average portfolio historical experience, to become funded prior to an
obligor default
Valuation hierarchy
New significant valuation models, as well as material
changes to existing valuation models, are reviewed and
approved prior to implementation except where specified
conditions are met. The Model Risk function performs an
annual firmwide model risk assessment where
developments in the product or market are considered in
determining whether valuation models which have already
been reviewed need to be reviewed and approved again.
The Model Risk function is independent of the model owners
and reviews and approves a wide range of models, including
risk management, valuation and certain regulatory capital
models used by the Firm. The Model Risk function is part of
the Firm's Model Risk and Development unit, and the
Firmwide Model Risk and Development Executive reports to
the Firm's CRO. When reviewing a model, the Model Risk
function analyzes and challenges the model methodology
and the reasonableness of model assumptions and may
perform or require additional testing, including back-testing
of model outcomes.
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction data
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs to those models.
Valuation model review and approval
Where appropriate, the Firm also applies adjustments to its
estimates of fair value in order to appropriately reflect
counterparty credit quality, the Firm's own creditworthiness
and the impact of funding, applying a consistent framework
across the Firm. For more information on such adjustments
see Credit and funding adjustments on pages 196-197 of
this Note.
Unobservable parameter valuation adjustments may be
made when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices or
parameters must be estimated and are, therefore,
subject to management judgment. Unobservable
parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.
•
JPMorgan Chase & Co./2014 Annual Report
180
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied and
determined based on current market conditions. Factors
that may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
•
The valuation control function determines any valuation
adjustments that may be required to the estimates provided
by the risk-taking functions. No adjustments are applied to
the quoted market price for instruments classified within
level 1 of the fair value hierarchy (see below for further
information on the fair value hierarchy). For other
positions, judgment is required to assess the need for
valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
The valuation control function verifies fair value estimates
provided by the risk-taking functions by leveraging
independently derived prices, valuation inputs and other
market data, where available. Where independent prices or
inputs are not available, additional review is performed by
the valuation control function to ensure the reasonableness
of the estimates, and may include: evaluating the limited
market activity including client unwinds; benchmarking of
valuation inputs to those for similar instruments;
decomposing the valuation of structured instruments into
individual components; comparing expected to actual cash
flows; reviewing profit and loss trends; and reviewing trends
in collateral valuation. In addition there are additional levels
of management review for more significant or complex
positions.
Consumer & Community Banking) and certain corporate
functions including Treasury and Chief Investment Office
("CIO").
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's
valuation control function, which is part of the Firm's
Finance function and independent of the risk-taking
functions, is responsible for verifying these estimates and
determining any fair value adjustments that may be
required to ensure that the Firm's positions are recorded at
fair value. In addition, the Firm has a firmwide Valuation
Governance Forum ("VGF") comprised of senior finance and
risk executives to oversee the management of risks arising
from valuation activities conducted across the Firm. The
VGF is chaired by the Firmwide head of the valuation control
function, and also includes sub-forums for the Corporate &
Investment Bank (“CIB”), Mortgage Banking, (part of
Litigation
JPMorgan Chase & Co./2014 Annual Report
Note 29
Page 287
Note 31
Page 295
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
179
Note 3 - Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets
(e.g., certain mortgage, home equity and other loans where
the carrying value is based on the fair value of the
underlying collateral), liabilities and unfunded lending-
related commitments are measured at fair value on a
nonrecurring basis; that is, they are not measured at fair
value on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices, where available. If listed prices or quotes are not
available, fair value is based on models that consider
relevant transaction characteristics (such as maturity) and
use as inputs observable or unobservable market
parameters, including but not limited to yield curves,
interest rates, volatilities, equity or debt prices, foreign
exchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments are
recorded at fair value, as described below.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions to those used by the Firm
could result in a different estimate of fair value at the
reporting date.
Valuation process
Notes to consolidated financial statements
• Actual transactions, where available, are used to regularly
•
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Credit spreads, derived from the cost of credit default swaps
("CDS"); or benchmark credit curves developed by the Firm, by
industry and credit rating, and which take into account the
difference in loss severity rates between bonds and loans
Prepayment speed
•
Valuations are based on discounted cash flows, which consider:
⚫ Servicing costs
• Prepayment speed
⚫ Loss severity
• Lifetime credit losses
Where observable market data is unavailable or limited, valuations
are based on discounted cash flows, which consider the following:
• Yield
• Observed market prices for similar instruments
• Relevant broker quotes
Loans held for investment and
associated lending-related
commitments
Observed market prices (circumstances are infrequent)
•
Level 2 or 3
Where observable market data is available, valuations are based on:
Level 2
Classifications in the valuation
hierarchy
Level 3 - one or more inputs to the valuation
methodology are unobservable and significant to the fair
value measurement.
A financial instrument's categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
181
JPMorgan Chase & Co./2014 Annual Report
Notes to consolidated financial statements
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
The following table describes the valuation methodologies used by the Firm to measure its more significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Securities financing agreements
Valuation methodology
Valuations are based on discounted cash flows, which consider:
• Derivative features. For further information refer to the
discussion of derivatives below.
• Market rates for the respective maturity
• Collateral
Loans and lending-related commitments - wholesale
Trading portfolio
Product/instrument
recalibrate unobservable parameters
Certain long-dated equity option specific inputs include:
• Long-dated equity volatilities
26,276
8,460
17,816
U.S. Treasury and government agencies(a)
36,117
1,891
34,212
14
1,233
306
927
2,044
663
1,381
32,840
922
31,904
28,585
992
$
$
Derivative netting
adjustments
$
Total fair value
28,585
992
Obligations of U.S. states and municipalities
Trading assets:
Mortgage-backed securities:
U.S. government agencies (a)
Residential nonagency
Commercial nonagency
Total mortgage-backed securities
14
Debt instruments:
Securities borrowed
9,298
10,571
Commodity
Equity
Foreign exchange
Credit
Interest rate
Derivative receivables:
Total debt and equity instruments(d)
Other
Physical commodities(c)
Equity securities
Total debt instruments
4,352
1,264
3,088
Asset-backed securities
36,367
13,287
Certificates of deposit, bankers' acceptances and commercial paper
1,429
1,429
Non-U.S. government debt securities
25,854
27,294
1,273
302
Corporate debt securities
28,099
2,989
31,088
Loans(b)
23,080
53,450
financial instruments, guarantees and
other commitments
$
Federal funds sold and securities purchased under resale agreements
•
Fair value is estimated using all available information and considering
the range of potential inputs, including:
Structured notes (included in
deposits, other borrowed funds
and long-term debt)
Long-term debt, not carried at
fair value
Beneficial interests issued by
consolidated VIES
Fund investments (i.e., mutual/
collective investment funds,
private equity funds, hedge
funds, and real estate funds)
Private equity direct investments Private equity direct investments
See Mortgage servicing rights in Note 17.
("MSRS")
Level 3
Classification in the valuation
hierarchy
Valuation methodology, inputs and assumptions
Mortgage servicing rights
Product/instrument
Notes to consolidated financial statements
183
JPMorgan Chase & Co./2014 Annual Report
Certain interest rate and foreign exchange ("FX") exotic options specific
inputs include:
• Interest rate correlation
• Interest rate spread volatility
• Foreign exchange correlation
Predominantly Level 1 and 2
Level 1
Level 2 or 3
Transaction prices
•
• Parameters describing the evolution of underlying interest rates
Certain commodity derivatives specific inputs include:
Commodity volatility
•
Forward commodity price
Additionally, adjustments are made to reflect counterparty credit quality
(credit valuation adjustments or "CVA"), the Firm's own creditworthiness
(debit valuation adjustments or "DVA"), and funding valuation
adjustment ("FVA") to incorporate the impact of funding. See pages
196-197 of this Note.
Correlation between interest rates and foreign exchange rates
$
• Trading multiples of comparable public companies
• Additional available inputs relevant to the investment
Level 3
Level 2
Level 1
December 31, 2014 (in millions)
Fair value hierarchy
Assets and liabilities measured at fair value on a recurring basis
The following table presents the asset and liabilities reported at fair value as of December 31, 2014 and 2013, by major
product category and fair value hierarchy.
JPMorgan Chase & Co./2014 Annual Report
184
Level 2 or 3
Predominantly level 2
Level 2 or 3
Level 2 or 3
Level 1
Level 1 or 2
Level 2 or 3
The embedded derivative features are considered using models
such as the Black-Scholes option pricing model, simulation
models, or a combination of models that use observable or
unobservable valuation inputs, depending on the embedded
derivative. The specific inputs used vary according to the nature of
the embedded derivative features, as described in the discussion
above regarding derivative valuation. Adjustments are then made
to this base valuation to reflect the Firm's own creditworthiness
(DVA) and to incorporate the impact of funding (FVA). See pages
196-197 of this Note.
• Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-
specific issues and lack of liquidity
Public investments held in the Private Equity portfolio
• Valued using observable market prices less adjustments for
relevant restrictions, where applicable
Net asset value ("NAV")
•
NAV is validated by sufficient level of observable activity (i.e.,
purchases and sales)
• Operating performance of the underlying portfolio company
• Adjustments to the NAV as required, for restrictions on
redemption (e.g., lock up periods or withdrawal limitations) or
where observable activity is limited
•
•
•
.
The Firm's own creditworthiness (DVA). See pages 196-197 of this
Note.
• Valuations are based on discounted cash flow analyses that
consider the embedded derivative and the terms and payment
structure of the note.
Valued using observable market information, where available
In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIE
Valuations are based on discounted cash flows, which consider:
Market rates for respective maturity
Off-balance sheet lending-related
Page 282
Note 26
1,596,518
4,369
$
69,310
$
$
2,255
$
(1,114,708) $
$
760,327
6,624
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
5,426
5,426
11,232
2,074
13,306
Trading liabilities:
61,262
Long-term debt
Beneficial interests issued by consolidated VIES
Accounts payable and other liabilities
Total trading liabilities
Total derivative payables(e)
(g)
Commodity
Foreign exchange
Credit
Interest rate
Derivative payables:
80,430
Debt and equity instruments(d)
Equity
19,055
(@
9,650
28,230
11,978
267
12,245
3,142
3,142
49,881
277,774
2,322
329,977
80
1,931
2,011
9,614
9,614
606
429
718
4,819
209,207 $
$
$
Deposits
$
Total assets measured at fair value on a recurring basis
15,187
Total other assets
3,176
289
4,213
All other
7,509
6,474
7,678
821
113
822,014
The Firm has established well-documented processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). For further information on the Firm's valuation
process and a detailed discussion of the determination of
fair value for individual financial instruments, see pages
181-184 of this Note.
Level 3 valuations
Notes to consolidated financial statements
187
JPMorgan Chase & Co./2014 Annual Report
For the year ended December 31, 2012, there were no
significant transfers from level 2 into level 3. For the year
ended December 31, 2012, transfers from level 3 into level
2 included $1.2 billion of derivative payables based on
increased observability of certain structured equity
derivatives; and $1.8 billion of long-term debt due to
increased observability of certain equity structured notes.
All transfers are assumed to occur at the beginning of the
quarterly reporting period in which they occur.
For the year ended December 31, 2012, $113.9 billion of
settled U.S.government agency mortgage-backed securities
were transferred from level 1 to level 2. While the U.S.
government agency mortgage-backed securities market
remained highly liquid and transparent, the transfer
reflected greater market price differentiation between
settled securities based on certain underlying loan specific
factors. There were no significant transfers from level 2 to
level 1 for the year ended December 31, 2012.
Transfers from level 2 into level 3 included $1.1 billion of
other borrowed funds, $1.1 billion of trading loans and
$1.0 billion of long-term debt, based on a decrease in
observability of valuation inputs and price transparency.
During the year ended December 31, 2013, transfers from
level 3 to level 2 included certain highly rated CLOS,
including $27.4 billion held in the Firm's available-for-sale
("AFS") securities portfolio and $1.4 billion held in the
trading portfolio, based on increased liquidity and price
transparency; and $1.3 billion of long-term debt, largely
driven by an increase in observability of certain equity
structured notes. Transfers from level 2 to level 3 included
$1.4 billion of corporate debt securities in the trading
portfolio largely driven by a decrease in observability for
certain credit instruments.
$2.7 billion of trading loans, $2.6 billion of margin
loans, $2.3 billion of private equity investments, $2.0
billion of corporate debt, and $1.3 billion of long-term
debt, based on increased liquidity and price
transparency.
$4.3 billion and $4.4 billion of gross equity derivative
receivables and payables, respectively, due to increased
observability of certain equity option valuation inputs;
•
•
During the year ended December 31, 2014, transfers from
level 3 to level 2 included the following:
For the year ended December 31, 2014 and 2013, there
were no significant transfers between levels 1 and 2.
Transfers between levels for instruments carried at fair
value on a recurring basis
(g) Includes investments in hedge funds, private equity funds, real estate and other funds that do not have readily determinable fair values. The Firm uses net asset value per share
when measuring the fair value of these investments. At December 31, 2014 and 2013, the fair values of these investments were $1.8 billion and $3.2 billion, respectively, of
which $337 million and $899 million, respectively were classified in level 2, and $1.4 billion and $2.3 billion, respectively, in level 3.
(f) Private equity instruments represent investments within the Corporate line of business. The cost basis of the private equity investment portfolio totaled $6.0 billion and $8.0
billion at December 31, 2014 and 2013, respectively.
57,314
137,744
25
1,996
28,878
$
(1,102,835) $
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely
dependent on the amount of observable market information
available to the Firm. For instruments valued using
internally developed models that use significant
unobservable inputs and are therefore classified within
level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
193,999
Total liabilities measured at fair value on a recurring basis
(a) At December 31, 2014 and 2013, included total U.S. government-sponsored enterprise obligations of $84.1 billion and $91.5 billion, respectively, which were predominantly
mortgage-related.
(b) At December 31, 2014 and 2013, included within trading loans were $17.0 billion and $14.8 billion, respectively, of residential first-lien mortgages, and $5.8 billion and $2.1
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government
agencies of $7.7 billion and $6.0 billion, respectively, and reverse mortgages of $3.4 billion and $3.6 billion, respectively.
186
JPMorgan Chase & Co./2014 Annual Report
(c) Physical commodities inventories are generally accounted for at the lower of cost or market. "Market" is a term defined in U.S. GAAP as not exceeding fair value less costs to sell
(“transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market
approximates fair value for the Firm's physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical
commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm's hedge
accounting relationships, see Note 6. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally
enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting
adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of
an asset or liability. Therefore, the balances reported in the fair value hierarchy table are gross of any counterparty netting adjustments. However, if the Firm were to net such
balances within level 3, the reduction in the level 3 derivative receivables and payables balances would be $2.5 billion and $7.6 billion at December 31, 2014 and 2013,
respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the level 3 balances.
$
321
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate model to use. Second, due to the lack of
observability of significant inputs, management must assess
all relevant empirical data in deriving valuation inputs
including, but not limited to, transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves.
positions that are classified within levels 1 or 2 of the fair
value hierarchy.
3,019
(812,071)
13,283
78,731
3,671
(80,121)
2,281
443
156,838
2,844
(144,178)
15,947
46,552
8,102
(39,935)
14,719
398
1,162
62,424
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/
instrument classification. Where provided, the weighted
averages of the input values presented in the table are
calculated based on the fair value of the instruments that
the input is being used to value.
In the Firm's view, the input range and the weighted
average value do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm's
estimates and assumptions. Rather, they reflect the
characteristics of the various instruments held by the Firm
and the relative distribution of instruments within the range
of characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter to parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
For the Firm's derivatives and structured notes positions
classified within level 3, the equity and interest rate
correlation inputs used in estimating fair value were
concentrated at the upper end of the range presented,
while the credit correlation inputs were distributed across
the range presented and the foreign exchange correlation
inputs were concentrated at the lower end of the range
presented. In addition, the interest rate volatility inputs
used in estimating fair value were concentrated at the
upper end of the range presented and the foreign exchange
correlation inputs were concentrated at the lower end of
the range presented. The equity volatility is concentrated in
the lower half end of the range. The forward commodity
prices used in estimating the fair value of commodity
derivatives were concentrated within the lower end of the
range presented.
188
JPMorgan Chase & Co./2014 Annual Report
$
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for
those inputs and, for certain instruments, the weighted
averages of such inputs. While the determination to classify
an instrument within level 3 is based on the significance of
the unobservable inputs to the overall fair value
measurement, level 3 financial instruments typically include
observable components (that is, components that are
actively quoted and can be validated to external sources) in
addition to the unobservable components. The level 1 and/
or level 2 inputs are not included in the table. In addition,
the Firm manages the risk of the observable components of
level 3 financial instruments using securities and derivative
756
18,870
1,200,452
18,243
1,140,744
1,159,799
11,084
(26,530)
607
36,609
62,424 $
Total derivative receivables(e)
27,409
Other assets:
Page 203
Note 6
Derivative instruments
Page 199
Note 4
Note 3 Page 180
As part of the Firm's business simplification agenda, the
sale of a portion of the Private Equity Business ("Private
Equity sale") was completed on January 9, 2015.
Concurrent with the sale, a new independent management
company was formed by the former One Equity Partners
("OEP") investment professionals. The new management
company will provide investment management services to
the acquirer of the investments sold in the Private Equity
sale and for the portion of private equity investments
retained by the Firm. Upon closing, this transaction did not
have a material impact on the Firm's Consolidated balance
sheets or its results of operations.
Note 2 - Business changes and developments
Subsequent events
Fair value option
Fair value measurement
a detailed description of each policy can be found.
significant accounting policies and the Note and page where
The following table identifies JPMorgan Chase's other
Significant accounting policies
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks.
Statements of cash flows
For further discussion of the Firm's derivative instruments,
see Note 6. For further discussion of the Firm's repurchase
and reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 13.
128,347
153,334
5,659
10,189
4
5,217
Noninterest revenue
4,968
181,551
885
116,517
24,335
954
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
109,506
2,000
27,224
Note 7
Interest income and interest expense
Note 21 Page 277
Page 276
Note 18
Income taxes
Long-term debt
Premises and equipment
Note 17 Page 271
Page 262
Note 16
Goodwill and other intangible assets
Variable interest entities
Page 258
Note 15
Allowance for credit losses
Page 238
Note 14
Loans
Note 8
Page 218
Pension and other postretirement
employee benefit plans
Note 9
Page 218
Page 216
Employee stock-based incentives
Page 228
Securities
Note 12
Page 230
Securities financing activities
Note 13 Page 235
Note 10
Private equity investments(f)
7,659
419
525
Total mortgage-backed securities
155,475
1,234
U.S. Treasury and government agencies(a)
21,091
298
Obligations of U.S. states and municipalities
29,461
Certificates of deposit
1,041
Non-U.S. government debt securities
25,648
30,600
Corporate debt securities
21,512
Asset-backed securities:
Mortgage servicing rights
Loans
Total available-for-sale securities
Equity securities
Other
21,512
15,900
56,248
29,461
21,389
156,709
16,425
77,815
62,469
Collateralized loan obligations
1,041
308,905
709
77,815
848,862
5,398
(828,897)
25,782
79,754
3,766
(82,004)
1,516
434
151,521
1,644
(136,809)
16,790
45,892
7,039
(40,704)
12,227
374,664
65,759
(1,114,708)
(1,114,708)
45,793
1,289,072
154,507
61,760
18,569
1,173
9,444
(26,294)
722
34,696
320
1,160,725
Total trading assets
•
Mortgage-backed securities:
1,164
44,318
141
11,740
(38,825)
4,337
46,228
22,970
(195,378)
2,802
214,800
746
1,593
(74,302)
2,800
73,095
Accounts payable and other liabilities
(28,555)
17,068
1,386
64,300
1,299,064
1,317,777
211,764
(1,243,960) $
$
2,162
30,226
36
152,815
(1,243,960)
14,698
36
1,146
11,877
32,069
Total trading liabilities
$
64,300 $
$
Total liabilities measured at fair value on a recurring basis
Long-term debt
Beneficial interests issued by consolidated VIES
71,116
(1,243,960)
14,626
1,016
18,349
1,359,355
JPMorgan Chase & Co./2014 Annual Report
Total derivative payables(e)
Equity
2,979
$
2,859
$
5,948
(1,253,756) $
$
50,914
$
(g)
(g)
4,846
2,371
2,475
2,624
230
2,854
1,754,920
4,666
197,652 $
$
$
דייס ד
5,747
6,619
12,366
Foreign exchange
Credit
17,745
(906,900)
3,523
920,623
499
81,699
Commodity
72
62,914
14,739
1,453
13,286
2,979
8,807
$
749,730
18,713
$
185
December 31, 2013 (in millions)
30,786
13,455
17,331
Loans(b)
30,722
5,920
24,802
Corporate debt securities(h)
48,284
143
22,379
25,762
Non-U.S. government debt securities
3,071
3,071
Certificates of deposit, bankers' acceptances and commercial paper
7,920
Asset-backed securities
3,647
1,272
4,919
40,699
Commercial nonagency
Residential nonagency
U.S. government agencies (a)
Mortgage-backed securities:
Available-for-sale securities:
Total trading assets
Total derivative receivables(e)
1,382
Commodity
Credit
Interest rate
Derivative receivables:
Total debt and equity instruments(d)
Other
Physical commodities(c)
Equity securities
Total debt instruments
Foreign exchange
Equity
Notes to consolidated financial statements
6,538
25,480
Trading assets:
3,739
25,135
$
Total fair value
Derivative netting
adjustments
$
$
25,135
3,739
$
-
Level 3
Level 2
Fair value hierarchy
Level 1
$
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Debt instruments:
Mortgage-backed securities:
U.S. government agencies (a)
Residential nonagency
10,547
14,933
U.S. Treasury and government agencies(a)
30,369
2,163
28,202
4
1,303
Obligations of U.S. states and municipalities
432
2,475
726
26,591
1,005
25,582
1,749
4
Total mortgage-backed securities
Commercial nonagency
871
Available-for-sale securities:
18,356
25
1,240
10,008
33,958
65,319
Equity securities
Other
Collateralized loan obligations
Asset-backed securities:
Corporate debt securities
18,532
52,743
1,103
13,645
30,068
137,322
21,108
Total available-for-sale securities
50,895
18,532
28,669
24,074
Non-U.S. government debt securities
1,103
Certificates of deposit
30,068
Obligations of U.S. states and municipalities
54
U.S. government agencies(a)
Residential nonagency
43,684
ཋ88,,,,,
134,960
Loans
Other assets:
2,611
2,541
70
298,752
1,037
257,520
2,530
2,530
40,195
12,615
116
12,499
Mortgage servicing rights
30,194
29,402
Interest rate
Derivative payables:
Debt and equity instruments(d)
Trading liabilities:
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
Deposits
Total assets measured at fair value on a recurring basis
Total other assets
All other
Private equity investments(f)
792
7,436
21,006
104,890
2,552
(38,615)
8,177
247
42,807
599
(29,671)
13,982
1,478
1,318,688
152,791
44,240
1,464,899
(1,253,756)
78,975
(1,253,756)
398,988
65,319
50,865
Commercial nonagency
21,009
Total mortgage-backed securities
137,193
129
12,565
35,054
199,650
21,253
2,276
748
431
106,069
2,739
1,741
2
4,482
8,762
1,050
9,812
151,313
(187,668)
146,211
320,013
473
951,901
4,149
(922,798)
73,853
2,989
(75,004)
33,725
1,838
758
205,887
22,489
U.S. Treasury and government agencies (a)
7,436
4,018
648
13,591
■ 1.9x
$ 17
Earnings
2017+
2016
2015
2014
2013
2012
2011
9
2010
7.0%
7.9%
8.7%
9.5%
10.2%
11.0%
11.5%
12.0%+
Glidepath³
Basel III common equity Tier 1 capital ratio (CET1)¹
($in billions, except ratios)
Capital, Liquidity, Returns
$ 19
The chart below also shows that even
after dramatically increasing capital and
liquidity, both of which reduce returns on
capital, we were able to earn an adequate
return on tangible common equity, grow
our capital base as needed and still return
capital to shareholders.
$ 21
$ 22
3 Reflects the firm's Basel III CET1 ratio glidepath for 2015-2017+
Represents common dividends plus stock buybacks, which are gross of employee issuance
2
1 Basel III rules became effective on January 1, 2014. The ratios presented for 2010-2014 are calculated under the Basel III Advanced Fully
Phased-In Approach and, for 2010-2013, reflect the firm's best estimate based on its understanding of the rules in the relevant period
13%
11%
• The stress test essentially assumes that
certain models don't work properly, partic-
ularly in credit (this clearly happened with
mortgages in 2009).
15%
15%
15%
ROTCE
600
522
341
NA
ΝΑ
HQLA
11
10
6
13
4
Total capital returned²
$ 18
The chart below shows earnings, the capital
we returned to shareholders through divi-
dends and stock buybacks, our returns
on tangible common equity and our high
quality liquid assets (HQLA). High quality
liquid assets essentially are deposits held
at the Federal Reserve and central banks,
agency mortgage-backed securities and
Treasuries, and they are the component
of our balance sheet that has grown most
dramatically. Only HQLA count for liquid
assets under banking regulators' definition of
liquidity and we currently have more than
is required by the regulators.
I. AN OUTSTANDING FRANCHISE
■1.2x developed
■ 1.7x
World exports
($ in trillions)
• The stress test assumes all of the negatives
of market moves but none of the positives.
Investable assets
($ in trillions)
$263
$ 481
■6% CAGR
■12% emerging
■4% developed
Infrastructure
spend
$36 over last 18 years
$57 over next 18 years
■ 1.6x
($ in trillions)
Number of
companies with
8,000
$1+ billion revenue
Source: International Monetary Fund, World Bank, McKinsey, JPMorgan Chase analysis
1 2025 estimate
18
■ 2.6x emerging
■1.1x developed
15,000¹
$ 38
$ 22
($ in trillions)
5.5% CAGR
• The stress test does not allow a reduction
for stock buybacks and dividends. Again,
many banks did not do this until late in
the last crisis.
I believe the Fed is appropriately conserva-
tively measuring the above-mentioned aspects
and wants to make sure that each and every
bank has adequate capital in a crisis without
having to rely on good management decisions,
perfect models and rapid responses.
We believe that we would perform far better
under the Fed's stress scenario than the Fed's
stress test implies. Let me be perfectly clear
- I support the Fed's stress test, and we at
JPMorgan Chase think that it is important
that the Fed stress test each bank the way it
does. But it also is important for our share-
holders to understand the difference between
the Fed's stress test and what we think actu-
ally would happen. Here are a few examples
of where we are fairly sure we would do
better than the stress test would imply:
• We would be far more aggressive on
cutting expenses, particularly compensa-
tion, than the stress test allows.
• We would quickly cut our dividend and
stock buyback programs to conserve
capital. In fact, we reduced our dividend
dramatically in the first quarter of 2009
and stopped all stock buybacks in the first
quarter of 2008.
• We would not let our balance sheet grow
quickly. And if we made an acquisition,
we would make sure we were properly
capitalized for it. When we bought Wash-
ington Mutual (WaMu) in September of
2008, we immediately raised $11.5 billion
in common equity to protect our capital
position. There is no way we would make
an acquisition that would leave us in a
precarious capital position.
• And last, our trading losses would unlikely
be $20 billion as the stress test shows. The
stress test assumes that dramatic market
moves all take place on one day and that
there is very little recovery of values. In
the real world, prices drop over time,
and the volatility of prices causes bid/ask
spreads to widen – which helps market-
makers. In a real-world example, in the six
months after the Lehman Brothers crisis,
J.P. Morgan's actual trading results were
$4 billion of losses – a significant portion
of which related to the Bear Stearns acqui-
sition which would not be repeated. We
also believe that our trading exposures are
much more conservative today than they
were during the crisis.
Finally, and this should give our shareholders
a strong measure of comfort: During the
actual financial crisis of 2008 and 2009, we
never lost
money in any quarter.
We hope that, over time, capital planning
becomes more predictable. We do not believe
that banks are trying to "game" the system.
What we are trying to do is understand the
regulatory goals and objectives so we can
properly embed them in our decision-making
process. It is critical for the banking system
that the treatment of capital is coherent and
17
II. BUILT FOR THE LONG TERM
■3.8x emerging
consistent over time and is not in any way
capricious. Capital is precious, and it needs to
be deployed intelligently in the business or
properly returned to shareholders. If share-
holders do not have a clear understanding of
capital management and have unreasonable
expectations, then that capital will be devalued.
This is a bad outcome for all involved.
Therefore, we take a long-term perspective
on investing. How we currently view low net
interest margins is a good example of making
decisions for the long run
To capture our share of the growth in our
underlying businesses, we need to continu-
ally invest in bankers, branches and capabili-
ties (research, products and technology) to
drive down our costs and better serve our
clients. It is a lot of hard work that needs to
be supported by all of our critical functions,
from finance and human resources to opera-
tions and controls. This kind of investing
should not be done in a stop-start way to
manage short-term profitability.
-
Quarterly earnings – even annual earnings
- frequently are the result of actions taken
over the past five or 10 years. Our company
continued to invest through the crisis - often
when others could not - in order to capture
future growth.
Global Macro Themes
2014
2024
Growth
World gross
domestic product
$ 78
$ 133
While there always will be cycles, we need to
keep our eye on the important things, too -
the outlook for long-term growth is excellent
The needs of countries, companies, investor
clients and individuals will continue to grow
over time. The chart below shows some of
the long-term growth that is expected in
some critical areas, including the underlying
growth of gross domestic product and trade,
investable/financial assets, infrastructure and
capital markets activities. This is the fuel that
will drive our business in the future.
• The stress test assumes that all banks' risk-
weighted assets would grow fairly signifi-
cantly. (The Fed wants to make sure that
a bank can continue to lend into a crisis
and still pass the test.) This could clearly
happen to any one bank though it couldn't
happen to all banks at the same time.
To make sure the test is severe enough, the
Fed essentially built into every bank's results
some of the insufficient and poor decisions
that some banks made during the crisis.
While I don't explicitly know, I believe that
the Fed makes the following assumptions:
Leading Client Franchises
• We market Chase Paymentech, our
merchant acquirer, through our branches
to small businesses, through the Commer-
cial Bank to midsized companies and
through our Corporate & Investment Bank
to large, multinational corporations.
-
America's financial system is still the best the
world has ever seen it is large and diverse
- and it serves the best economy the world
has ever seen, which also is large and diverse
America's financial system still is the best
the world has ever seen, and it includes not
just banks but asset managers, private equity,
venture capital, individual and corporate
investors, non-bank financial companies,
and public and private markets. In fact, in
the United States, banks are a much smaller
part of the financial system and the economy
than in most other countries. And there is a
great need for the services of all banks, from
large global banks to smaller regional and
community banks.
Our large global Corporate & Investment Bank
does things that regional and community banks
simply cannot do. We offer unique capabili-
ties to large corporations, large investors and
governments, including federal institutions,
states and cities. For example, we provide
extensive credit lines or raise capital for these
clients, often in multiple jurisdictions and in
multiple currencies. We essentially manage
the checking accounts for these large insti-
tutions, often in many different countries.
On the average day, JPMorgan Chase moves
approximately $6 trillion for these types of
institutions. On the average day, we raise or
lend $6 billion for these institutions. On the
average day, we buy or sell approximately
$800 billion of securities to serve investors
and issuers. In 2014, our Corporate & Invest-
ment Bank raised $61 billion for states, cities,
governments and universities, including
funds to renovate the historic Arthur Ashe
(Tennis) Stadium in New York City, revenue
12
I. AN OUTSTANDING FRANCHISE
• Because of our international footprint,
we bring global banking services
from cash management to M&A - to
approximately 2,500 of our more than
20,000 Corporate Client Banking and
Middle Market Banking clients, who
are rapidly expanding overseas and
who need these services from someone
they know and can trust.
bonds to assist municipalities and hospitals,
and green bonds to finance environmentally
beneficial projects such as green buildings,
clean water and renewable energy. As a firm,
we spend approximately $700 million a year
on research so that we can educate investors,
institutions and governments about econo-
mies, markets and companies. The needs of
these clients will be met - one way or another
- by large financial institutions that can bear
the costs and risks involved. Simply put, if
it is not done by a large American financial
institution, it will be done by a large non-
American financial institution.
I. AN OUTSTANDING FRANCHISE
However, large does not necessarily mean
complex (and things should be complex only
for a good reason)
Many of the activities we do that are consid-
ered large are easy to understand. All of our
5,600 Chase consumer branches do essen-
tially the same thing, and many of our large
global transactions are not any more compli-
cated than a loan for a middle market client.
with the
you
While we agree
concept that
should keep things as simple as possible,
some things, by their very nature, are more
complex. And that complexity cannot be
reduced by wishful thinking. In fact, basic
lending, whether to a large company or
a midsized company, is one of the more
complex things we do because one must
understand the economy, the nature of
the business and often the types of collat-
eral involved. There are many judgmental
factors to consider as well, which might
include the character of the borrower, the
growth prospects of the business, and an
understanding of the products and services
and technology of the business.
There are understandable questions about
the role that large financial institutions
play. Some of these questions make people
nervous, in part because they do not under-
stand the larger picture. These are important
questions, and we always are willing to help
explain what we do and why we do it. Taken
in small component pieces, these activities
generally are easier to understand. While
some may criticize a bank's activities instead
of taking the time to understand them, this
does not contribute to a genuinely construc-
tive dialogue around the role of banks.
Regional and community banks are critical
to their communities - in fact, we are a huge
supporter and their largest banking partner.
These banks are deeply embedded in their
communities, many of which are not served
by larger banks. They have an intimate
knowledge of the local economy and local
small businesses, which allows them to cost-
effectively serve those clients. JPMorgan
Chase, as a traditional “money center bank"
and "bankers' bank," in fact, is the largest
banker in America to regional and commu-
nity banks. We provide them with many
services so they can continue to serve their
clients. For example, we directly lend to
them, we process payments for them, we
finance some of their mortgage activities, we
raise capital for them (both debt and equity),
we advise them on acquisitions, and we buy
and sell securities for them. We also provide
them with interest rate swaps and foreign
exchange both for themselves
to help them
hedge some of their exposures - and for
their clients.
• Around the world, we can bring excep-
tional private banking services to CEOs
and company owners or help private
banking clients with their global
commercial banking needs.
• Commercial Banking now generates
35% of our U.S. investment banking
business. This means we are able to
bring JPMorgan Chase's exceptional
Investment Bank to serve hundreds
of midsized corporations and institu-
tions with the best global investment
banking products and services in the
industry. We can do this because our
Commercial Bank is in hundreds of
towns across the country where we can
serve clients locally - person to person
- and also bring the best of JPMorgan
Chase to them.
Part of our mix of businesses, however, is
not unique. While we divide our company
into four distinct businesses, the truth
is that many regional banks do a lot of
what three of our four businesses do (i.e.,
Chase Consumer & Community Banking,
Commercial Banking and Asset Manage-
ment). The biggest difference between us
and regional banks is our global Corpo-
rate & Investment Bank (and the non-U.S.
part of our Asset Management business).
Our broad product set and some of our
unique capabilities (some we inherited,
and some we built carefully over time),
combined with effective cross sell, create
substantial competitive advantage. The
examples below make some of those
advantages clear:
■Regional banks
Midsized banks
2011
2012
2013
Source: J.D. Power U.S. Retail Banking Satisfaction Study; Big Banks defined as Chase, Bank of America,
Wells Fargo, Citibank, U.S. Bank, PNC Bank
I. AN OUTSTANDING FRANCHISE
2014
Our mix of businesses works for clients - and
for shareholders
All companies, including banks, have a
slightly different mix of businesses, products
and services. The most critical question is,
"Does what you do work for clients?" Our
franchise does work for clients by virtue of
the fact that we are gaining share in each of
our businesses, and it works for shareholders
by virtue of the fact that we are earning
decent returns and some of our competi-
tors are not.
Other considerations are whether your
company has "moats" - is it protected in
some way from debilitating competition or
events? And has it performed consistently
- in good times and in bad? We believe that
we have well-fortified moats in the form of
economies of scale, brand, expertise, tech-
nology and operations, and – importantly –
competitive advantages created by our ability
to cross sell (more on this later in this letter).
In addition, we have performed fairly consis-
tently in good times and in bad. Even in
2008, the worst year in perhaps 75 years for
financial companies, we earned 6% return
on common tangible equity – not great but
not bad, all things considered. Additionally,
we have embedded strengths that are hard to
replicate the knowledge and cohesiveness
of our people, our long-standing client rela-
tionships, our technology and product capa-
bilities, our fortress balance sheet and our
global presence in more than 100 countries.
Our mix of businesses leads to effective cross
sell and substantial competitive advantages.
We are not a conglomerate of separate,
unrelated businesses - we are an operating
company providing financial services to
consumers, companies and communities
A conglomerate is a group of unrelated busi-
nesses held under one umbrella holding
company. There is nothing wrong with
a conglomerate, but we are not that. In
our case, whether you are an individual, a
company (large or small) or a government,
when you walk in the front door and talk
with our bankers, we provide you with essen-
tial financial products, services and advice.
We have a broad product offering and some
distinct capabilities, which, combined, create
a mix of businesses that works well for each
of our client segments.
11
I. AN OUTSTANDING FRANCHISE
People also should ask themselves one
basic question: Why do banks offer these
services? The fact is, almost everything we
do is because clients want and need our
various and sometimes complex services.
(We do many activities that are ancillary to
clients' direct needs, but we must do these
things to provide clients with what they
need. For example, in order to support our
operation, we run global data centers, we
hedge our own exposures and we maintain
liquid pools of investments.)
Industry average
I would venture to say that banking is not
as complex as making airplanes, discovering
effective pharmaceuticals, building safe
cars, developing innovative electronics and,
of course, understanding nuclear physics.
There are huge benefits to the complexity
involved in those other industries - but there
also are sometimes negative consequences.
The question for society is: Are we, in total,
I. AN OUTSTANDING FRANCHISE
Military and veterans. Another effort that we
want you to know about is what JPMorgan
Chase has done to help position military
members, veterans and their families for
success in their post-service lives through
employment, housing and educational
programs. In 2011, JPMorgan Chase and 10
other companies launched the 100,000 Jobs
Mission, setting a goal of collectively hiring
100,000 veterans. The 100,000 Jobs Mission
now includes more than 190 companies that
have collectively hired more than 217,000
veterans since 2011 and has pledged to
hire a total of 300,000 veterans. JPMorgan
Chase hired over 1,800 veterans in 2014,
nearly a 40% year-over-year increase, for a
total of nearly 8,700 veterans hired since
2011. Further, we expanded our employ-
ment programs to address the unique needs
of women veterans and military spouses.
We hope that this makes you as proud of
JPMorgan Chase as it does for all of us.
15
II. WE BUILD FOR THE LONG TERM
-
WE MANAGE
THROUGH-THE-CYCLE, AND WE ALWAYS ARE
PREPARED FOR THE TOUGHEST OF TIMES
Our paramount responsibility to society and
to our clients is to be there in good times and
bad times
Helping Detroit's economy recover and
thrive would be a shining example of Amer-
ican resilience and ingenuity at work.
We have a huge obligation to society - not
only must we never fail, but we need to be
steadfast. Never failing means having the
financial strength, liquidity, margins, and
strong and diverse earnings where you can
weather any storm. It also means having
the ability to adapt, survive and even thrive
through the cycles.
We extensively manage our risks so that
we can survive in any scenario. The Federal
Reserve's stress test is a tough measure of
our survival capability - though our ability to
survive is stronger than that test implies
We are fanatics about stress testing and risk
management. It is in our best interest to
protect this company - for the sake of our
shareholders, clients, employees and commu-
nities. If you went to our risk committee
meetings, you would see a number of profes-
sionals working to thoughtfully manage and
reduce our risk - we don't want a bunch
of cowboys trying to increase it. We run
hundreds of stress tests a week, across our
global credit and trading operations, to
ensure our ability to withstand and survive
many bad scenarios. These scenarios include
events like what happened in 2008, other
historically damaging events and also new
situations that might occur. Our stress tests
include analyzing extremely bad outcomes
relating to the Eurozone, Russia and the
Middle East.
Regarding the Eurozone, we must be prepared
for a potential exit by Greece. We continu-
ally stress test our company for possible
repercussions resulting from such an event
(even though, in our opinion, after the initial
turmoil, it is quite possible that it would
prompt greater structural reform efforts by
countries that remain). Also regarding geopo-
litical crises, one of our firm's great thinkers,
Michael Cembalest, reviewed all of the major
geopolitical crises going back to the Korean
War, which included multiple crises involving
the Soviet Union and countries in the Middle
East, among others. Only one of these events
derailed global financial markets: the 1973
war in the Middle East that resulted in an
oil embargo, caused oil prices to quadruple
and put much of the world into recession.
We stress test frequently virtually every
country and all credit, market and interest
rate exposures; and we analyze not only the
primary effects but the secondary and tertiary
consequences. And we stress test for extreme
moves – like the one you recently saw around
oil prices. Rest assured, we extensively
manage our risks.
-
The Federal Reserve's Comprehensive Capital
Analysis and Review (CCAR) stress test is another
tough measure of our survival capability. The
stress test is good for our industry in that it
clearly demonstrates the ability of each and
every bank to be properly capitalized, even
after an extremely difficult environment.
Specifically, the test is a nine-quarter scenario
where unemployment suddenly goes to
10.1%, home prices drop 25%, equities
plummet approximately 60%, credit losses
skyrocket and market-making loses a lot of
money (like in the Lehman Brothers crisis).
16
II. BUILT FOR THE LONG TERM
Steadfast means that will be there no
you
matter what happens, and being there means
that you can continue to properly serve your
clients even in tough times. In the toughest
of times, it is not about making a profit.
It is about helping your clients survive. I
should point out that in the toughest of
times, particularly in 2009, JPMorgan Chase
rolled over and extended credit to small
and medium-sized businesses a total of $63
billion, to governments and nonprofits a
total of $110 billion, and to large corporations
a total of $1.1 trillion. I will talk more about
this later.
• We created the Detroit Service Corps to
bring more than 50 of our top managers
to work full time with Detroit nonprofits
to help them analyze challenges, solve
problems and give them the best chance
for success.
• We provided lending for development
- both commercial development to let
businesses like Global Titanium expand
jobs and residential development and new
construction of apartment buildings in
Detroit's urban core and neighborhoods.
• We helped small businesses get access to
the advice, training and other resources
needed to grow, including a new commer-
cial kitchen at Eastern Market that will
allow more food businesses to expand.
better off or worse off because of some of the
great products and services that come with
complexity? The answer in our opinion is a
resounding yes, though you should always
strive to minimize the risks. But we want to
acknowledge that the difference with banks,
as pointed out by critics, is that if and when
they make mistakes, they can severely harm
the economy. This concern is legitimate, and I
will talk about it in a later section.
Larger does not necessarily mean more risky
For example, many large banks had no
problem navigating the financial crisis,
while many smaller banks went bankrupt.
Many of these smaller banks went bankrupt
because they were undiversified, meaning
that most of their lending took place in a
specific geography. A good example was
when oil collapsed in the late 1980s. Texas
banks went bankrupt because of their direct
exposure to oil companies and also because
of their exposure to real estate whose value
depended largely on the success of the oil
business. Since the crisis began seven years
ago, more than 500 smaller banks have gone
bankrupt, and JPMorgan Chase has contrib-
uted approximately $8 billion to the Federal
Deposit Insurance Corporation to help pay
for the resolution of those banks.
And, yes, there are both costs and benefits to
size and complexity
The benefits of size are obvious: huge econo-
mies of scale, the ability to serve large clients
and make large investments, and safe diversi-
fication, among others. And, yes, there some-
times are clear negatives to size - usually in
the form of arrogance, greed, complacency
or lack of attention to detail. (There also are
many small businesses afflicted with these
diseases they kill companies both large
and small.) Good companies get the benefits
of size and continuously are fighting off the
negatives. And there are lots of winners and
losers, particularly as industries consolidate.
In every industry, you will see companies
that benefit from size - and those that don't.
-
Our size and strength allow us to create
benefits for society by helping economies
and communities around the world grow and
prosper
We are able to do our part in supporting
communities and economies around the
world because we are strong, stable and
permanent. And because of this strength
and stability, we can continue to support our
clients in good times and, more important,
in the toughest of times. The most important
thing we can do is keep our company healthy
and vibrant so that we can serve the needs
of customers, consumers and businesses and
help local economies and the thousands of
cities and various communities around the
world where we operate to grow and prosper.
In addition, we strongly believe in being a
good corporate citizen. We are one of the
most philanthropic companies in the world
(we give away more than $200 million a
year), but we are able to do much more than
provide money. We bring the skills, resources
and global knowledge of our entire firm
to support the economic growth and prog-
ress of communities across the globe. One
example is our research, such as studying
how our communities analyze labor market
conditions so they can get better at training
people for jobs or how cities can further
develop their economies. See Peter Scher's
Corporate Responsibility letter on page 58
for more details on our efforts to support
cities and communities around the globe.
Following are three unique initiatives that
we'd like to focus on:
JPMorgan Chase Institute. We will be offi-
cially launching an exciting new initiative
called the JPMorgan Chase Institute, which
is a global think tank dedicated to deliv-
ering data-rich analyses, expert insights
and thought leadership for the public good.
Drawing on the knowledge, market access,
broad relationships and resources across
the firm, the JPMorgan Chase Institute will
help inform both business and policy deci-
sions by grounding them with facts, data
and thoughtful analysis. Our aim is to help
decision makers – policymakers, businesses
and nonprofit leaders – appreciate the scale,
14
AN OUTSTANDING FRANCHISE
granularity, diversity and interconnected-
ness of the global economic system to inform
smarter decisions and good policies that
advance global prosperity for consumers,
businesses and countries. The research
agenda will include groundbreaking analytic
work on the financial behavior of individ-
uals, insights on the small business sector,
and expert profiling of global trade and
capital flows.
Detroit. We brought all of our resources to
bear in a special, coordinated way, which we
never have done before, to try to help the
city of Detroit. We have been doing business
there for more than 80 years and already
are the largest consumer, commercial and
investment bank serving Detroit's consumers
and companies. But we wanted to do more
to help kick-start the city's recovery. This
effort is a $100 million commitment, which
includes investments, philanthropy and
our people working in tandem with a set
of city leaders who have come together to
work toward a common purpose. Our initial
interest in undertaking this effort was made
possible because of our faith in the extraordi-
nary work and talent of Mayor Duggan and
Gov. Snyder (and Kevyn Orr, who recently
left as Emergency Manager). Their dedica-
tion to coherently, comprehensively and
pragmatically attacking the city's enormous
problems made us want to do more. In fact,
everything we have done to help is the result
of asking a broad array of the city's leaders
what they really needed and then working
with them to come up with some creative
solutions. Let me give just a few examples:
We expanded the city's effort to systemati-
cally map every single parcel in Detroit
and provided the technology assistance
so that residents can use their phones to
continually update the database.
We helped provide financing for people
who wanted to purchase land or to buy
and renovate homes.
• We supported nonprofit organizations,
including Focus: HOPE, in their efforts to
help people gain skills from job training
programs.
13
Chase
Big banks
-
Consumer Satisfaction Score: 2010-20141
Investment
Bank
FICC6.7
Market share6,7
#8
7.9%
#7
9.1%
Equities 6,7
#8
6.0%
#1
8.1%
#1
16.2%
#1
18.6%
#3
11.5%
■Relationships with ~50% of U.S. households
■#1 customer satisfaction among largest U.S. banks
for the third consecutive year¹4
Market share6.7
■#1 primary banking relationship share in Chase footprint¹5
■■#1 U.S. credit card issuer based on loans outstanding²
■~50% of U.S. e-Commerce volume16
Commercial
Banking
Market share6,7
# of states with Middle Market banking presence
# of states with top 3 Middle Market banking
market share
Multifamily lending⁹
22
22
30
■>80% of Fortune 500 companies do business with us
■Top 3 in 15 product categories out of 1617
■■#1 in both U.S. and EMEA Investment Banking fees 18
■#1 in Global debt, equity and equity-related¹8
■#1 in Global long-term debt and Loan syndications18
■Top 3 Custodian globally with AUC of $20.5 trillion
■■#1 USD clearinghouse with 19.2% share in 201419
6
Corporate &
#2
8.6%
Building exceptional client franchises
We have built our client franchises over time with substantial share gains and opportunity for more
2006
2014
Deposits market share
3.6%¹
2010
Consumer &
Total Markets 6.7
Community
11 (25)
Banking
Card sales market share
Merchant processing volume
16%2
#33
15 (40)
21%2
#14
Global Investment Banking fees
Market share5
# of top 50 Chase markets where we are #1
(top 3) deposits
10
7.5%
#1
~2%
■■84% of 10-year long-term mutual fund AUM in top 2
quartiles²¹
■23 consecutive quarters of positive long-term AUM flows
■Revenue growth >70% and long-term AUM growth >80%
since 2006
U.S. Hedge Fund Manager (Absolute Return)¹²
AUM market share¹²
#1113
#2
1.4%
3.4%
~1%
■Doubled Global Wealth Management client assets
(2x industry rate) since 200622
Our businesses have been able to gain market
share, which only happens when we are
creating happy clients
Importantly, much of the growth has been
organic. Please review some of the numbers in
the chart above - they speak for themselves.
If you had asked me back in 2006 if we could
have accomplished those kinds of market
share numbers, I would have been skeptical.
And, fortunately, we have plenty of areas
where we still can grow or do better I will
talk about this in a later section of this letter.
Most of our businesses have exhibited improving
customer satisfaction
The chart on the next page shows the great
progress that our Consumer Bank has made
in improving satisfaction scores. In fact,
American Customer Satisfaction Index
named Chase #1 in customer satisfaction
among large banks in 2014. We have received
even better scores than most of the regional
banks and essentially are equal in ranking to
the midsized banks. (We still are not satis-
fied, however, and want to be even better.)
We believe that our customer satisfaction
has been going up for multiple reasons: error
rate reduction, better products and services,
good old-fashioned service with a smile, and,
importantly, innovations like deposit-friendly
ATMs and continual improvement in online
and mobile banking services. While the chart
shows satisfaction in the Consumer Bank, we
also have had increasing customer satisfac-
tion scores in our small business, mortgage,
auto finance and credit card franchises.
10
1
#28
For footnoted information, refer to slides 11 and 50 in the 2015 Firm Overview Investor Day presentation, which is available on JPMorgan Chase & Co.'s website at
(http://investor.shareholder.com/jpmorganchase/presentations.cfm), under the heading Investor Relations, Investor Presentations, JPMorgan Chase 2015 Investor Day,
Firm Overview, and on Form 8-K as furnished to the SEC on February 24, 2015, which is available on the SEC's website (www.sec.gov). Further, for footnote 20,
CAGR represents compound annual growth rate
Client assets market share¹¹
-
#1
2.5%
#1
$2.0
16%
35%
Global active long-term open-end mutual fund
AUM flows10
AUM market share¹0
#2
1.8%
$0.7
Overall Global Private Bank (Euromoney)
Asset
Management
■Average loans grew by 13% CAGR 2006-201420
■Industry-leading credit performance TTC - 8 consecutive
quarters of net recoveries or single-digit NCO rate
■Leveraging the firm's platform - average 9 products/client
#5
Gross Investment Banking revenue ($ in billions)
% of North America Investment Banking fees
Year ended
Fair value
Fair value measurements using significant unobservable inputs
December 31, 2014
11 (f)
at January
Total
realized/
2,371
(577)
26 (c)
2,475
(2,279)
(360)
(1,967)
(451)
190
33 (f)
(in millions)
1, 2014
Fair value
at Dec.
31, 2014
Purchases(g)
113
2,255 $ 149 (c)
2,074
(596) (c)
(5) (c)
$
$
$
1,578 $
5,377
(197) $
(6,127)
Trading liabilities - debt and equity
instruments
unrealized
(gains)/
losses
3,176
$
Deposits
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2014
Liabilities:(b)
Transfers into
and/or out of
level 3(h)
Settlements
Issuances
Sales
Other borrowed funds
All other
(254) (c)
(c)
(2)
397
(60) (d)
2,322
Total available-for-sale securities
(2)
129
(985)
(223)
(926) $ 2,859
2013
2014
(in millions)
Year ended December 31,
The following table provides the impact of credit and
funding adjustments on Principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities.
JPMorgan Chase & Co./2014 Annual Report
(e) At December 31, 2014 and 2013, included structured notes DVA of
$1.4 billion and $1.4 billion, respectively.
(324)
164
(1,296)
(42) (d)
443
6,474
Private equity investments
Other assets:
(234) (c)
(1,826) (e)
7,436
(911)
(209)
768
9,614 (1,826) (e)
Mortgage servicing rights
2,541
(1,549)
(845)
3,258
1,931
Loans
1,037
$
195
725
(c)
Mortgage servicing rights
7,223
(635) (e)
2,833
(579)
(1,228)
7,614
(635) (e)
Other assets:
Private equity investments
6,751
420 (c)
1,545
(512)
12
All other
2,282
(1,718)
25,486
190
(d)
9,947
(3,474)
(3,349)
116
28,916
177
(d)
Loans
1,647
695 (c)
1,536
(22)
144
Total available-for-sale securities
4,374
818
Issuances Settlements
Fair value at
Dec. 31,
2012
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2012
Deposits
$
Other borrowed funds
1,418 $212 (c) $
1,507 148 (c)
$
$ 1,236 $
1,646
(380) $
(1,774)
(503) $
92
1,983
1,619
$
185 (c)
Sales
(195) (f)
losses Purchases(g)
(in millions)
(238)
(977)
(46)
7,181
(501)
4,258
333 (c)
(200) (f)
Fair value measurements using significant unobservable inputs
Total
realized/
Year ended
Fair value
unrealized
December 31, 2012
at January
(gains)/
1, 2012
72 (c)
59
(245)
124
(84)
(1,416)
4
Foreign exchange
(1,263) (800)
112
(184)
436
3,322
1,873
(51) (1,750)
905
(3,271)
(957)
Equity
(3,105) 160 (i)
7,732 (4,487)
1,279
Credit
(7,071)
180
Total trading assets - debt and
equity instruments
32,967 1,251
(c)
19,087
(18,741)
(7,928)
(997)
25,639
1,240 (c)
Net derivative receivables: (a)
Interest rate
3,561 6,930
406
(194)
(310)
892
(2,174) (i)
1,135
Available-for-sale securities:
Asset-backed securities
24,958
135
9,280
(3,361)
(3,104)
116
28,024
118
Other
528
55
667
(113)
(2,903) (c)
899
1,893
(5,874)
(1,806)
580
Commodity
(687) (673)
74
64
1,278
198
254
(160)
Total net derivative receivables
6,238
1,130 (c)
1,995
(2,572)
976
Trading liabilities - debt and equity
instruments
211
(16) (c)
952
(a) Balances are presented net of applicable CVA and DVA/FVA.
(b) Positive CVA and DVA/FVA represent amounts that increased
receivable balances or decreased payable balances; negative CVA and
DVA/FVA represent amounts that decreased receivable balances or
increased payable balances.
(c) At December 31, 2014 and 2013, included derivatives DVA of $714
million and $715 million, respectively.
(d) Structured notes are predominantly financial instruments containing
embedded derivatives that are measured at fair value based on the
Firm's election under the fair value option. At December 31, 2014 and
2013, included $943 million and $1.1 billion, respectively, of financial
instruments with no embedded derivative for which the fair value
option has also been elected. For further information on these
elections, see Note 4.
Fair value at
Dec. 31,
2013
level 3(h)
Settlements
Sales
Purchases(g)
Transfers into
and/or out of
gains/
(losses)
1, 2013
(in millions)
at January
1,152
December 31, 2013
48,808
(322)
196
the-counter ("OTC") derivatives and structured notes. The
Firm's FVA framework leverages its existing CVA and DVA
calculation methodologies, and considers the fact that the
Firm's own credit risk is a significant component of
funding costs. The key inputs are: (i) the expected funding
requirements arising from the Firm's positions with each
counterparty and collateral arrangements; (ii) for assets,
the estimated market funding cost in the principal
market; and (iii) for liabilities, the hypothetical market
funding cost for a transfer to a market participant with a
similar credit standing as the Firm.
Upon the implementation of the FVA framework in 2013,
the Firm recorded a one time $1.5 billion loss in principal
transactions revenue that was recorded in the CIB. While the
FVA framework applies to both assets and liabilities, the
loss on implementation largely related to uncollateralized
derivative receivables given that the impact of the Firm's
own credit risk, which is a significant component of funding
costs, was already incorporated in the valuation of liabilities
through the application of DVA.
The following table provides the credit and funding
adjustments, excluding the effect of any associated hedging
activities, reflected within the Consolidated balance sheets
as of the dates indicated.
December 31, (in millions)
Derivative receivables balance(a)
Derivative payables balance(a)
Derivatives CVA (b)
Derivatives DVA and FVA (b)(c)
Structured notes balance (a)(d)
Structured notes DVA and FVA (b)(e)
2014
2013
$
78,975 $
71,116
65,759
57,314
(2,674)
(2,352)
(380)
53,772
The Firm incorporates the impact of funding in its
valuation estimates where there is evidence that a market
participant in the principal market would incorporate it in
a transfer of the instrument. As a result, the fair value of
collateralized derivatives is estimated by discounting
expected future cash flows at the relevant overnight
indexed swap ("OIS") rate given the underlying collateral
agreement with the counterparty. Effective in 2013, the
Firm implemented a FVA framework to incorporate the
impact of funding into its valuation estimates for
uncollateralized (including partially collateralized) over-
unrealized
Year ended
Beneficial interests issued by
(f)
36
(16)
27 (f)
25
Accounts payable and other liabilities
2 (c)
72
(49)
(5)
323
(305)
(415) (c)
1,453
consolidated VIES
Fair value
1,240
10,008
realized/
Total
Fair value measurements using significant unobservable inputs
JPMorgan Chase & Co./2014 Annual Report
192
(9) (c)
11,877
(281)
(22) (c)
1,146
(102)
(763)
(5,231)
- - 7,421
775
(4) (c)
(40) (c)
Long-term debt
DVA is taken to reflect the credit quality of the Firm in the
valuation of liabilities measured at fair value. The DVA
calculation methodology is generally consistent with the
CVA methodology described above and incorporates
JPMorgan Chase's credit spread as observed through the
CDS market to estimate the probability of default and loss
given default as a result of a systemic event affecting the
Firm. Structured notes DVA is estimated using the current
fair value of the structured note as the exposure amount,
and is otherwise consistent with the derivative DVA
methodology.
The Firm estimates derivatives CVA using a scenario
analysis to estimate the expected credit exposure across
all of the Firm's positions with each counterparty, and
then estimates losses as a result of a counterparty credit
event. The key inputs to this methodology are (i) the
expected positive exposure to each counterparty based
on a simulation that assumes the current population of
existing derivatives with each counterparty remains
unchanged and considers contractual factors designed to
mitigate the Firm's credit exposure, such as collateral and
legal rights of offset; (ii) the probability of a default event
occurring for each counterparty, as derived from
observed or estimated CDS spreads; and (iii) estimated
recovery rates implied by CDS, adjusted to consider the
differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk. As such, the Firm
estimates derivatives CVA relative to the relevant
benchmark interest rate.
•
328 (c)
221
3,662
(268)
925
143
(c)
(4,511)
(1,313)
8,476
(101) (c)
(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 15%, 18% and
18% at December 31, 2014, 2013 and 2012, respectively.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, lending-related commitments originated with the intent to
sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
194
JPMorgan Chase & Co./2014 Annual Report
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/
(losses) are reported in Other Comprehensive Income ("OCI"). Realized gains/(losses) and foreign exchange remeasurement adjustments recorded in income on AFS securities
were $(43) million, $17 million, and $145 million for the years ended December 31, 2014, 2013 and 2012, respectively. Unrealized gains/(losses) recorded on AFS securities
in OCI were $(16) million, $13 million and $45 million for the years ended December 31, 2014, 2013 and 2012, respectively.
10,310
(e) Changes in fair value for CCB mortgage servicing rights are reported in mortgage fees and related income.
(c)
791
(2,875)
2,940
(50)
(5)
205
(12) (c)
Accounts payable and other liabilities
51
1 (f)
(16)
36
1 (f)
Beneficial interests issued by
consolidated VIES
Long-term debt
181
(f) Predominantly reported in other income.
(g) Loan originations are included in purchases.
(h) All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.
•
2014
$1.8 billion of losses on MSRs. For further discussion of
the change, refer to Note 17;
$1.1 billion of net gains on trading assets - debt and
equity instruments, largely driven by market movements
and client-driven financing transactions.
2013
$2.9 billion of net gains on derivatives, largely driven by
$2.5 billion of gains on equity derivatives, primarily
related to client-driven market-making activity and a rise
in equity markets; and $1.4 billion of gains,
predominantly on interest rate lock and mortgage loan
purchase commitments; partially offset by $1.7 billion
of losses on credit derivatives from the impact of
tightening reference entity credit spreads;
$2.2 billion of net gains on trading assets - debt and
equity instruments, largely driven by market making and
credit spread tightening in nonagency mortgage-backed
securities and trading loans, and the impact of market
movements on client-driven financing transactions;
$1.6 billion of net gains on MSRs. For further discussion
of the change, refer to Note 17.
2012
$1.3 billion of net gains on trading assets - debt and
equity instruments, largely driven by tightening of credit
spreads and fluctuation in foreign exchange rates;
$1.1 billion of net gains on derivatives, driven by
$6.9 billion of net gains predominantly on interest rate
lock commitments due to increased volumes and lower
interest rates, partially offset by $4.5 billion of net
losses on credit derivatives largely as a result of
tightening of reference entity credit spreads.
JPMorgan Chase & Co./2014 Annual Report
Notes to consolidated financial statements
Credit and funding adjustments
When determining the fair value of an instrument, it may be
necessary to record adjustments to the Firm's estimates of
fair value in order to reflect counterparty credit quality, the
Firm's own creditworthiness, and the impact of funding:
Credit valuation adjustments ("CVA") are taken to reflect
the credit quality of a counterparty in the valuation of
derivatives. CVA are necessary when the market price (or
parameter) is not indicative of the credit quality of the
counterparty. As few classes of derivative contracts are
listed on an exchange, derivative positions are
predominantly valued using models that use as their basis
observable market parameters. An adjustment therefore
may be necessary to reflect the credit quality of each
derivative counterparty to arrive at fair value.
•
•
•
•
The following describes significant components of total
realized/unrealized gains/(losses) for instruments
measured at fair value on a recurring basis for the years
ended December 31, 2014, 2013 and 2012. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 191-195.
(i) The prior period amounts have been revised. The revision had no impact on the Firm's Consolidated balance sheets or its results of operations.
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 2.1% of total Firm assets at
December 31, 2014. The following describes significant
changes to level 3 assets since December 31, 2013, for
those items measured at fair value on a recurring basis. For
further information on changes impacting items measured
at fair value on a nonrecurring basis, see Assets and
liabilities measured at fair value on a nonrecurring basis on
page 197.
•
.
•
130 (c)
.
Level 3 assets were $50.9 billion at December 31, 2014,
reflecting a decrease of $18.4 billion from December 31,
2013, due to the following:
$6.0 billion decrease in gross derivative receivables due
to a $4.5 billion decrease in equity derivative
receivables due to expirations and a transfer from level
3 into level 2 as a result of an increase in observability
of certain equity option valuation inputs; and a
$1.2 billion decrease in interest rate derivatives due to
market movements;
$4.7 billion decrease in trading assets - debt and equity
instruments is largely due to a decrease of $2.9 billion
in corporate debt securities. The decrease in corporate
debt securities is driven by transfers from level 3 to level
2 as a result of an increase in observability of certain
valuation inputs, as well as net sales and maturities;
$4.0 billion decrease in private equity investments
predominantly driven by $2.0 billion in sales and $2.3
billion of transfers into level 2 based on an increase in
observability and price transparency;
$2.2 billion decrease in MSRs. For further discussion of
the change, refer to Note 17.
Gains and losses
For the year ended December 31, 2014
Liabilities:(b)
(2,813)
Credit adjustments:
36
(3)
(617)
719
24
143
securities
Non-U.S. government debt
(27)
1,273
(139)
(358)
298
90
1,382
municipalities
Obligations of U.S. states and
(914)
(60)
(149)
306
(12)
Total mortgage-backed securities
302
2,163
2,158
(1,861)
(222)
(333)
1,891
(119)
(14)
10
Corporate debt securities
5,920
19
2,240
(2,126)
(283)
142
1,264
1,272
(30)
24,335
716
24,820
(16,251)
(9,801)
863
Total debt instruments
980
Asset-backed securities
13,287
210
5,854
(3,372)
(4,531)
(1,092)
2,989
123
379
13,455
387
13,551
(7,917)
(4,623)
(1,566)
Loans
21,006
17
Commercial nonagency
(in millions)
Year ended
Fair value measurements using significant unobservable inputs
Total
Notes to consolidated financial statements
191
JPMorgan Chase & Co./2014 Annual Report
Net asset value - Net asset value is the total value of a
fund's assets less liabilities. An increase in net asset value
would result in an increase in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the
Consolidated balance sheets amounts (including changes in
fair value) for financial instruments classified by the Firm
within level 3 of the fair value hierarchy for the years ended
December 31, 2014, 2013 and 2012. When a
determination is made to classify a financial instrument
within level 3, the determination is based on the
significance of the unobservable parameters to the overall
fair value measurement. However, level 3 financial
instruments typically include, in addition to the
unobservable or level 3 components, observable
components (that is, components that are actively quoted
and can be validated to external sources); accordingly, the
gains and losses in the table below include changes in fair
value due in part to observable factors that are part of the
valuation methodology. Also, the Firm risk-manages the
observable components of level 3 financial instruments
using securities and derivative positions that are classified
within level 1 or 2 of the fair value hierarchy; as these level
1 and level 2 risk management instruments are not
included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
EBITDA multiple - EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of
a company in order to estimate the company's value. An
increase in the EBITDA multiple, in isolation, net of
adjustments, would result in an increase in a fair value
measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk
exposures. Similarly, the tenor of the transaction may also
impact the correlation input as the relationship between the
underlying risks may be different over different time
periods. Furthermore, correlation levels are very much
dependent on market conditions and could have a relatively
wide range of levels within or across asset classes over
time, particularly in volatile market conditions.
Volatility Volatility is a measure of the variability in
possible returns for an instrument, parameter or market
index given how much the particular instrument, parameter
or index changes in value over time. Volatility is a pricing
input for options, including equity options, commodity
options, and interest rate options. Generally, the higher the
volatility of the underlying, the riskier the instrument. Given
a long position in an option, an increase in volatility, in
isolation, would generally result in an increase in a fair
value measurement.
Correlation - Correlation is a measure of the relationship
between the movements of two variables (e.g., how the
change in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,
interest rate, credit, equity and foreign exchange) due to
the nature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will
result in an increase in the other parameter. When
parameters are negatively correlated, an increase in one
parameter will result in a decrease in the other parameter.
An increase in correlation can result in an increase or a
decrease in a fair value measurement. Given a short
correlation position, an increase in correlation, in isolation,
would generally result in a decrease in a fair value
measurement. The range of correlation inputs between
risks within the same asset class are generally narrower
than those between underlying risks across asset classes. In
addition, the ranges of credit correlation inputs tend to be
narrower than those affecting other asset classes.
JPMorgan Chase & Co./2014 Annual Report
190
The loss severity applied in valuing a mortgage-backed
security investment depends on a host of factors relating to
the underlying mortgages. This includes the loan-to-value
ratio, the nature of the lender's lien on the property and
various other instrument-specific factors.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of
the underlying borrower, the remaining tenor of the
obligation as well as the level and type (e.g., fixed or
floating) of interest rate being paid by the borrower.
Typically collateral pools with higher borrower credit quality
have a higher prepayment rate than those with lower
borrower credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in
the conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most
typically at the lower end of the range presented.
47% - 90%
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets.
(b) The unobservable inputs and associated input ranges for approximately $491 million of credit derivative receivables and $433 million of credit derivative
payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and
loans.
(c) The unobservable inputs and associated input ranges for approximately $795 million of credit derivative receivables and $715 million of credit derivative
payables with underlying asset-backed securities risk have been included in the inputs and ranges provided for corporate debt securities, obligations of
U.S. states and municipalities and other.
(d) Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing
embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the
instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(e) The range has not been disclosed due to the wide range of possible values given the diverse nature of the underlying investments.
Fair value
JPMorgan Chase & Co./2014 Annual Report
Notes to consolidated financial statements
Changes in and ranges of unobservable inputs
The following discussion provides a description of the
impact on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and
significant. The impact of changes in inputs may not be
independent as a change in one unobservable input may
give rise to a change in another unobservable input; where
relationships exist between two unobservable inputs, those
relationships are discussed below. Relationships may also
exist between observable and unobservable inputs (for
example, as observable interest rates rise, unobservable
prepayment rates decline); such relationships have not
been included in the discussion below. In addition, for each
of the individual relationships described below, the inverse
relationship would also generally apply.
In addition, the following discussion provides a description
of attributes of the underlying instruments and external
market factors that affect the range of inputs used in the
valuation of the Firm's positions.
Yield - The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would
result in a decrease in a fair value measurement.
Credit spread - The credit spread is the amount of
additional annualized return over the market interest rate
that a market participant would demand for taking
exposure to the credit risk of an instrument. The credit
spread for an instrument forms part of the discount rate
used in a discounted cash flow calculation. Generally, an
increase in the credit spread would result in a decrease in a
fair value measurement.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level
of the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of
risk inherent in various instruments owned by the Firm. The
risk inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, loan-to-
value ratios for residential mortgages and the nature of the
property and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states and
municipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of the
obligation.
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in
a decrease in a fair value measurement of assets valued at
a premium to par and an increase in a fair value
measurement of assets valued at a discount to par.
189
December 31, 2014
at January
1, 2014
realized/
unrealized
gains/
(losses)
$
(121) $
(30) $ 922
$
(92)
Residential nonagency
(186)
726
827
(761)
(41)
(154)
663
(15)
66
432
351 $
1,005 $ (97)
Purchases(g)
Sales
Settlements
Transfers into
and/or out of
level 3(h)
Fair value
at Dec.
31, 2014
Change in
unrealized gains/
(losses) related
$
to financial
instruments held
Assets:
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies
$
at Dec. 31, 2014
Foreign exchange correlation
Equity correlation
Credit correlation
336
885
Accounts payable and other
14.7
122
(19)
1,234
Other
(40)
908
(311)
(101)
(2)
275
(41)
1,088
Asset-backed securities
Available-for-sale securities:
(625) (c)
1
(113)
(109)
6
(565)
(186)
liabilities
Total net derivative receivables
(413) (c)
2,654
(3,306)
(1,110)
(212)
(2,061)
326
176.7
173.7
2.8
246.6
251.6
3.8
255.4
239.0
240.8
interest debentures(d)
6.0
(a)
Carrying value includes unamortized discount or premium.
(b) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The
difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to
determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset's remaining life in a fair value
calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is
incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm's
methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 181-184.
Current period amounts have been updated to include certain nonmarketable equity securities. Prior period amounts have been revised to conform to
the current presentation.
(c)
(d) Carrying value includes unamortized original issue discount and other valuation adjustments.
198
JPMorgan Chase & Co./2014 Annual Report
246.8
(465)
subordinated deferrable
47.5
176.5
160.2
158.2
1.8
160.0
Beneficial interests issued by
Long-term debt and junior
consolidated VIES
48.2
2.0
50.2
47.6
44.3
3.2
50.2
Equity securities
115
583
22,489
(5,203)
(10,293)
(16,799)
26,494
1,066 (c)
27,224
Total trading assets - debt and
equity instruments
329
1,050
(2,138)
(201)
(276)
1,426
239
2,000
Other
112
248
(272)
(290)
(252)
431
711
Physical commodities
(1)
(1)
2
12
46
-
4
(c)
Net derivative receivables:(a)
Interest rate
(1,200) (137)
139
(27)
668
31
(526)
Foreign exchange
(62)
(1,063) 154
2,044
(2,863)
10
(67)
(1,785)
Equity
Commodity
(107)
(74)
2,379
184
198
(256)
(1,771)
(108)
189
626
Credit
95
(149)
272
(47)
92
(853)
Interest rate correlation
Interest rate spread volatility
Discounted cash flows
1,120
62.8
720.1
744.9
723.1
7.1
55.7
21.8
23.7
24.0
51.2
107.7
107.7
109.4
223.0
223.0
187.2
740.5
58.1
Other(c)
65.2
Federal funds sold and
securities purchased under
resale agreements
187.2
187.2
58.2
Securities borrowed
109.4
Securities, held-to-maturity (a)
49.3
51.2
Loans, net of allowance for
loan losses (b)
109.4
223.0
107.7
23.7
189.1
175.7
175.7
Commercial paper
66.3
66.3
189.1
66.3
57.8
Other borrowed funds
15.5
15.5
15.5
14.7
57.8
0.3
189.1
securities loaned or sold
23.0
54.5
697.2
7.4
720.2
61.9
Financial liabilities
under repurchase agreements
Deposits
$ 1,353.6 $
1.2 $ 1,354.8
$ 1,281.1 $
$ 1,280.3 $
1.2 $1,281.5
Federal funds purchased and
$ 1,354.6 $
14.7
64.9
70.1
Total
estimated
Carrying
value
(in billions)
Estimated fair value hierarchy
December 31, 2013
Estimated fair value hierarchy
December 31, 2014
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2014 and 2013, of financial assets and liabilities, excluding financial instruments which are carried at fair value
on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the
methods and significant assumptions used to estimate their fair value, see pages 181-184 of this Note.
Notes to consolidated financial statements
197
JPMorgan Chase & Co./2014 Annual Report
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks; deposits with
banks; federal funds sold; securities purchased under resale
agreements and securities borrowed with short-dated
maturities; short-term receivables and accrued interest
receivable; commercial paper; federal funds purchased;
securities loaned and sold under repurchase agreements
with short-dated maturities; other borrowed funds;
accounts payable; and accrued liabilities. In addition, U.S.
GAAP requires that the fair value of deposit liabilities with
no stated maturity (i.e., demand, savings and certain money
market deposits) be equal to their carrying value;
recognition of the inherent funding value of these
instruments is not permitted.
Financial instruments for which carrying value approximates
fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, and the methods and
significant assumptions used to estimate their fair value.
Financial instruments within the scope of these disclosure
requirements are included in the following table. However,
certain financial instruments and all nonfinancial
instruments are excluded from the scope of these disclosure
requirements. Accordingly, the fair value disclosures
provided in the following table include only a partial
estimate of the fair value of JPMorgan Chase's assets and
liabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit base
and credit card accounts, commonly referred to as core
deposit intangibles and credit card relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this Note.
The total change in the recorded value of assets and
liabilities for which a fair value adjustment has been
included in the Consolidated statements of income for the
years ended December 31, 2014, 2013 and 2012, related
to financial instruments held at those dates were losses of
$992 million, $789 million and $1.6 billion, respectively;
these reductions were predominantly associated with loans.
For further information about the measurement of impaired
collateral-dependent loans, and other loans where the
carrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off in
accordance with regulatory guidance), see Note 14.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
• $809 million related to residential real estate loans
carried at the net realizable value of the underlying
collateral (i.e., collateral-dependent loans and other
loans charged off in accordance with regulatory
guidance). These amounts are classified as level 3, as
they are valued using a broker's price opinion and
discounted based upon the Firm's experience with actual
liquidation values. These discounts to the broker price
opinions ranged from 8% to 66%, with a weighted
average of 26%.
Of the $3.2 billion of the level 3 assets measured at fair
value on a nonrecurring basis as of December 31, 2014:
$1.6 billion related to consumer loans that were
reclassified to held-for-sale during the fourth quarter of
2014 subject to a lower of cost or fair value adjustment.
These loans were classified as level 3, as they are valued
based on the Firm's internal valuation methodology;
Derivatives CVA
$
Derivatives DVA and FVA (a)
(58)
(322) $ 1,886
(1,152)
Structured notes DVA and FVA(b
Level 1
200
$ 2,698
(590)
(340)
(a) Included derivatives DVA of $(1) million, $(115) million and $(590)
million for the years ended December 31, 2014, 2013 and 2012,
respectively.
(b) Included structured notes DVA of $20 million, $(337) million and
$(340) million for the years ended December 31, 2014, 2013 and
2012, respectively.
Assets and liabilities measured at fair value on a
nonrecurring basis
At December 31, 2014 and 2013, assets measured at fair
value on a nonrecurring basis were $4.5 billion and $6.2
billion, respectively, comprised predominantly of loans that
had fair value adjustments for the year ended December
31, 2014. At December 31, 2014, $1.3 billion and $3.2
billion of these assets were classified in levels 2 and 3 of the
fair value hierarchy, respectively. At December 31, 2013,
$339 million and $5.8 billion of these assets were classified
in levels 2 and 3 of the fair value hierarchy, respectively.
Liabilities measured at fair value on a nonrecurring basis
were not significant at December 31, 2014 and 2013. For
the years ended December 31, 2014, 2013 and 2012,
there were no significant transfers between levels 1, 2
and 3.
•
(760)
Level 2
Level 3
fair value
$
27.8
$
39.8 $
484.5
316.1
70.1
39.8 $
309.7
$
39.8
6.4
316.1
70.0
0.1
$
65.2
receivable
-
Carrying
value
Level 1
Level 2
Level 3
Total
estimated
fair value
Financial assets
Accrued interest and accounts
Cash and due from banks
27.8 $
Deposits with banks
484.5
27.8 $
480.4
$
4.1
$
175.7
57.8
Product/Instrument
Prepayment speed
279 bps
675 bps
260 bps
Credit spread
$90 per barrel
50
$
Forward commodity price
Discounted cash flows
Discounted cash flows
792
Collateralized loan obligations
65%
15%
Equity volatility
60%
0%
0%
-
60%
Net credit derivatives (b)(c)
Net foreign exchange derivatives
Net equity derivatives
20%
Net commodity derivatives
189
Discounted cash flows
Credit correlation
47%
90%
Foreign exchange correlation
(526) Option pricing
(1,785) Option pricing
(565)
20%
Conditional default rate
2%
-
12.4x
9.1x
0%
15%
7%
6x
Private equity fund investments
Long-term debt, other borrowed funds,
and deposits (d)
Net asset value
Net asset value(e)
Option pricing
(75)%
- 95%
0% - 60%
0% 60%
(55)%-85%
421
15,069
Interest rate spread volatility
Liquidity adjustment
Market comparables
2%
Loss severity
Price
40%
40%
$146
$79
EBITDA multiple
393
Mortgage servicing rights
7,436
Discounted cash flows
Refer to Note 17
Private equity direct investments
2,054
Market comparables
95%
(75)%
Interest rate correlation
18%
6%
Conditional default rate
0%
-
100%
0%
22%
0%
-
90%
27%
Commercial mortgage-backed
5,319
Loss severity
Discounted cash flows
Prepayment speed
5%
Level 3 inputs(a)
December 31, 2014 (in millions, except for ratios and basis points)
Principal valuation
technique
Fair
value
Unobservable inputs
Range of input values
securities and loans
Weighted
average
$ 8,917
Discounted cash flows
Yield
1%
-
25%
Residential mortgage-backed
2012
Yield
-
140 bps
of U.S. states and municipalities, and
other(c)
Yield
1%
22%
7%
270 bps
6,629
626
Market comparables
Option pricing
Price
$
$131
$90
Net interest rate derivatives
2%
53 bps
Discounted cash flows
32%
5%
securities and loans (b)
Conditional default rate
0%
-
Credit spread
100%
Loss severity
0%
50%
29%
Corporate debt securities, obligations
6,387
8%
(163)
Transfers into
and/or out of
level 3(h)
68
2,322
29 (d)
Loans
2,282
81 (c)
1,065
(191)
(1,306)
1,931
(21) (c)
Mortgage servicing rights
7,614
1,612 (e)
2,215
(725)
(1,102)
9,614
6,474
(201)
(687)
(1,137)
(730)
272
98 (f)
(27,375)
4,258
673
645 (c)
7,181
Private equity investments
Other assets:
1,612 (e)
All other
262 (c)
(63)
1,087
50
115
410
1,872
(2,350)
(4,525)
532
326
(170) (c)
Available-for-sale securities:
Asset-backed securities
$
4
579
(57)
(57)
(27,405)
30 (d)
28,916
Total available-for-sale securities
25
1,234
30
(273)
(6)
508
26
892
Other
4
1,088
(216)
(722)
3,176
53 (f)
2,594
(54)
(131)
113
(100) (c)
Accounts payable and other
liabilities
36
(2) (f)
(9)
25
municipalities
Obligations of U.S. states and
401
2,163
(5)
(399)
Commercial nonagency
1,207
114
841
(1,522)
(208)
(2,418)
432
Total mortgage-backed
securities
2,368
690
2,440
(2,931)
(4)
(83) (c)
205
instruments
Change in
unrealized
(gains)/losses
related to
financial
instruments held
Fair value at
Dec. 31,
2013
Transfers into
and/or out of
level 3(h)
Settlements
Issuances
Sales
at Dec. 31, 2013
Purchases(g)
at January
1, 2013
(in millions)
December 31, 2013
Fair value
Year ended
Fair value measurements using significant unobservable inputs
Total
realized/
unrealized
(gains)/
losses
(1,107)
Liabilities:(b)
$
Trading liabilities - debt and equity
291 (c)
2,074
(88) (c)
$
2,255
Deposits
(672) $
369
1,248 $
7,108
$
$
1,983 $ (82) (c)
(177) (c)
1,619
Other borrowed funds
(222) $
(6,845)
(3)
105
816
2,904 (c)
7,602
(5,975)
(1,882)
764
5,920
466
Loans
10,787
665
10,411
(7,431)
(685)
(292) 13,455
315
Asset-backed securities
3,696
191
24,335
(1,279)
(3,612)
(20,446)
24,286
1,724
103
23,662
105
1,272
(1,856)
(292)
(2,379)
1,912
Total debt instruments
5,308
Corporate debt securities
(1)
-
(100) $
$
Change in
unrealized gains/
(losses) related
to financial
instruments held
at Dec. 31, 2013
Assets:
$ 1,005
Trading assets:
Mortgage-backed securities:
U.S. government agencies
$
498 $ 169
$
819
Debt instruments:
1,304
(108)
71
143
110
(8)
(1,479)
1,449
4
1,436
67
Non-U.S.government debt
18
1,382
(346)
(251)
472
securities
205
Equity securities
(41)
(220)
(2,391)
(34)
2,379
Credit
Foreign exchange
1,873 (1,697)
(1,750) (101)
115
(12)
(357)
173
95
107
(1,449)
3
(4)
683
(31)
1,893
Total net derivative receivables
254
Commodity
872
(1,063)
344
374
(2,111) (i)
1,305 (i)
(1,806) 2,528 (i)
Equity
(110)
(1,200)
(1,353)
1,358
3,322
Interest rate
Other
(4)
4
16
-
(8)
863
(4)
46
885
(115)
(135)
(266)
328
Physical Commodities
1,114
558
(95)
Net derivative receivables: (a)
2,420 (c)
27,224
(1,243)
(3,867)
(20,815)
659
25,273
25,639
Total trading assets - debt and
equity instruments
1,074
2,000
135
(120)
2,237 (c)
726
28,024
(91)
Residential nonagency
(21)
$
498
$
(16) $
796
$
$
575
$
86 $ (44)
$
U.S. government agencies
(103)
to financial
instruments held
at Dec. 31, 2012
151
(533)
Total mortgage-backed
(145)
1,207
(100)
(104)
(475)
417
287
1,758
Commercial nonagency
74
663
(23)
(145)
(159)
securities
Change in
unrealized gains/
(losses) related
Transfers into
and/or out of
level 3(h)
(85) (c)
167 (c)
1,240
10,008
(501)
(212)
(4,362)
... 6,830
JPMorgan Chase & Co./2014 Annual Report
353
8,476
Long-term debt
925
consolidated VIES
Beneficial interests issued by
(f)
174 (c)
(435) (c)
Fair value at
Dec. 31,
2012
193
Year ended
Settlements
Sales
1, 2012 (losses) Purchases(g)
Fair value measurements using significant unobservable inputs
realized/
unrealized
gains/
at January
Notes to consolidated financial statements
Fair value
Mortgage-backed securities:
Debt instruments:
Trading assets:
Assets:
(in millions)
December 31, 2012
Total
(2)
2,640
1,279
184
3,696
(9)
(614)
(6,468)
2,550
Total debt instruments
272
Asset-backed securities
411
10,787
(530)
(3,801)
(3,269)
7,965
5,342
Equity securities
1,177
880
186
(112)
1,114
77
(12)
(379)
Other
460
23,662
(1,074)
(7,753)
(18,254)
18,559
30,910 1,274
(209)
1,172
(52)
836
Loans
(15)
1,436
(4)
(552)
336
37
Non-U.S.government debt
1,619
Obligations of U.S. states and
(92)
2,368
(123)
(265)
(1,111)
municipalities
12,209
securities
(6)
689
5,308
(412)
(3,045)
(6,186)
8,391
104
187
Corporate debt securities
(5)
67
(24)
(668)
661
6,373
(5)
(381)
(1,028)
780
407
663
Residential nonagency
200
$
(b) For more information on volumes and types of credit derivative
contracts, see the Credit derivatives discussion on pages 213-215 of
this Note.
4,079
20,186
33,506
5,656
28,258
20,675
Retail & Consumer Services
7,593
7,175
31,858
9,099
24,331
715
7,752
34,145
18,762
9,569
8,043
36,374
Asset Managers
State & Municipal Govt
361
2,248
28,983
15,585
1,392
4,426
21,403
8,181
11,819
1,081
21,081
Central Govt
17,291
273
7,504
25,068
20,900
2,317
4,843
28,060
Utilities
21,153
23,639
5,582
20,145
3,319
593
35,666
21,902
22,057
24,244
68,203
17,491
460
69,151
87,102
27,940
66,881
333
107,386
585,440
416,854
1,002,433
584,116
426,422
529,383
56,057
$
79,113
25,482
18,888
22,511
26,579
Technology
10,646
37,818
Consumer Products
29,389
3,202
13,319
45,910
30,827
1,872
15,616
48,315
30,348
2,203
14,383
46,934
39,284
4,630
13,793
57,707
8,708
20,977
21,049
1,341
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables(b)
Trading assets and liabilities
Interest rate
$
Credit
Foreign exchange
Not
designated
Equity
851,189 $ 3,490
83,520
152,240
52,931
34,344
$ 854,679
83,520
$ 25,782 $
1,516
820,811 $
82,402
4,543 $ 825,354 $ 13,283
82,402
2,281
1,359
Commodity
Net
derivative
receivables(b)
Total
derivative
receivables
as hedges as hedges
50,565
11,740
Commodity
43,151
502
43,653
13,982
45,455
168
45,623
17,068
Total fair value of trading
assets and liabilities
$ 1,323,207 $ 9,524 $ 1,332,731 $ 78,975
$ 1,311,271 $ 3,805 $ 1,315,076
$ 71,116
Gross derivative receivables
Gross derivative payables
December 31, 2013
Not
designated
Designated
(in millions)
153,599
16,790
158,728
1,397
December 31, (in millions)
U.S. GAAP nettable derivative receivables
58,258 $ 1,164,733 $ (1,114,708) (b) $
50,025
20,717
$ 1,332,731
20,717
12,633
476
5,969
19,078
13,483
553
6,537
20,573
Machinery & Equipment Mfg
9,297
9,998
1,754
sheet(d)
14,909
The following table presents, as of December 31, 2014 and 2013, the gross and net derivative receivables by contract and
settlement type. Derivative receivables have been netted on the Consolidated balance sheets against derivative payables and
cash collateral payables to the same counterparty with respect to derivative contracts for which the Firm has obtained an
appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought
or obtained, the receivables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown
separately in the table below.
4,727
Notes to consolidated financial statements
JPMorgan Chase & Co./2014 Annual Report
160,125
15,947
52,931
12,227
54,654
54,654
14,719
1,394
35,738
9,444
37,605
9
37,614
11,084
Total fair value of trading
assets and liabilities
$ 1,174,224 $ 6,243
$ 1,180,467 $ 65,759
$ 1,154,200 $
5,949 $ 1,160,149 $ 57,314
(a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
207
Derivatives
131,048
657,174
15,797 (c)
824 $
15,484 $
$
(c)
14,660
$
Principal-protected debt
Long-term debt
$
(7,549)
(3,774)
29,295
1,563
32,503 $
$
40,052
1,618
(8)
(5,096) $
33,069
(2,146)
35,462
2,389
38,763 $
(55)
15,909 $
112
Nonprincipal-protected debt (b)
2,162
$
ΝΑ
Total long-term beneficial interests
Nonprincipal-protected debt (b)
Long-term beneficial interests
NA
28,878
$
ΝΑ
ΝΑ
30,226
$
ΝΑ
Total long-term debt
ΝΑ
12,969
ΝΑ
ΝΑ
14,742
ΝΑ
$
NA
43,859
15,734
principal
outstanding
principal
outstanding
Fair value
(under)
contractual
contractual Contractual
Contractual
principal
outstanding
(under)
over/
Fair value
principal
2013
2014
$
78,975 $ 1,180,467
(a) Exchange-traded derivative amounts that relate to futures contracts are settled daily.
(b) Included cash collateral netted of $74.0 billion and $63.9 billion at December 31, 2014, and 2013, respectively.
15,734
$
65,759
208
JPMorgan Chase & Co./2014 Annual Report
Fair value
over/
Fair value outstanding
Loans reported as trading assets
$
Total loans
2,397
Loans
37,608
Loans reported as trading assets
All other performing loans
(3,720)
(55)
154
1,645
1,491 $ (3,665)
$
(2,942) $ 5,156
209
5,365
(2,942)
912
3,854
Subtotal
905 $
7
7
Loans
$
3,847
$
ΝΑ
$
1,996
Total credit card
December 31, (in millions)
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale-related credit exposure by the
Firm's three credit portfolio segments as of December 31, 2014 and 2013.
The Firm does not believe that its exposure to any
particular loan product (e.g., option adjustable rate
mortgages ("ARMS")), industry segment (e.g., commercial
real estate) or its exposure to residential real estate loans
with high loan-to-value ratios results in a significant
concentration of credit risk. Terms of loan products and
collateral coverage are included in the Firm's assessment
when extending credit and establishing its allowance for
loan losses.
concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual customer basis. The Firm's wholesale
exposure is managed through loan syndications and
participations, loan sales, securitizations, credit derivatives,
master netting agreements, and collateral and other risk-
reduction techniques. For additional information on loans,
see Note 14.
In the Firm's consumer portfolio, concentrations are
evaluated primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential risk concentrations can be
remedied through changes in underwriting policies and
portfolio guidelines. In the wholesale portfolio, risk
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential concentration risks and
to obtain collateral when deemed necessary. Senior
management is significantly involved in the credit approval
and review process, and risk levels are adjusted as needed
to reflect the Firm's risk appetite.
Concentrations of credit risk arise when a number of
customers are engaged in similar business activities or
activities in the same geographic region, or when they have
similar economic features that would cause their ability to
meet contractual obligations to be similarly affected by
changes in economic conditions.
Note 5 - Credit risk concentrations
Total consumer
Notes to consolidated financial statements
6,166 $ 47,661
2,703
1,133
4,261
2,542
26,754
27
3,736
11,936
310
1,260
$ 28,427 $ 13,068 $
52,829
$ 30,089 $ 14,177 $ 8,563
201
Wholesale-related
Real Estate
Banks & Finance Cos
525,963
50,565
657,011
1,010,646
345,259 $
$
58,153
$
295,374 $
$ 353,635 $
Total consumer, excluding credit card
Off-balance
On-balance sheet
Credit
exposure
Off-balance
sheet(d)
Derivatives
Loans
2013
2014
On-balance sheet
Credit
exposure
Oil & Gas
Healthcare
3,366
2,012
644
710
Commodity
Equity
Foreign exchange
Credit
Interest rate
Risk exposure
(in millions)
The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the
primary risk to which the structured notes' embedded derivative relates.
Structured note products by balance sheet classification and risk component
At December 31, 2014 and 2013, the contractual amount of letters of credit for which the fair value option was elected was
$4.5 billion and $4.5 billion, respectively, with a corresponding fair value of $(147) million and $(99) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflected as the remaining contractual principal is the final principal
payment at maturity.
(a) There were no performing loans that were ninety days or more past due as of December 31, 2014 and 2013, respectively.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a
stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the
note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
ΝΑ
1,996
$
ΝΑ
ΝΑ
2,162
$
NA
ΝΑ
Total structured notes
Loans
289,063 $
127,791
JPMorgan Chase & Co./2014 Annual Report
December 31, 2013
11,082
29,175
4,415
12,412
12,348
9,516 $ 615 $ 1,270 $ 11,401
4,248
2,321
194
2,378
17
211
13
4,473
450
4,023
2,150
13,437
$ 10,858 $ 460 $ 2,119
funds Deposits Total
Long-term borrowed
debt
Total
Long-term borrowed
debt
funds Deposits
Other
December 31, 2014
Other
(c) Represents the sum of gross long and gross short third-party notional
derivative contracts.
8,177
46,792
432
(22,826)
23,258
OTC
Equity contracts:
12,190
(136,809)
148,999
14,905
(187,668)
202,573
Total foreign exchange contracts
Exchange-traded (a)
12,190
(136,763)
(46)
46
2
148,953
14,903
(187,634)
(34)
36
31,870
OTC-cleared
(29,289)
OTC-cleared
21,619
8,228
(14,327)
22,555
Commodity contracts:
8,898
(40,704)
49,602
2,786
(38,615)
41,401
Total equity contracts
6,317
(11,415)
17,732
2,354
(15,789)
18,143
Exchange-traded (a)
-
-
2,581
(15,082)
202,537
Foreign exchange contracts:
19,956
22
$
(466,493)
(362,404)
362,426
38
27,193 $ 486,449 $
(521,180)
(401,618)
548,373 $
401,656
$
Net derivative
receivables
on the
Consolidated
balance sheets
Gross
derivative
receivables
Net derivative
receivables
213
Amounts netted
2013
Amounts netted
on the
Consolidated
balance sheets
Gross
derivative
receivables
2014
OTC
Credit contracts:
-
OTC
950,029
27,231
1,106
(82,004)
83,110
952
562
(16,279)
16,841
36
(9,284)
(75,004)
75,956
Total credit contracts
544
(65,725)
66,269
916
(65,720)
66,636
9,320
OTC-cleared
19,978
(828,897)
848,875
(922,798)
CIB
CIB, Corporate
6,537
OTC-cleared
50
50
187
206
Total equity contracts
Purchased options
Written options
Futures and forwards(a)
Swaps(a)
Equity contracts
8,572
9,585
Total foreign exchange contracts
652
780
Purchased options
659
790
Written options
3,773
4,669
432
Spot, futures and forwards
425
380
(a) The prior period amounts have been revised. This revision had no
impact on the Firm's Consolidated balance sheets or its results of
operations.
$ 63,662 $ 70,413
Total derivative notional amounts
763
680
Total commodity contracts
203
180
Purchased options
202
181
Written options
234
193
Spot, futures and forwards
124
126
Swaps
Commodity contracts
1,042
1,063
375
OTC
3,488
Cross-currency swaps
Notes to consolidated financial statements
205
JPMorgan Chase & Co./2014 Annual Report
(a) Other derivatives included the synthetic credit portfolio. The synthetic credit portfolio was a portfolio of index credit derivatives, including short and long
positions, that was originally held by CIO. On July 2, 2012, CIO transferred the synthetic credit portfolio, other than a portion that aggregated to a notional
amount of approximately $12 billion, to CIB; these retained positions were effectively closed out during the third quarter of 2012. CIB effectively sold the
positions that had been transferred to it by the end of 2014. The results of the synthetic credit portfolio, including the portion transferred to CIB, have
been included in the gains and losses on derivatives related to market-making activities and other derivatives category discussed on page 213 of this Note.
213
$ 1,312,014 $ (1,253,756) (b) $
7,853
(26,294)
34,147
12,384
1,316
(11,212)
12,528
4,156
(15,344)
(29,671)
19,500
42,055
Total derivative receivables recognized on the
Consolidated balance sheets
Derivative receivables where an appropriate
legal opinion has not been either sought or
obtained
Derivative receivables with appropriate legal
opinion
Total commodity contracts
Exchange-traded (a)
Notional amount of derivative contracts
3,346
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2014
and 2013.
Interest rate contracts
Foreign exchange contracts
5,331
4,249
Credit derivatives (a)(b)
54,705
48,085
Total interest rate contracts
4,187
4,259
Purchased options
4,059
3,903
11,238
10,189
$ 29,734 $ 35,221
2013
2014
Notional amounts(c)
Written options(a)
Futures and forwards(a)
Swaps
December 31, (in billions)
Market-making and other
Market-making and other
Other derivatives (a)
Market-making and related risk management
875,533
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative transactions, the notional
amount is not exchanged; it is used simply as a reference to
calculate payments.
17,695
120,912
320,446
All other(a)
601
5,628
15,911
Metals/Mining
9,510
594
4,497
14,601
10,878
456
4,867
16,201
Business Services
11,049
560
324,502
5,825
78,975
13,975
(c) For further information regarding on-balance sheet credit concentrations by major product and/or geography, see Note 6 and Note 14. For information
regarding concentrations of off-balance sheet lending-related financial instruments by major product, see Note 29.
(d) Represents lending-related financial instruments.
(a) For more information on exposures to SPES included within All other, see Note 16.
(b) Primarily consists of margin loans to prime brokerage customers that are generally over-collateralized through a pledge of assets maintained in clients'
brokerage accounts and are subject to daily minimum collateral requirements. As a result of the Firm's credit risk mitigation practices, the Firm did not hold
any reserves for credit impairment on these receivables.
$ 1,921,563 $ 757,336 $ 78,975 $1,056,172
Receivables from customers and other (b)
Total wholesale-related
Total exposure(c)
330,914
910,917
28,972
446,232
174,821
13,635
65,759
308,263
13,301
820,254
13,301
6,412
6,412
Loans held-for-sale and loans at fair value
120,063
308,519
6,509
621
6,845
9,682
181,839
472,056
78,975
17,434
699
$
Credit
Foreign exchange
951,151 $ 5,372
76,842
205,271
$ 956,523
3,650
76,842
208,921
$ 33,725
1,838
$
921,634 $
3,011 $
924,645 $ 17,745
75,895
75,895
1,593
21,253
217,722
626
218,348
22,970
Equity
Interest rate
6,559
Trading assets and liabilities
Net
9,107
16,365
Transportation
Total interest rate contracts
Exchange-traded (a)
206
JPMorgan Chase & Co./2014 Annual Report
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2014 and 2013, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables (a)
Gross derivative receivables
OTC-cleared
Gross derivative payables
December 31, 2014
(in millions)
Not
designated
as hedges
Designated
as hedges
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
derivative
payables(b)
472,056
26,744
860,299
321,564
213
Corporate
Net investment hedge
Hedge the value of the Firm's investments in non-U.S. subsidiaries
Hedge commodity inventory
212
Corporate
Cash flow hedge
211
Corporate
Fair value hedge
212
Corporate
Cash flow hedge
211
Corporate
Fair value hedge
Hedge forecasted revenue and expense
Hedge foreign currency-denominated assets and liabilities
Hedge floating rate assets and liabilities
• Credit
• Interest rate
Fair value hedge
Manage specifically
relationships:
CIB
identified risk exposures not designated in qualifying hedge accounting
• Various
• Various
Market-making derivatives and other activities:
foreign exchange
213
Corporate
Specified risk management
Manage the risk of certain other specified assets and liabilities
•Interest rate and
213
CIB
Specified risk management
Manage the risk of certain commodities-related contracts and
investments
Commodity
°
213
CIB
Specified risk management
213
CCB
Manage the risk of the mortgage pipeline, warehouse loans and MSRS Specified risk management
Manage the credit risk of wholesale lending exposures
211
• Commodity
• Foreign exchange
Foreign exchange
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
Accounting for derivatives
The Firm provides clearing services for clients where the
Firm acts as a clearing member with respect to certain
derivative exchanges and clearinghouses. The Firm does not
reflect the clients' derivative contracts in its Consolidated
Financial Statements. For further information on the Firm's
clearing services, see Note 29.
Derivative Clearing Services
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain exchange-traded
derivatives ("ETD") such as futures and options, and
"cleared" over-the-counter ("OTC-cleared") derivative
contracts with central counterparties ("CCPS"). ETD
contracts are generally standardized contracts traded on an
exchange and cleared by the CCP, which is the counterparty
from the inception of the transactions. OTC-cleared
derivatives are traded on a bilateral basis and then novated
to the CCP for clearing.
For more information about risk management derivatives,
see the risk management derivatives gains and losses table
on page 213 of this Note, and the hedge accounting gains
and losses tables on pages 211-213 of this Note.
Derivative counterparties and settlement types
Commodities contracts are used to manage the price risk of
certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
credit default swaps. For a further discussion of credit
derivatives, see the discussion in the Credit derivatives
section on pages 213-215 of this Note.
Foreign currency forward contracts are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or forecasted revenue or expense
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
Interest rate contracts are used to minimize fluctuations in
earnings that are caused by changes in interest rates. Fixed-
rate assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increases or decreases as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains or losses on the derivative
instruments that are related to such assets and liabilities
are expected to substantially offset this variability in
earnings. The Firm generally uses interest rate swaps,
forwards and futures to manage the impact of interest rate
fluctuations on earnings.
The Firm manages its market risk exposures using various
derivative instruments.
Risk management derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Customers use derivatives to
mitigate or modify interest rate, credit, foreign exchange,
equity and commodity risks. The Firm actively manages the
risks from its exposure to these derivatives by entering into
other derivative transactions or by purchasing or selling
other financial instruments that partially or fully offset the
exposure from client derivatives. The Firm also seeks to
earn a spread between the client derivatives and offsetting
positions, and from the remaining open risk positions.
Market-making derivatives
Derivative instruments enable end-users to modify or
mitigate exposure to credit or market risks. Counterparties
to a derivative contract seek to obtain risks and rewards
similar to those that could be obtained from purchasing or
selling a related cash instrument without having to
exchange upfront the full purchase or sales price. JPMorgan
Chase makes markets in derivatives for customers and also
uses derivatives to hedge or manage its own risk exposures.
Predominantly all of the Firm's derivatives are entered into
for market-making or risk management purposes.
Note 6 - Derivative instruments
JPMorgan Chase & Co./2014 Annual Report
202
65,759 $ 1,031,672
$ 1,862,732 $ 738,418 $
446,232
65,759
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. For further discussion of the
offsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
207-213 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 3 and 4.
JPMorgan Chase & Co./2014 Annual Report
203
Notes to consolidated financial statements
Foreign exchange
о
о
о
• Interest rate
• Interest rate
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
Hedge fixed rate assets and liabilities
Designation and disclosure segment or unit reference
Use of Derivative
46,792
Type of Derivative
Affected
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
JPMorgan Chase & Co./2014 Annual Report
204
JPMorgan Chase uses foreign currency hedges to protect
the value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For foreign currency qualifying net
investment hedges, changes in the fair value of the
derivatives are recorded in the translation adjustments
account within AOCI.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, the effective portion of the change in the fair value
of the derivative is recorded in OCI and recognized in the
Consolidated statements of income when the hedged cash
flows affect earnings. Derivative amounts affecting earnings
are recognized consistent with the classification of the
hedged item- primarily interest income, interest expense,
noninterest revenue and compensation expense. The
ineffective portions of cash flow hedges are immediately
recognized in earnings. If the hedge relationship is
terminated, then the value of the derivative recorded in
accumulated other comprehensive income/(loss) ("AOCI") is
recognized in earnings when the cash flows that were
hedged affect earnings. For hedge relationships that are
discontinued because a forecasted transaction is not
expected to occur according to the original hedge forecast,
any related derivative values recorded in AOCI are
immediately recognized in earnings.
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. If the hedge relationship is
terminated, then the adjustment to the hedged item
continues to be reported as part of the basis of the hedged
item and for interest-bearing instruments is amortized to
earnings as a yield adjustment. Derivative amounts
affecting earnings are recognized consistent with the
classification of the hedged item - primarily net interest
income and principal transactions revenue.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, as well as nonstatistical methods including dollar-
value comparisons of the change in the fair value of the
derivative to the change in the fair value or cash flows of
the hedged item. The extent to which a derivative has been,
and is expected to continue to be, effective at offsetting
changes in the fair value or cash flows of the hedged item
must be assessed and documented at least quarterly. Any
hedge ineffectiveness (i.e., the amount by which the gain or
loss on the designated derivative instrument does not
exactly offset the change in the hedged item attributable to
the hedged risk) must be reported in current-period
earnings. If it is determined that a derivative is not highly
effective at hedging the designated exposure, hedge
accounting is discontinued.
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives. However,
JPMorgan Chase does not seek to apply hedge accounting to
all of the derivatives involved in the Firm's risk management
activities. For example, the Firm does not apply hedge
accounting to purchased credit default swaps used to
manage the credit risk of loans and lending-related
commitments, because of the difficulties in qualifying such
contracts as hedges. For the same reason, the Firm does not
apply hedge accounting to certain interest rate and
commodity derivatives used for risk management purposes.
Derivatives designated as hedges
Page
Subtotal
OTC
(399)
1,705
(c)
(c)
1,353
352
Other changes in fair value
1,570
(133) 1,833
81 (c)
1,184
23 (c)
1,161
914
29 (c)
885
specific credit risk
1,489
1,700
(c)
(183) 7,670
676
676
17
17
34
34
Other changes in fair value
(14)
(14)
36
36
40
40
credit risk
Changes in instrument-specific
Loans:
7,487
Changes in instrument-
assets:
Loans reported as trading
520
(15) $
$
(15) $
$
agreements
purchased under resale
Federal funds sold and securities
Total
changes
in fair
value
recorded
All other
income
Principal
transactions
Total
changes
in fair
value
recorded
All other
income
Principal
Total
changes
in fair
value
recorded transactions
2012
2013
All other
income
(454) $
Other assets
$
Securities borrowed
7
513
589
7
582
639
Debt and equity instruments,
excluding loans
-
Trading assets:
10
161
$
161 $
10
10
10
(10)
(10)
(454) $
24
(122) (d)
(98)
(1,025)
1,280
(835)
(271)
(271)
1,280
101
(615)
101
(615)
Other changes in fair value(b)
Changes in instrument-specific
credit risk(a)
Long-term debt:
2
2
(27)
(27)
Other liabilities
(166)
(166)
(835)
(278)
(1,025)
(b) Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.
Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of
the risk management instruments used to manage such risk.
Nonaccrual loans
Loans(a)
December 31, (in millions)
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2014 and 2013, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
JPMorgan Chase & Co./2014 Annual Report
Resale and repurchase agreements, securities borrowed
agreements and securities lending agreements:
Generally, for these types of agreements, there is a
requirement that collateral be maintained with a market
value equal to or in excess of the principal amount
loaned; as a result, there would be no adjustment or an
immaterial adjustment for instrument-specific credit risk
related to these agreements.
from observable changes in the Firm's credit spread.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
information, where available, or benchmarking to similar
entities or industries.
•
•
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
200
The following describes how the gains and losses included in
earnings that are attributable to changes in instrument-
specific credit risk, were determined.
Determination of instrument-specific credit risk for items
for which a fair value election was made
(d) Reported in other income.
(c) Reported in mortgage fees and related income.
(a) Total changes in instrument-specific credit risk (DVA) related to structured notes were $20 million, $(337) million and $(340) million for the years ended
December 31, 2014, 2013 and 2012, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds, as
well as long-term debt.
Principal
transactions
(278)
(233)
(33)
repurchase agreements
securities loaned or sold under
Federal funds purchased and
(188)
(188)
260
260
(287)
(287)
Deposits(a)
(339)
(339) (d)
3
(29)
32
(d)
(33)
(233)
73
(25)
consolidated VIES
Beneficial interests issued by
(41)
494
(25)
| | |
(41)
(46)
(46)
(17)
(17)
Trading liabilities
494
(399)
(891)
(891)
Other borrowed funds(a)
73
December 31, (in millions)
639
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2014, 2013 and 2012, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
1.0 $
1.0
related commitments
(a) Represents the allowance for wholesale lending-related commitments. Excludes the current carrying values of the guarantee liability and the offsetting
asset, each of which are recognized at fair value at the inception of guarantees.
The Firm does not estimate the fair value of consumer
lending-related commitments. In many cases, the Firm can
reduce or cancel these commitments by providing the
borrower notice or, in some cases as permitted by law,
without notice. For a further discussion of the valuation of
lending-related commitments, see page 182 of this Note.
Trading assets and liabilities
Trading assets include debt and equity instruments owned
by JPMorgan Chase ("long" positions) that are held for
client market-making and client-driven activities, as well as
for certain risk management activities, certain loans
managed on a fair value basis and for which the Firm has
elected the fair value option, and physical commodities
Trading assets and liabilities - average balances
inventories that are generally accounted for at the lower of
cost or market (market approximates fair value). Trading
liabilities include debt and equity instruments that the Firm
has sold to other parties but does not own ("short"
positions). The Firm is obligated to purchase instruments at
a future date to cover the short positions. Included in
trading assets and trading liabilities are the reported
receivables (unrealized gains) and payables (unrealized
losses) related to derivatives. Trading assets and liabilities
are carried at fair value on the Consolidated balance sheets.
Balances reflect the reduction of securities owned (long
positions) by the amount of identical securities sold but not
yet purchased (short positions).
Average trading assets and liabilities were as follows for the periods indicated.
Year ended December 31, (in millions)
Trading assets - debt and equity instruments
Trading assets - derivative receivables
Trading liabilities - debt and equity instruments(a)
Trading liabilities - derivative payables
(a) Primarily represent securities sold, not yet purchased.
Note 4 - Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments not previously carried at fair
value.
$
$
0.7 $
1.6 $
Interest rate contracts:
2014
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets, nor are they actively traded. The carrying value and estimated fair value of the Firm's wholesale lending-
related commitments were as follows for the periods indicated.
December 31, 2014
Estimated fair value hierarchy
December 31, 2013
Estimated fair value hierarchy
(in billions)
Level 1
Level 2
The Firm has elected to measure certain instruments at fair
value in order to:
Level 3
Carrying
value(a)
Level 1
Level 2
Level 3
Total
estimated
fair value
Wholesale lending-
0.6 $
1.6 $
Total
estimated
fair value
•
Carrying
value(a)
•
64,553
76,162
The Firm has elected to measure the following instruments
at fair value:
•
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis.
Securities financing arrangements with an embedded
derivative and/or a maturity of greater than one year.
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument.
Certain investments that receive tax credits and other
equity investments acquired as part of the Washington
Mutual transaction.
Structured notes issued as part of CIB's client-driven
54,758
activities. (Structured notes are predominantly financial
•
Long-term beneficial interests issued by CIB's
consolidated securitization trusts where the underlying
Notes to consolidated financial statements
JPMorgan Chase & Co./2014 Annual Report
199
Changes in fair value under the fair value option election
•
instruments that contain embedded derivatives.)
69,001
assets are carried at fair value.
84,707
77,706
the associated risk management arrangements are
Eliminate the complexities of applying certain
accounting models (e.g., hedge accounting or bifurcation
accounting for hybrid instruments); and/or
Better reflect those instruments that are managed on a
fair value basis.
2014
2013
2012
accounted for on a fair value basis;
327,259
85,744
$
349,337
$
Mitigate income statement volatility caused by the
differences in the measurement basis of elected
instruments (for example, certain instruments elected
were previously accounted for on an accrual basis) while
67,123
$
340,449
72,629
Exchange-traded (a)
Total equity contracts
Commodity contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total commodity contracts
Derivative payables where an appropriate
legal opinion has not been either sought or
obtained
(11,415)
17,349
17,167
(15,789)
1,378
-
Derivative payables with appropriate legal
opinions
Total derivative payables recognized on the
Consolidated balance sheets
OTC
OTC-cleared
$ (509,252) $ (2,014,444)
(b)
31,730
27,426
(714,154)
(28,943)
155,171
(144,178)
10,993
Equity contracts:
27,908
(23,036)
4,872
33,295
(28,520)
4,775
-
5,934
(11,212)
(38,825)
19,070
$ 1,315,076
19,070
15,697
$
71,116 $ 1,160,149
15,697
$
57,314
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Included cash collateral netted of $64.2 billion and $52.1 billion related to OTC and OTC-cleared derivatives at December 31, 2014, and 2013,
respectively.
In addition to the cash collateral received and transferred
that is presented on a net basis with net derivative
receivables and payables, the Firm receives and transfers
additional collateral (financial instruments and cash). These
amounts mitigate counterparty credit risk associated with
the Firm's derivative instruments but are not eligible for net
presentation, because (a) the collateral is comprised of
non-cash financial instruments (generally U.S. government
and agency securities and other G7 government bonds), (b)
the amount of collateral held or transferred exceeds the fair
value exposure, at the individual counterparty level, as of
the date presented, or (c) the collateral relates to derivative
receivables or payables where an appropriate legal opinion
has not been either sought or obtained.
JPMorgan Chase & Co./2014 Annual Report
$ (122,152)
209
41,617
52,046 $ 1,144,452 $ (1,102,835) (b) $
$ 1,296,006 $ (1,243,960) (b) $
(26,530)
6,250
50,644
(39,935)
10,709
25,129
(13,211)
11,918
45,075
21,993
6,675
1,155
7,830
18,486
43,615
(15,344)
(28,555)
3,142
15,060
12,367
34,360
(15,318)
$ (2,645,848) $
type
$ (22,338)
2,517
2,563
918
1,801
1,556
(4,975)
2,654
1,880
Credit(c)
16,420
$ 4,002
$ 1,362 $ 284
Interest rate (b)
Principal transactions
(a)
2,455
1,663
2,083
2,365
Notes to consolidated financial statements
(195,378)
211,798
Total foreign exchange contracts
Exchange-traded (a)
2
10,991
Trading revenue by instrument
(144,119)
(59)
Principal transactions revenue consists of realized and
unrealized gains and losses on derivatives and other
instruments (including those accounted for under the fair
value option) used in client-driven market-making activities
and on private equity investments. In connection with its
client-driven market-making activities, the Firm transacts in
debt and equity instruments, derivatives and commodities
(including physical commodities inventories and financial
instruments that reference commodities).
771
802
1,507
4,765
9,339
9,024
Principal transactions revenue also includes realized and
unrealized gains and losses related to hedge accounting and
specified risk-management activities, including: (a) certain
derivatives designated in qualifying hedge accounting
relationships (primarily fair value hedges of commodity and
foreign exchange risk), (b) certain derivatives used for
specific risk management purposes, primarily to mitigate
credit risk, foreign exchange risk and commodity risk, and
(c) other derivatives, including the synthetic credit
portfolio. For further information on the income statement
classification of gains and losses from derivatives activities,
see Note 6.
59,156
5,808
Total investment banking fees
$ 1,571 $ 1,499 $ 1,026
2012
2013
2014
Year ended December 31,
(in millions)
The following table presents the components of investment
banking fees.
This revenue category includes equity and debt
underwriting and advisory fees. Underwriting fees are
recognized as revenue when the Firm has rendered all
services to the issuer and is entitled to collect the fee from
the issuer, as long as there are no other contingencies
associated with the fee. Underwriting fees are net of
syndicate expense; the Firm recognizes credit arrangement
and syndication fees as revenue after satisfying certain
retention, timing and yield criteria. Advisory fees are
recognized as revenue when the related services have been
performed and the fee has been earned.
Investment banking fees
Note 7 - Noninterest revenue
Notes to consolidated financial statements
215
JPMorgan Chase & Co./2014 Annual Report
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) The prior period amounts have been revised. This revision had no impact on the Firm's Consolidated balance sheets or its results of operations.
(c) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.
$ (5,664) (b) $ 26,066 (b)
(16,674)
10,752
$ 36,818
purchase, sale, transport and storage of power, gas,
liquefied natural gas, coal, crude oil and refined products.
Physical commodities inventories are generally carried at
the lower of cost or market (market approximates fair
value) subject to any applicable fair value hedge accounting
adjustments, with realized gains and losses and unrealized
losses recorded in principal transactions revenue.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities. See Note 8 for further information on
interest income and interest expense. Trading revenue is
presented primarily by instrument type. The Firm's client-
driven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, the
trading revenue presented in the table below is not
representative of the total revenue of any individual line of
business.
Year ended December 31,
(in millions)
Underwriting
2012
2013
2014
1,492
1,318
1,631
Advisory
$ 6,542 $ 6,354 $
4,316
4,911
Total underwriting
3,290
3,537
3,340
Debt
Equity
5,036
The following tables present information regarding certain financial instrument collateral received and transferred as of
December 31, 2014 and 2013, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables
relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional
collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.
(c) The Firm did not experience any forecasted transactions that failed to occur for the years ended December 31, 2014, 2013 or 2012.
December 31, (in millions)
Hedge
ineffectiveness(d)
Excluded
components(e)
$
2,106 $
8,279
49
(801) $
(8,532)
145
1,305 $
131
$
1,174
(253)
194
-
(253)
42
152
Income statement impact due to:
10,434 $ (9,188) $
Total income
statement
impact
Derivatives
Commodity (c)
Total
Year ended December 31, 2013 (in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Commodity (c)
Total
Year ended December 31, 2012 (in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Commodity (c)
Total
Gains/(losses) recorded in income
Hedged items
1,246
$
173
This revenue category includes fees from loan
commitments, standby letters of credit, financial
guarantees, deposit-related fees in lieu of compensating
balances, cash management-related activities or
transactions, deposit accounts and other loan-servicing
activities. These fees are recognized over the period in
which the related service is provided.
Lending- and deposit-related fees
JPMorgan Chase & Co./2014 Annual Report
216
(f) Includes revenue on private equity investments held in the Private Equity
business within Corporate, as well as those held in other business
segments.
(e) During 2013, the Firm implemented a FVA framework in order to
incorporate the impact of funding into its valuation estimates for OTC
derivatives and structured notes. As a result, the Firm recorded a $1.5
billion loss in principal transactions revenue in 2013, reported in the CIB.
This reflected an industry migration towards incorporating the cost of
unsecured funding in the valuation of such instruments.
(d) Commodity derivatives are frequently used to manage the Firm's risk
exposure to its physical commodities inventories. For gains/(losses) related
to commodity fair value hedges, see Note 6.
(b) Includes a pretax gain of $665 million for the year ended December 31,
2012, reflecting the recovery on a Bear Stearns-related subordinated loan.
(c) Includes $5.8 billion of losses incurred by CIO from the synthetic credit
portfolio for the six months ended June 30, 2012, and $449 million of
losses incurred by CIO from the retained index credit derivative positions
for the three months ended September 30, 2012; and losses incurred by
CIB from the synthetic credit portfolio.
(a) Prior to the second quarter of 2014, trading revenue was presented by
major underlying type of risk exposure, generally determined based upon
the business primarily responsible for managing that risk exposure. Prior
period amounts have been revised to conform with the current period
presentation. This revision had no impact on the Firm's Consolidated
balance sheets or results of operations.
$ 10,531 $ 10,141 $ 5,536
Total trading revenue (e)
Private equity gains(f)
Principal transactions
Commodity (d)
Equity
Foreign exchange
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and
exchange-traded derivatives that reference a wide range of
underlying commodities. In the physical commodity
markets, the Firm primarily purchases and sells precious
and base metals and may hold other commodities
inventories under financing and other arrangements with
clients. Prior to the 2014 sale of certain parts of its physical
commodity business, the Firm also engaged in the
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services, insurance premiums and commissions, and other
products. These fees are recognized over the period in
which the related service is provided. Performance-based
fees, which are earned based on exceeding certain
benchmarks or other performance targets, are accrued and
recognized at the end of the performance period in which
the target is met. The Firm has contractual arrangements
with third parties to provide certain services in connection
with its asset management activities. Amounts paid to third-
party service providers are predominantly expensed, such
that asset management fees are recorded gross of
payments made to third parties.
The following table presents components of asset
management, administration and commissions.
Year ended December 31,
(in millions)
2014
$
1,073
Gains/(losses) recorded in income
Income statement impact due to:
Total income
statement
Derivatives Hedged items
Foreign exchange (b)
impact
Excluded
components(e)
$
(3,469) $ 4,851
$
1,382 $
(132)
$
Hedge
ineffectiveness(d)
Interest rate (a)
Contract type
Year ended December 31, 2014 (in millions)
$
Net derivative
payables
52,046 $
Collateral not
nettable on the
Consolidated
Net
balance sheets amount(c)
(10,505) (a) $41,541
Net derivative
payables
$
41,617 $
2013
Collateral not
nettable on the
Consolidated
balance sheets
Net
amount(c)
(6,873) (a) $ 34,744
(a) Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial instruments may
exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net
derivative payables balances with that counterparty.
(b) Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative
instruments.
(c) Net amount represents exposure of counterparties to the Firm.
Liquidity risk and credit-related contingent features
$
Derivative payables with appropriate legal opinions
December 31, (in millions)
2014
$ 37,611
Derivative receivables with appropriate legal opinions $
Derivative payable collateral(b)
2014
Net derivative
receivables
Collateral not
nettable on the
Consolidated
balance sheets
Net
exposure
Net derivative
receivables
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk - the risk that derivative counterparties
may fail to meet their payment obligations under the
derivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment
obligation. It is the policy of JPMorgan Chase to actively
pursue, where possible, the use of legally enforceable
master netting arrangements and collateral agreements to
mitigate derivative counterparty credit risk. The amount of
derivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value
of the contracts moves in the counterparties' favor or upon
specified downgrades in the Firm's and its subsidiaries'
respective credit ratings. Certain derivative contracts also
provide for termination of the contract, generally upon a
downgrade of either the Firm or the counterparty, at the
fair value of the derivative contracts. The following table
shows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that contain
contingent collateral or termination features that may be
triggered upon a ratings downgrade, and the associated
collateral the Firm has posted in the normal course of
business, at December 31, 2014 and 2013.
58,258 $
(a)
$ 42,064
$
50,025 $
2013
Collateral not
nettable on the
Consolidated
balance sheets
Net
exposure
(12,414) (a)
(16,194)
Derivative receivable collateral
OTC and OTC-cleared derivative payables containing
downgrade triggers
2014
366
3,331
$
1,388
2013
Single-notch
Two-notch
downgrade downgrade
952 $
540
(544,671)
3,244
876
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pretax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2014,
2013 and 2012, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the
same line item in the Consolidated statements of income.
1,046 $
Single-notch Two-notch
downgrade downgrade
2014
Impact of derivatives on the Consolidated statements of income
Aggregate fair value of net derivative
payables
Collateral posted
2013
32,303 $
27,585
24,631
20,346
The following table shows the impact of a single-notch and
two-notch downgrade of the long-term issuer ratings of
JPMorgan Chase & Co. and its subsidiaries, predominantly
JPMorgan Chase Bank, National Association ("JPMorgan
Chase Bank, N.A."), at December 31, 2014 and 2013,
related to OTC and OTC-cleared derivative contracts with
contingent collateral or termination features that may be
triggered upon a ratings downgrade. Derivatives contracts
generally require additional collateral to be posted or
terminations to be triggered when the predefined threshold
rating is breached. A downgrade by a single rating agency
that does not result in a rating lower than a preexisting
corresponding rating provided by another major rating
agency will generally not result in additional collateral,
except in certain instances in which additional initial margin
may be required upon a ratings downgrade, or termination
payment requirements. The liquidity impact in the table is
calculated based upon a downgrade below the lowest
current rating of the rating agencies referred to in the
derivative contract.
December 31, (in millions)
210
Liquidity impact of downgrade triggers on OTC and
OTC-cleared derivatives
December 31, (in millions)
Amount of additional collateral to be posted upon downgrade (a)
$
Amount required to settle contracts with termination triggers upon downgrade (b)
(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair value of derivative payables, and do not reflect collateral posted.
JPMorgan Chase & Co./2014 Annual Report
(140,540)
Total
Noninvestment-grade
$ 9,169 $ 8,044 $
All other asset management fees (b)
477
505
Total asset management fees
9,646
8,549
6,744
357
7,101
Total administration fees (c)
2,179
2,101
2,135
Commissions and other fees
Brokerage commissions
2,270
2,321
All other commissions and fees
(c)
(b) Represents fees for services that are ancillary to investment management
services, such as commissions earned on the sales or distribution of
mutual funds to clients.
Represents fees earned from managing assets on behalf of Firm clients,
including investors in Firm-sponsored funds and owners of separately
managed investment accounts.
$ 15,931 $ 15,106 $ 13,868
commissions
(a)
Investment management fees(a)
administration and
2,331
2,301
4,632
4,456
4,106
Total commissions and fees
2,135
1,836
Total asset management,
Predominantly includes fees for custody, securities lending, funds services
and securities clearance.
Asset management fees
2013
1,131
(2,530)
2,925
(3,027)
$
1,879
(1,238) $
$
Excluded
components(e)
Hedge
ineffectiveness(d)
Income statement impact due to:
impact
Derivatives Hedged items
Total income
statement
Gains/(losses) recorded in income
425
$
1,514
$
(1,096)
485
(4,080) $
864
(1,304)
(232)
(232)
2012
(819)
(857)
4,411
$
331
$
(94)
38
641
(102)
(1,399)
Mortgage fees and related income
Card income
Securities borrowed (c)
(501)
(127)
Deposits with banks
1,157
918
555
Other assets (d)
663
538
Total interest income (b)
51,531
52,669
259
55,953
Interest expense
Interest-bearing deposits
1,633
Total interest expense (b)
405
by consolidated VIES
Beneficial interests issued
1,678
6,062
5,007
2,442
4,409
1,798
1,450
liabilities (b)(e)
Short-term and other
2,655
2,067
Long-term debt
This revenue category primarily reflects CCB's Mortgage
Production and Mortgage Servicing revenue, including fees
and income derived from mortgages originated with the
intent to sell; mortgage sales and servicing including losses
related to the repurchase of previously sold loans; the
impact of risk-management activities associated with the
mortgage pipeline, warehouse loans and MSRs; and revenue
related to any residual interests held from mortgage
securitizations. This revenue category also includes gains
and losses on sales and lower of cost or fair value
adjustments for mortgage loans held-for-sale, as well as
changes in fair value for mortgage loans originated with the
intent to sell and measured at fair value under the fair value
option. Changes in the fair value of CCB MSRS are reported
in mortgage fees and related income. Net interest income
from mortgage loans is recorded in interest income. For a
further discussion of MSRs, see Note 17.
1,940
under resale agreements
This revenue category includes interchange income from
credit and debit cards and net fees earned from processing
credit card transactions for merchants. Card income is
recognized as earned. Cost related to rewards programs is
recorded when the rewards are earned by the customer and
presented as a reduction to interchange income. Annual
fees and direct loan origination costs are deferred and
recognized on a straight-line basis over a 12-month period.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-
brand partners and affinity organizations (collectively,
"partners"), which grant the Firm exclusive rights to market
to the customers or members of such partners. These
partners endorse the credit card programs and provide
their customer and member lists to the Firm, and they may
also conduct marketing activities and provide awards under
the various credit card programs. The terms of these
agreements generally range from three to ten years.
The Firm typically makes incentive payments to the
partners based on new account originations, charge
volumes and the cost of the partners' marketing activities
and awards. Payments based on new account originations
are accounted for as direct loan origination costs. Payments
to partners based on sales volumes are deducted from
interchange income as the related revenue is earned.
Payments based on marketing efforts undertaken by the
partners are expensed by the Firm as incurred and reported
as noninterest expense.
Other income
Included in other income is operating lease income of $1.7
billion, $1.5 billion and $1.3 billion for the years ended
December 31, 2014, 2013 and 2012, respectively.
Additionally, included in other income for the year ended
December 31, 2013, is a net pretax gain of approximately
$1.3 billion, from the sale of Visa B Shares.
JPMorgan Chase & Co./2014 Annual Report
217
Notes to consolidated financial statements
Note 8 - Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability. Interest
income and interest expense includes the current-period
interest accruals for financial instruments measured at fair
value, except for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with U.S. GAAP absent the fair value
option election; for those instruments, all changes in fair
value, including any interest elements, are reported in
principal transactions revenue. For financial instruments
that are not measured at fair value, the related interest is
included within interest income or interest expense, as
applicable.
Details of interest income and interest expense were as
follows.
Year ended December 31,
(in millions)
2014
2013
2012
$ 35,832
7,231
708
7,939
8,929
(3)
Interest income
Loans
securities purchased
Federal funds sold and
8,099
7,312
Trading assets (b)
7,812
1,642
9,040
$ 33,489
6,916
896
1,423
Non-taxable securities(a)
7,617
Taxable securities
32,218
Total securities
7,897
(28)
669
Total income
statement impact
recorded directly
Total change
effective
Hedge
ineffectiveness
reclassified from
AOCI to income
Derivatives -
effective portion
Gains/(losses) recorded in income and other comprehensive income/(loss) (c)
Year ended December 31, 2012
(424)
$
(525)
$
$ (101)
(457)
33
$
(565)
40
Total change
recorded directly
in income (d)
Total income
statement impact
portion
recorded in OCI
in OCI
for period
portion
(108)
7
$
(101)
$
$
(108)
7
$
$
effective
recorded in OCI
in income(d)
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains
and losses follows the hedged item - primarily noninterest revenue and compensation expense.
(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in
net interest income.
113
$
141
$
33
$
5
$
28
$
97
128
31
-
16
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Total
$
in OCI
for period
(3)
31
5
$
2
$
13
$
$
$
Derivatives -
Derivatives -
effective portion
reclassified from
AOCI to income
income(d)
AOCI to income
Contract type
(in millions)
recorded directly in
effective
Derivatives -
Hedge
ineffectiveness
Gains/(losses) recorded in income and other comprehensive income/(loss) (c)
Derivatives -
effective portion
reclassified from
Year ended December 31, 2014
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pretax gains/(losses) recorded on such derivatives, for the years ended December 31, 2014, 2013 and 2012, respectively.
The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line
item in the Consolidated statements of income.
Cash flow hedge gains and losses
Notes to consolidated financial statements
211
JPMorgan Chase & Co./2014 Annual Report
(e) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts and time values.
(102)
107
(1,506)
$ (6,795) $
5,935
$
Total income
statement impact
(860) $
$
(939)
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income. The current presentation excludes accrued interest.
(b) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded in principal transactions revenue and net interest
income.
(c) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates
fair value). Gains and losses were recorded in principal transactions revenue.
(d) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the
hedged item attributable to the hedged risk.
79
Hedge
ineffectiveness
portion
recorded in OCI
Interest rate (a)
Gains/(losses) recorded in income and other comprehensive income/(loss) (c)
74
$
98
$
24
$
$
24
$
(169)
(91)
78
78
243
$
189
Foreign exchange (b)
Total
Year ended December 31, 2013
(in millions)
Contract type
Interest rate (a)
Total change
in OCI
for period
Foreign exchange (b)
$
(54)
$
$
(54)
$
Total
(d) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the
cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
478
9,350
43,634
19,475
2,110,144
9,881
38,106
(40)
(40)
3,704
$ 2,110,144
$
9,841 $
41,810
Maximum payout/Notional amount
Net
Protection purchased
protection
with identical
Protection sold
Net derivative
payables
on the
Consolidated
balance sheets
Gross
derivative
payables
Amounts netted
Amounts netted
2013
(11,233)
2014
U.S. GAAP nettable derivative payables
December 31, (in millions)
The following table presents, as of December 31, 2014 and 2013, the gross and net derivative payables by contract and
settlement type. Derivative payables have been netted on the Consolidated balance sheets against derivative receivables and
cash collateral receivables from the same counterparty with respect to derivative contracts for which the Firm has obtained an
appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought
or obtained, the payables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown
separately in the table below.
Other
protection
purchased(e)
(sold)/
purchased (d)
underlyings(c)
Interest rate contracts:
Gross
derivative
payables
32,048
21,114 $
Credit-related notes
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity experiences a specified
credit event (or one of the entities that makes up a
reference index). If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity. For a further discussion of credit-related
notes, see Note 16.
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2014 and
2013. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased through credit-related notes.
214
JPMorgan Chase & Co./2014 Annual Report
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
Total credit derivatives and credit-related notes
December 31, 2014 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives (a)
Total credit derivatives
Credit-related notes
Total
December 31, 2013 (in millions)
Credit derivatives
Credit default swaps
$
$ 2,078,096
$ (2,100,303)
$ (2,056,982)
(43,281)
(2,100,263)
purchased (e)
Other
protection
18,631
Net
protection
(sold)/
purchased (d)
Protection sold
Protection purchased
Maximum payout/Notional amount
Credit-related notes
Total credit derivatives
Other credit derivatives (a)
with identical
underlyings(c)
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
on the
Consolidated
balance sheets
OTC
>5 years
Total notional
amount
Fair value of
receivables(c)
Fair value of
payables(c)
Net fair
value
Risk rating of reference entity
Investment-grade
Noninvestment-grade
$ (323,398)
(157,281)
Total
$ (480,679)
$ (1,118,293)
(396,798)
$ (1,515,091)
$ (79,486)
(25,047)
$ (104,533)
$ (1,521,177)
(579,126)
$ (2,100,303)
$
$
25,767
20,677
46,444
$ (368,712) (b) $ (1,469,773) (b) $ (93,209) (b) $ (1,931,694) (b)
Investment-grade
Risk rating of reference entity
Net fair
value
Fair value of
payables(c)
Fair value of
receivables(c)
1-5 years
Total notional
amount
1-5 years
<1 year
(in millions)
December 31, 2013
$19,453
(1,778)
$ 17,675
$ (6,314)
(22,455)
$ (28,769)
>5 years
Net derivative
payables
<1 year
December 31, 2014
OTC-cleared
Exchange-traded (a)
Total interest rate contracts
Credit contracts:
OTC
$ (2,601,581)
(44,137) (b)
(2,645,718)
$
2,610,198
45,921
2,656,119
$
8,617 $
8,722
1,784
20,480 (b)
10,401
29,202
The following tables summarize the notional amounts by the ratings and maturity profile, and the total fair value, of credit
derivatives as of December 31, 2014 and 2013, where JPMorgan Chase is the seller of protection. The maturity profile is
based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the
reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives and
credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold - credit derivatives and credit-related notes ratings (a)/maturity profile
(e) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference
instrument.
(c) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional
amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(d) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the
buyer of protection in determining settlement value.
(a) Other credit derivatives predominantly consists of credit swap options.
(b) The prior period amounts have been revised. This revision had no impact on the Firm's Consolidated balance sheets or its results of operations.
Total
31,922
(in millions)
10,271 $
2,656,119
$
$ (2,645,848)
2,720
(130)
(130)
$
Net interest income
Credit derivatives may reference the credit of either a single
reference entity ("single-name") or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS and
index CDS contracts are typically OTC-cleared derivative
contracts. Single-name CDS are used to manage the default
risk of a single reference entity, while index CDS contracts
are used to manage the credit risk associated with the
broader credit markets or credit market segments. Like the
S&P 500 and other market indices, a CDS index comprises a
portfolio of CDS across many reference entities. New series
of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
Notes to consolidated financial statements
(906,900)
13,788
822,548
(812,071)
10,477
OTC-cleared
65,432
9,398
(64,904)
528
65,223
(63,671)
1,552
(9,398)
16,506
(16,450)
56
Total credit contracts
155,110
16,420
(195,312)
(66)
66
OTC-cleared
211,732
920,688
OTC
1,608
(80,121)
81,729
528
(74,302)
74,830
Foreign exchange contracts:
61
-
9,769
Provision for credit losses
3,139
43,319
225
648
11,043
44,910
3,385
Net interest income after
provision for credit
losses
$ 40,495
$ 43,094 $ 41,525
(a) Represents securities which are tax exempt for U.S. Federal Income Tax
purposes.
(b) Prior period amounts have been reclassified to conform with the
current period presentation.
(c) Negative interest income for the years ended December 31, 2014,
2013 and 2012, is a result of increased client-driven demand for
certain securities combined with the impact of low interest rates; the
offset of this matched book activity is reflected as lower net interest
expense reported within short-term and other liabilities.
(d) Largely margin loans.
(e) Includes brokerage customer payables.
Note 9 - Pension and other postretirement
employee benefit plans
The Firm's defined benefit pension plans and its other
postretirement employee benefit (“OPEB") plans are
accounted for in accordance with U.S. GAAP for retirement
benefits.
Defined benefit pension plans
The Firm has a qualified noncontributory U.S. defined
benefit pension plan that provides benefits to substantially
all U.S. employees. The U.S. plan employs a cash balance
formula in the form of pay and interest credits to determine
the benefits to be provided at retirement, based on years of
service and eligible compensation (generally base pay
capped at $100,000 annually; effective January 1, 2015, in
addition to base pay, eligible compensation will include
certain other types of variable incentive compensation
capped at $100,000 annually). Employees begin to accrue
plan benefits after completing one year of service, and
benefits generally vest after three years of service. The Firm
also offers benefits through defined benefit pension plans
to qualifying employees in certain non-U.S. locations based
on factors such as eligible compensation, age and/or years
of service.
It is the Firm's policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2015. The 2015
contributions to the non-U.S. defined benefit pension plans
are expected to be $47 million of which $31 million are
contractually required.
$
(458,081)
(353,990)
354,698
1,268
(397,250)
467,850 $
708
$
522,170 $ (509,650)
398,518
JPMorgan Chase & Co./2014 Annual Report
218
JPMorgan Chase currently provides two qualified defined
contribution plans in the U.S. and other similar
arrangements in certain non-U.S. locations, all of which are
administered in accordance with applicable local laws and
regulations. The most significant of these plans is The
JPMorgan Chase 401(k) Savings Plan (the “401(k) Savings
Plan"), which covers substantially all U.S. employees.
Employees can contribute to the 401(k) Savings Plan on a
pretax and/or Roth 401(k) after-tax basis. The JPMorgan
Chase Common Stock Fund, which is an investment option
under the 401(k) Savings Plan, is a nonleveraged employee
stock ownership plan.
Defined contribution plans
JPMorgan Chase also has a number of defined benefit
pension plans that are not subject to Title IV of the
Employee Retirement Income Security Act. The most
significant of these plans is the Excess Retirement Plan,
pursuant to which certain employees previously earned pay
credits on compensation amounts above the maximum
stipulated by law under a qualified plan; no further pay
credits are allocated under this plan. The Excess Retirement
Plan had an unfunded projected benefit obligation ("PBO")
in the amount of $257 million and $245 million, at
December 31, 2014 and 2013, respectively.
12,520
Credit default swaps
Over the next 12 months, the Firm expects that $33 million (after-tax) of net losses recorded in AOCI at December 31, 2014,
related to cash flow hedges will be recognized in income. The maximum length of time over which forecasted transactions are
hedged is 9 years, and such transactions primarily relate to core lending and borrowing activities.
JPMorgan Chase & Co./2014 Annual Report
Contract type
Interest rate (a)
$
2,308 $
617 $
Credit(b)
(58)
(142)
5,353
(175)
Foreign exchange(c)
(7)
1
47
Commodity(d)
156
178
94
213
JPMorgan Chase & Co./2014 Annual Report
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm's wholesale
businesses, and to manage the credit risk arising from
certain financial instruments in the Firm's market-making
businesses. Following is a summary of various types of
credit derivatives.
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from the Firm's
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 7 for
information on principal transactions revenue.
Credit derivatives
Gains and losses on derivatives related to market-making
activities and other derivatives
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.
(in millions)
(c) Primarily relates to hedges of the foreign exchange risk of specified
foreign currency-denominated assets and liabilities. Gains and losses
were recorded in principal transactions revenue.
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
5,319
654 $
2,399 $
$
Total
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
212
2012
2014
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pretax gains/(losses) recorded on such instruments for the years ended December 31, 2014, 2013 and
2012.
Gains/(losses) recorded in income and other comprehensive income/(loss)
Year ended December 31,
(in millions)
Foreign exchange derivatives
2014
2013
2012
Excluded
components
Excluded
components
recorded
directly in
income(a)
Effective
portion
recorded in OCI
recorded
directly in
income(a)
Effective
portion
recorded in OCI
Excluded
components
recorded
Derivatives gains/(losses)
recorded in income
Year ended December 31,
The following table presents pretax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures, AFS
securities, foreign currency-denominated liabilities, and
commodities-related contracts and investments.
Gains and losses on derivatives used for specified risk
management purposes
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. Amounts related to excluded components are recorded in current-period income. The Firm measures the ineffectiveness of
net investment hedge accounting relationships based on changes in spot foreign currency rates, and therefore there was no significant ineffectiveness for
net investment hedge accounting relationships during 2014, 2013 and 2012.
$(82)
2013
$(306)
$(383)
$1,698
$(448)
portion
recorded in OCI
directly in
income(a)
Effective
$773
Derivatives -
The Firm's U.S. OPEB plan was partially funded with COLI policies of $1.9 billion and $1.7 billion at December 31, 2014 and
2013, respectively, which were classified in level 3 of the valuation hierarchy.
228
(a)
100%
100%
100%
100%
100%
JPMorgan Chase & Co./2014 Annual Report
100%
100%
100%
Total
1
1
1
23
Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
19
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
223
1,969
192
173
(126)
2,208
558
29
36
(90)
533
U.S. defined benefit pension plans
Pension and OPEB plan assets and liabilities measured at fair value
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the
valuation methods employed by the Firm, see Note 3.
Fair value measurement of the plans' assets and liabilities
Notes to consolidated financial statements
JPMorgan Chase & Co./2014 Annual Report
Total limited partnerships
0-35
-
25%
31%
0-80%
Debt securities(a)
2013
% of plan assets
2014
Target
Allocation
2013
% of plan assets
2014
Target
Allocation
2013
% of plan assets
2014
Target
Allocation
December 31,
Asset category
OPEB plans (c)
62%
Alternatives(b)
61%
0-85
4
4
0-10
Real estate
50
50
30-70
50%
50%
30-70%
63%
36
38
37
48
46
Equity securities
Real assets
Real estate
Private equity
128
$
87
87 $
$
value
Level 2
Level 1
Total fair
Total fair
value
Level 3
Level 2
Level 1
Consumer goods
Capital equipment
$
Equity securities:
1 $
1,249
279
785
7
778
Banks and finance companies
282
32
250
1,206
8
1,198
120
24
96
1,249
129
Cash and cash equivalents
(in millions)
December 31, 2014
$
4
$
$
$
1
3
48
Hedge funds
718
193
(180)
(662)
8
77
4
$
Limited partnerships:
Common/collective trust funds
Non-U.S. defined benefit pension plans (i)
225
Notes to consolidated financial statements
Changes in level 3 fair value measurements using significant unobservable inputs
Year ended December 31, 2014
(in millions)
Actual return on plan assets
Fair value,
January 1,
2014
Non-U.S.
Realized
gains/(losses)
Purchases, sales
and settlements,
net
Transfers in
and/or out
of level 3
Fair value,
December 31,
2014
U.S. defined benefit pension plans
Equities
Unrealized
gains/(losses)
U.S.
Defined benefit pension plans
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved range/target allocation by asset category, for the Firm's U.S. and non-
U.S. defined benefit pension and OPEB plans.
2014
U.S.
Assumed for next year
Health care cost trend rate:
Rate of compensation increase
OPEB plans
Defined benefit pension plans
Discount rate:
December 31,
Weighted-average assumptions used to determine benefit obligations
Notes to consolidated financial statements
221
JPMorgan Chase & Co./2014 Annual Report
The following tables present the weighted-average
annualized actuarial assumptions for the projected and
accumulated postretirement benefit obligations, and the
components of net periodic benefit costs, for the Firm's
significant U.S. and non-U.S. defined benefit pension and
OPEB plans, as of and for the periods indicated.
At December 31, 2014, the Firm decreased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
market interest rates, which will result in an increase in
expense of approximately $139 million for 2015. The 2015
expected long-term rate of return on U.S. defined benefit
pension plan assets and U.S. OPEB plan assets are 6.50%
and 6.00%, respectively. For 2015, the initial health care
benefit obligation trend assumption has been set at 6.00%,
and the ultimate health care trend assumption and the year
to reach the ultimate rate remains at 5.00% and 2017,
respectively, unchanged from 2014. As of December 31,
2014, the interest crediting rate assumption and the
assumed rate of compensation increase remained at 5.00%
and 3.50%, respectively.
2013
In 2014, the Society of Actuaries ("SOA") completed a
comprehensive review of mortality experience of uninsured
private retirement plans in the U.S. In October 2014, the
SOA published new mortality tables and a new mortality
improvement scale that reflects improved life expectancies
and an expectation that this trend will continue. The Firm
has adopted the SOA's tables and projection scale, resulting
in an estimated increase in PBO of $533 million.
Non-U.S.
2013
5.00
6.50
6.00
Year when rate will reach ultimate
Ultimate
2.75 -4.60
2.75 -4.20
3.50
3.50
4.90
4.10
1.10 4.40%
1.00 -3.60%
5.00%
4.00%
2014
rates implied by the Citigroup Pension Discount Curve
published as of the measurement date. The discount rate
for the U.K. defined benefit pension plan represents a rate
of appropriate duration from the analysis of yield curves
provided by our actuaries.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
selected by reference to the yields on portfolios of bonds
with maturity dates and coupons that closely match each of
the plan's projected cash flows; such portfolios are derived
from a broad-based universe of high-quality corporate
bonds as of the measurement date. In years in which these
hypothetical bond portfolios generate excess cash, such
excess is assumed to be reinvested at the one-year forward
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, procedures similar to those in the U.S. are used to
develop the expected long-term rate of return on plan
assets, taking into consideration local market conditions
and the specific allocation of plan assets. The expected
long-term rate of return on U.K. plan assets is an average of
projected long-term returns for each asset class. The return
on equities has been selected by reference to the yield on
long-term U.K. government bonds plus an equity risk
premium above the risk-free rate. The expected return on
"AA" rated long-term corporate bonds is based on an
implied yield for similar bonds.
The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and
OPEB plans.
35 5 $ - $ =
223 $
$
(2)
(34)
$
37 $
257 $
Non-U.S.
U.S.
Non-U.S.
U.S.
OPEB plans
Defined benefit pension plans
Year ended December 31,
Actual rate of return:
Defined benefit pension plans
OPEB plans
U.S.
JPMorgan Chase's expected long-term rate of return for U.S.
defined benefit pension and OPEB plan assets is a blended
average of the investment advisor's projected long-term (10
years or more) returns for the various asset classes,
weighted by the asset allocation. Returns on asset classes
are developed using a forward-looking approach and are
not strictly based on historical returns. Equity returns are
generally developed as the sum of inflation, expected real
earnings growth and expected long-term dividend yield.
Bond returns are generally developed as the sum of
inflation, real bond yield and risk spread (as appropriate),
adjusted for the expected effect on returns from changing
yields. Other asset-class returns are derived from their
relationship to the equity and bond markets. Consideration
is also given to current market conditions and the short-
term portfolio mix of each plan.
Plan assumptions
NA
NA
7.21 11.72%
3.74 23.80%
12.66% 5.62 17.69%
10.10
ΝΑ
5.00
15.95%
13.88
2012
2013
2014
Non-U.S.
2012
2013
2014
7.29%
9.84
31
2017
Weighted-average assumptions used to determine net periodic benefit costs
2017
2017
5.00
5.00
5.00
7.00
7.00
6.50
Year when rate will reach ultimate
Ultimate
Assumed for next year
Health care cost trend rate:
2.75 -4.20
2.75 -4.10
2.75 -4.60
2017
4.00
The following table presents the effect of a one-percentage-
point change in the assumed health care cost trend rate on
JPMorgan Chase's accumulated postretirement benefit
obligation. As of December 31, 2014, there was no material
effect on total service and interest cost.
1-Percentage
point
increase
Investments held by the Plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, the
investments in each of the common/collective trust funds
and registered investment companies are further diversified
into various financial instruments. As of December 31,
2014, assets held by the Firm's U.S. and non-U.S. defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposures
through investments in third-party stock-index funds. The
plans hold investments in funds that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$3.7 billion and $2.9 billion for U.S. plans and $1.4 billion
and $242 million for non-U.S. plans, as of December 31,
2014 and 2013, respectively.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, the assets are invested to maximize returns subject
to an appropriate level of risk relative to the plans'
liabilities. In order to reduce the volatility in returns relative
to the plans' liability profiles, the U.K. defined benefit
pension plans' largest asset allocations are to debt
securities of appropriate durations. Other assets, mainly
equity securities, are then invested for capital appreciation,
to provide long-term investment growth. Similar to the U.S.
defined benefit pension plan, asset allocations and asset
managers for the U.K. plans are reviewed regularly and the
portfolio is rebalanced when deemed necessary.
macroeconomic environment on the various asset classes
while maintaining an appropriate level of liquidity for the
plan. The Firm regularly reviews the asset allocations and
asset managers, as well as other factors that impact the
portfolio, which is rebalanced when deemed necessary.
The investment policy for the Firm's U.S. defined benefit
pension plan assets is to optimize the risk-return
relationship as appropriate to the needs and goals of the
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. Periodically the Firm
performs a comprehensive analysis on the U.S. defined
benefit pension plan asset allocations, incorporating
projected asset and liability data, which focuses on the
short- and long-term impact of the asset allocation on
cumulative pension expense, economic cost, present value
of contributions and funded status. As the U.S. defined
benefit pension plan is overfunded, the investment strategy
for this plan was adjusted in 2013 to provide for greater
liquidity. Currently, approved asset allocation ranges are:
U.S. equity 0% to 45%, international equity 0% to 40%,
debt securities 0% to 80%, hedge funds 0% to 5%, real
estate 0% to 10%, real assets 0% to 10% and private
equity 0% to 20%. Asset allocations are not managed to a
specific target but seek to shift asset class allocations within
these stated ranges. Investment strategies incorporate the
economic outlook and the anticipated implications of the
The Firm's U.S. defined benefit pension plan assets are held
in trust and are invested in a well-diversified portfolio of
equity and fixed income securities, cash and cash
equivalents, and alternative investments (e.g., hedge funds,
private equity, real estate and real assets). Non-U.S. defined
benefit pension plan assets are held in various trusts and
are also invested in well-diversified portfolios of equity,
fixed income and other securities. Assets of the Firm's COLI
policies, which are used to partially fund the U.S. OPEB
plan, are held in separate accounts of an insurance
company and are allocated to investments intended to
replicate equity and fixed income indices.
Investment strategy and asset allocation
JPMorgan Chase & Co./2014 Annual Report
222
JPMorgan Chase's U.S. defined benefit pension and OPEB
plan expense is sensitive to the expected long-term rate of
return on plan assets and the discount rate. With all other
assumptions held constant, a 25-basis point decline in the
expected long-term rate of return on U.S. plan assets would
result in an aggregate increase of approximately $40
million in 2015 U.S. defined benefit pension and OPEB plan
expense. A 25-basis point decline in the discount rate for
the U.S. plans would result in an increase in 2015 U.S.
defined benefit pension and OPEB plan expense of
approximately an aggregate $36 million and an increase in
the related benefit obligations of approximately an
aggregate $333 million. A 25-basis point decrease in the
interest crediting rate for the U.S. defined benefit pension
plan would result in a decrease in 2015 U.S. defined benefit
pension expense of approximately $36 million and a
decrease in the related PBO of approximately $148 million.
A 25-basis point decline in the discount rates for the non-
U.S. plans would result in an increase in the 2015 non-U.S.
defined benefit pension plan expense of approximately $19
million.
(8)
9 $
$
benefit obligation
Effect on accumulated postretirement
1-Percentage
point
decrease
Year ended December 31, 2014
(in millions)
4.00
3.50
Rate of compensation increase
4.90
OPEB plans
3.90%
5.00%
Defined benefit pension plans
Discount rate:
2012
2013
2014
Non-U.S.
2012
2013
2014
Year ended December 31,
U.S.
3.90
4.60%
4.70
1.10 -4.40%
1.40 4.40%
ΝΑ
ΝΑ
ΝΑ
6.25
6.25
6.25
OPEB plans
2017
2.50 -4.60
1.20 -5.30
7.50
7.50
7.00
Defined benefit pension plans
Expected long-term rate of return on plan assets:
1.50 -4.80%
2.40 -4.90
310
Business services
458
4
18
5,427
Total equity securities
128
103
25
1,359
4
18
1,337
Other
1
1
38
5,449
38
878
1,121
U.S. federal, state, local and non-U.S. government debt
securities
Corporate debt securities(d)
Total limited partnerships
Real assets (c)
Real estate
Private equity
Hedge funds
Limited partnerships: (b)
346
248
98
1,312
4
1,308
Common/collective trust funds (a)
243
Real estate
45
9
737
Banks and finance companies
275
50
225
1,085
1,085
Consumer goods
103
17
86
1,084
1,084
Capital equipment
Equity securities:
737
233
29
262
36
344
344
Materials
84
20
64
Mortgage-backed securities
292
Energy
223
14
209
510
510
Business services
292
224
Derivative receivables
Total assets measured at fair value(f)
(6)
$
(6) $
$
$
$
3,830
2,412 $
$
1,418
$
$14,368 (g)
$ 3,961
$ 3,324
$ 7,083
200
$
52
$
(298)
(i) There were no assets or liabilities classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 2014 and 2013.
(h) At December 31, 2014 and 2013, excluded $241 million and $102 million, respectively, of U.S. defined benefit pension plan payables for investments
purchased; and $16 million and $2 million, respectively, of other liabilities.
(f) At December 31, 2014 and 2013, the fair value of investments valued at NAV were $2.1 billion and $2.7 billion, respectively, which were classified within
the valuation hierarchy as follows: $500 million and $100 million in level 1, $1.6 billion and $1.9 billion in level 2, zero and $700 million in level 3.
(g) At December 31, 2014 and 2013, excluded U.S. defined benefit pension plan receivables for investments sold and dividends and interest receivables of
$106 million and $96 million, respectively.
(e) Other consists of money markets, exchange-traded funds and participating and non-participating annuity contracts. Money markets and exchange-traded
funds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating and non-
participating annuity contracts are classified within level 3 of the fair value hierarchy due to lack of market mechanisms for transferring each policy and
surrender restrictions.
(d) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $1.2 billion and $1.6 billion for 2014 and 2013, respectively.
(c) Real assets include investments in productive assets such as agriculture, energy rights, mining and timber properties and exclude raw land to be
developed for real estate purposes.
(a) At December 31, 2014 and 2013, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international
equity investments (including index) and real estate funds.
(298)
(298) $
$
$
(6) (h)
$
(6) $
$
(298) $
148
1,685
430
1,223
3,871
3,516
355
271
271
558
558
1,969
1,969
1,073
718
355
Total liabilities measured at fair value
Derivative payables
7
1,230
787
787
41
1,214
302
302
30
30
73
Other(e)
73
50
37
777
777
642
299
343
87
Prior service cost/(credit)
Total
$
$
77
26
Real assets(c)
Real estate
Private equity
Hedge funds
Limited partnerships: (b)
363
251
112
1,630
8
1,277
345
Common/collective trust funds (a)
103
1,188
2,208
533
724
724
Corporate debt securities(d)
Total limited partnerships
1,463
9
1,454
3,116
3,020
26
70
272
202
70
533
2,208
169
1,019
5,310
40
320
1 -
319
Materials
65
15
50
267
267
Energy
295
18
277
458
9
49
Real Estate
46
4
20
5,286
Total equity securities
66
40
26
U.S. federal, state, local and non-U.S. government debt
securities
979
4
971
Other
1
1
46
-
4
3
446
607
(139)
(139) $
$
-
$
(23) (h)
$
(23) $
$
-
$
Total liabilities measured at fair value
(139)
(139) $
$
224
-
JPMorgan Chase & Co./2014 Annual Report
Non-U.S. defined benefit pension plans (i)
221
$
62
nts $ 62 $ - $ - $ 6
Cash and cash equivalents
value
Level 2
Level 1
Total fair
Total fair
value
Level 3
Level 2
Level 1
(in millions)
December 31, 2013
U.S. defined benefit pension plans
$
(23)
$
114
27
2,031
Other(e)
Derivative receivables
79
77
2
75
1
73
1
Mortgage-backed securities
775
540
235
114
258
258
337
(23) $
$
$
Derivative payables
3,857
$
2,078
161
1,779 $
$ 14,797 (g)
$ 8,266 $ 3,152 $ 3,379
Total assets measured at fair value(f)
341
58
283
2,395
$
Net loss/(gain)
(in millions)
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2015 are as follows.
(48)
1,969
467
21
44
26
558
311
4
12
(98)
42
271
3,687
270
(4)
240
170
1,743
$
$
$
199
59
(32)
(222)
4
4
1,166
137
14
(593)
(6)
718
108
(669)
(12)
3,516
COLI
Total OPEB plans
$
1,554 $
$
195
$
$
$
1,749
$
1,554
$
$
195
OPEB plans
3,961
(6) $
(891) $
1
6
7
Corporate debt securities
Mortgage-backed securities
Other
420
4 $
10
Total U.S. defined benefit pension plans
$
4,311 $
329
$
218
$
430
$
$
of level 3
Mortgage-backed securities
1
1
Other
430
(93)
-
337
Total U.S. defined benefit pension plans
$
3,961 $
439
$
(67) $
(960) $
9
6 $
(2)
2
The Firm matches eligible employee contributions up to 5%
of eligible compensation (generally base pay; effective
January 1, 2015, in addition to base pay, eligible
compensation will include certain other types of variable
incentive compensation) on an annual basis. Employees
begin to receive matching contributions after completing a
one-year-of-service requirement. Employees with total
annual cash compensation of $250,000 or more are not
eligible for matching contributions. Matching contributions
vest after three years of service for employees hired on or
after May 1, 2009. The 401(k) Savings Plan also permits
discretionary profit-sharing contributions by participating
companies for certain employees, subject to a specified
vesting schedule.
271
27
(6)
(90)
202
3,516
441
23
(968)
8
3,020
Corporate debt securities
7
(2)
4
3,379
OPEB plans
COLI
Limited partnerships:
Hedge funds
Private equity
Real estate
Real assets
Total limited partnerships
Actual return on plan assets
Fair value,
January 1,
2013
Realized
gains/(losses)
Unrealized
gains/(losses)
Purchases, sales
and settlements,
Transfers in
and/or out
Fair value,
December 31,
net
Common/collective trust funds
Equities
U.S. defined benefit pension plans
(in millions)
Total OPEB plans
$
1,749 $
$
1,749 $
$
154
2013
$
1,903
$
154
$
$
1,903
Year ended December 31, 2013
$ - $ - $
OPEB plans
$
1,749
1,554
Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for the
years indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.
Year ended December 31,
(in millions)
2015
2016
2017
2018
2019
Years 2020-2024
OPEB before
U.S. defined benefit
pension plans
Non-U.S. defined
benefit pension plans
Medicare Part D
$
subsidy
$
$
4 $
4,311
OPEB plans
COLI
Total OPEB plans
$
1,427 $
$
127
$
$
$
1,554
$
1,427 $
127 $
Medicare Part D
subsidy
$
712
66
1
4,357
746
293
5
JPMorgan Chase & Co./2014 Annual Report
227
Notes to consolidated financial statements
Note 10 - Employee stock-based incentives
Employee stock-based awards
In 2014, 2013 and 2012, JPMorgan Chase granted long-
term stock-based awards to certain employees under its
Long-Term Incentive Plan, which was last amended in
May 2011 ("LTIP"). Under the terms of the LTIP, as of
December 31, 2014, 266 million shares of common stock
were available for issuance through May 2015. The LTIP
the only active plan under which the Firm is currently
granting stock-based incentive awards. In the following
discussion, the LTIP, plus prior Firm plans and plans
assumed as the result of acquisitions, are referred to
collectively as the “LTI Plans,” and such plans constitute the
Firm's stock-based incentive plans.
Restricted stock units ("RSUS") are awarded at no cost to
the recipient upon their grant. Generally, RSUs are granted
annually and vest at a rate of 50% after two years and
50% after three years and are converted into shares of
common stock as of the vesting date. In addition, RSUS
typically include full-career eligibility provisions, which
allow employees to continue to vest upon voluntary
termination, subject to post-employment and other
restrictions based on age or service-related requirements.
All RSUs awards are subject to forfeiture until vested and
contain clawback provisions that may result in cancellation
under certain specified circumstances. RSUs entitle the
recipient to receive cash payments equivalent to any
dividends paid on the underlying common stock during the
period the RSUs are outstanding and, as such, are
considered participating securities as discussed in Note 24.
Under the LTI Plans, stock options and stock appreciation
rights ("SARS") have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase's
common stock on the grant date. The Firm periodically
grants employee stock options to individual employees.
There were no material grants of stock options or SARS
in 2014. Grants of SARS in 2013 and 2012 become
exercisable ratably over five years (i.e., 20% per year)
and contain clawback provisions similar to RSUs. The
2013 and 2012 grants of SARS contain full-career
eligibility provisions. SARs generally expire ten years
after the grant date.
The Firm separately recognizes compensation expense for
each tranche of each award as if it were a separate award
with its own vesting date. Generally, for each tranche
granted, compensation expense is recognized on a straight-
line basis from the grant date until the vesting date of the
respective tranche, provided that the employees will not
become full-career eligible during the vesting period. For
awards with full-career eligibility provisions and awards
granted with no future substantive service requirement, the
Firm accrues the estimated value of awards expected to be
awarded to employees as of the grant date without giving
consideration to the impact of post-employment
restrictions. For each tranche granted to employees who
will become full-career eligible during the vesting period,
compensation expense is recognized on a straight-line basis
from the grant date until the earlier of the employee's full-
career eligibility date or the vesting date of the respective
tranche.
The Firm's policy for issuing shares upon settlement of
employee stock-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2014, 2013 and 2012, the Firm settled all of its employee
stock-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman and
Chief Executive Officer up to 2 million SARS. The terms of
this award are distinct from, and more restrictive than,
other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation Committee and Board of
Directors determined that all requirements for the vesting
of the 2 million SAR awards had been met and thus, the
awards became exercisable. The SARS, which will expire in
January 2018, have an exercise price of $39.83 (the price
of JPMorgan Chase common stock on the date of grant). The
expense related to this award was dependent on changes in
fair value of the SARS through July 15, 2014 (the date when
the vested number of SARS were determined), and the
cumulative expense was recognized ratably over the service
period, which was initially assumed to be five years but,
effective in the first quarter of 2013, had been extended to
six and one-half years. The Firm recognized $3 million,
$14 million and $5 million in compensation expense in
2014, 2013 and 2012, respectively, for this award.
132
966
1
68
$
110
$
73
$
1
765
$
113
1
899
118
70
1
926
128
71
$
471
150
Purchases, sales
and settlements,
net
Transfers in
and/or out
of level 3
Fair value,
December 31,
2012
$
1 $
(1) $
4
$
4
202
2
22
(27)
Unrealized
gains/(losses)
199
Realized
gains/(losses)
January 1,
2012
226
JPMorgan Chase & Co./2014 Annual Report
Year ended December 31, 2012
(in millions)
U.S. defined benefit pension plans
Equities
Common/collective trust funds
Limited partnerships:
Hedge funds
Private equity
Real estate
Real assets
Total limited partnerships
Corporate debt securities
Fair value,
Actual return on plan assets
1,039
1
71
499
3,687
2
(1)
1
Mortgage-backed securities
Other
427
(7)
420
Total U.S. defined benefit pension plans
$
3,608 $
78
$
136
76
2,976
311
55
1,166
1,367
59
54
263
1,743
$
306
1
144
467
264
-
10
37
16
JPMorgan Chase & Co./2014 Annual Report
JPMorgan Chase offers postretirement medical and life
insurance benefits to certain retirees and postretirement
medical benefits to qualifying U.S. employees. These
benefits vary with the length of service and the date of hire
and provide for limits on the Firm's share of covered
medical benefits. The medical and life insurance benefits
are both contributory. Postretirement medical benefits also
are offered to qualifying United Kingdom (“U.K.")
employees.
The following table presents the changes in benefit obligations, plan assets and funded status amounts reported on the
Consolidated balance sheets for the Firm's U.S. and non-U.S. defined benefit pension and OPEB plans.
(41)
(1)
1
36
49
47
289
271
25
(90)
(92)
(101)
(137)
(142)
(172)
(41)
(956) (861)
(41)
(2)
15
15
14
(46)
(55)
(64)
66
64
43
125
35
(186)
-
(1)
-
(2)
44
35
38
Interest cost on benefit obligations
2012
OPEB plans
2013
2014
2012
Non-U.S.
2013
2014
2013 2012
2014
U.S.
Pension plans
plans.
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
and other comprehensive income for the Firm's U.S. and non-U.S. defined benefit pension, defined contribution and OPEB
(644) $ 130 $ 126
-
Expected return on plan assets
Amortization:
Net (gain)/loss
Prior service cost/(credit)
126
125
137
1
1 $
$
$
6
$ 41
$ 33
314 $ 272
447 466
534
(985)
$ 281 $
Year ended December 31, (in millions)
Components of net periodic benefit cost
Benefits earned during the year
Other defined benefit pension plans (a)
Net periodic defined benefit cost
$ 34
2013
(628) $ (658) $ 130 $ 125
11
14
1
(617) $
14
ΝΑ
2
2
1
(1)
(36)
(49)
(47)
(289)
41
(271)
41
(6)
----
53
(25)
41
(43)
(5) $ (257) $
$ 146
1
19
(39) (a)
22 (a)
JPMorgan Chase & Co./2014 Annual Report
220
(89)
$ (68) $ (313) $
$ 192
50
$
$ 16
$ 1,528 $(2,012) $ 311
(4) $ (258) $ (43)
$ 126
$ (14)
$ (27)
$ 1,714 $(2,047) $ 186
(1)
14 (a)
57
$ 1,645 $ (1,817) $ 434
(a) Includes various defined benefit pension plans which are individually immaterial.
329
447 409
438
Total defined contribution plans
(55) (46)
(64)
74
78
49
140
50
(172)
Total defined benefit plans
ΝΑ
ΝΑ
321
302
NA
NA
Total recognized in net periodic benefit cost and other
comprehensive income
Foreign exchange impact and other
Amortization of prior service (cost)/credit
Amortization of net loss
Prior service credit arising during the year
Net (gain)/loss arising during the year
Total recognized in other comprehensive income
8
Changes in plan assets and benefit obligations
recognized in other comprehensive income
$ 376
$ 399
$ 378
266 $ 497 $ 549
$
Total pension and OPEB cost included in compensation
expense
ΝΑ
$ (64) $ (55) $ (46)
JPMorgan Chase's U.S. OPEB obligation is funded with
corporate-owned life insurance ("COLI”) purchased on the
lives of eligible employees and retirees. While the Firm
owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only to
reimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The U.K.
OPEB plan is unfunded.
2013
OPEB plans
(72)
(62)
(7)
E
ΝΑ
NA
(3)
-
(1)
(53)
(35)
(38)
(1)
(34)
(125)
(137)
(1,669)
(447)
794
(62)
260
(10)
(2)
ΝΑ
NA
ΝΑ
NA
144
145
106
119
669
777
138
(58)
(408)
(534)
(3,243) $ (826) $ (990)
(3,433)
(33)
Benefit obligation, end of year
Foreign exchange impact and other
Expected Medicare Part D subsidy receipts
Benefits paid
Net gain/(loss)
Employee contributions
Curtailments
Special termination benefits
Plan amendments
Interest cost on benefit obligations
Benefits earned during the year
Benefit obligation, beginning of year
Change in benefit obligation
(in millions)
As of or for the year ended December 31,
Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets
Firm contributions
(314)
(281)
$(11,478)
$ (10,776)
2013
OPEB plans (d)
2014
2013
(68)
2014
2014
Non-U.S.
U.S.
Defined benefit pension plans
Foreign exchange impact and other
Benefits paid
Employee contributions
2013
2014
2
$(10,776)
219
JPMorgan Chase & Co./2014 Annual Report
(d) Includes an unfunded accumulated postretirement benefit obligation of $37 million and $34 million at December 31, 2014 and 2013, respectively, for the
U.K. plan.
(c) At December 31, 2014 and 2013, defined benefit pension plan amounts not measured at fair value included $106 million and $96 million, respectively, of
accrued receivables, and $257 million and $104 million, respectively, of accrued liabilities, for U.S. plans.
(b) At December 31, 2014 and 2013, approximately $336 million and $429 million, respectively, of U.S. plan assets included participation rights under
participating annuity contracts.
(a) Represents plans with an aggregate overfunded balance of $3.9 billion and $5.1 billion at December 31, 2014 and 2013, respectively, and plans with an
aggregate underfunded balance of $708 million and $540 million at December 31, 2014 and 2013, respectively.
$ 1,061 $ 931
ΝΑ
ΝΑ
$ (12,375)
Accumulated benefit obligation, end of year
Net funded status (a)
Fair value of plan assets, end of year
(3,406)
(3,615)
$
$ 1,757
Notes to consolidated financial statements
$ 1,903
Gains and losses
For the Firm's OPEB plans, a calculated value that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gain
or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market related
value of assets. Any excess net gain or loss is amortized
over the average expected lifetime of retired participants,
which is currently twelve years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which is
currently two years.
(1,726) $
196
(3,244) $ (1,530) $
$
Accumulated other comprehensive income/(loss), pretax, end of year
(3,346) $
102
Prior service credit/(cost)
$
Net gain/(loss)
2014
2013
2014
(in millions)
Non-U.S.
Defined benefit pension plans
U.S.
December 31,
The following table presents pretax pension and OPEB amounts recorded in AOCI.
For the Firm's defined benefit pension plans, fair value is
used to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortized
over the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently seven years. In addition, prior
service costs are amortized over the average remaining
service period of active employees expected to receive
benefits under the plan when the prior service cost is first
recognized. The average remaining amortization period for
current prior service costs is five years.
-
69
3,532
99
78 $
159
3
45
46
$ 1,563
$ 1,757
3,532 $ 3,330
187
518
1,979
32
1,010
36
$
$ 13,012
$ 14,354
$ (842) $ (826)
(3,640) $ (3,433)
$
211
2
-
7
$
$ 3,578
$(10,685)
2,087
$
3,718 $
$ 14,354 (b)(c) $
$ 14,623
$ (12,536)
(266)
(19)
(16)
(106)
(119)
(669)
(777)
7
-
100%
(a) U.S. government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase's total stockholders' equity at
December 31, 2014.
Compensation expense for RSUs is measured based on the number of shares granted multiplied by the stock price at the grant
date, and for employee stock options and SARS, is measured at the grant date using the Black-Scholes valuation model.
Compensation expense for these awards is recognized in net income as described previously. The following table summarizes
JPMorgan Chase's RSUs, employee stock options and SARS activity for 2014.
Average yield (b)
0.80%
-%
0.62%
0.35%
0.63%
Obligations of U.S. states and municipalities
Amortized cost
$
65 $
498 $
1,432
$
13,645
25,846
27,841
Fair value
66
515
1,508
27,979
30,068
Average yield (b)
2.13%
4.00%
4.93%
6.78%
6.63%
$
Certificates of deposit
1,155
1,110 $
Available-for-sale debt securities
Mortgage-backed securities (a)
Amortized cost
Fair value
Average yield (b)
$
996
$
14,132
$
1,003
14,467
2.65%
13,603
1.85%
$
112,702
115,878
2.93%
$
133,598
137,322
2.82%
U.S. Treasury and government agencies (a)
Amortized cost
$
2,209 $
$
Fair value
2,215
10,284 $
10,275
5,768
5,974
3.12%
Amortized cost
$
1,052 $
Average yield (b)
Asset-backed securities
3.31%
2.04%
1.04%
1.19%
1.90%
$
3,830
$
9,619 $
4,523
$
Fair value
186 $
3,845
9,852
4,651
184
18,532
2.39%
2.40%
2.56%
3.43%
2.45%
Amortized cost
$
Fair value
18,158
Amortized cost
Corporate debt securities
Average yield (b)
51
$
$
Fair value
1,050
53
Average yield (b)
0.84%
3.28%
-%
1,103
1,103
-%
0.95%
Non-U.S.government debt securities
Amortized cost
$
13,559 $
14,276 $
21,220 $
2,437
$
51,492
Fair value
13,588
14,610
21,957
2,588
52,743
Total
Due after
10 years(c)
Due after five years
through 10 years
five years
Other
1,114
3
-
1,114
3
Total available-for-sale debt securities
80,503
2,438
3,319
178
83,822
2,616
136
Available-for-sale equity securities
20,745
Total securities with gross unrealized losses $
101,248 $
317
2,755
20,745
317
$
3,319 $
178 $ 104,567 $
2,933
232
JPMorgan Chase & Co./2014 Annual Report
Other-than-temporary impairment
Held-to-maturity securities
18,762
7
393
15,387
975
55
12
15,442
987
Certificates of deposit
988
1
988
1
Non-U.S. government debt securities
11,286
110
821
12
12,107
122
Corporate debt securities
1,580
21
505
8
2,085
29
Asset-backed securities:
Collateralized loan obligations
18,369
129
The following table presents OTTI losses that are included in
the securities gains and losses table above.
Average yield (b)
Year ended December 31,
(in millions)
2014
(20)
(15)
--7
Total OTTI losses recognized
in income
$
(4)
$ (21)
$ (43)
(a) For initial OTTI, represents the excess of the amortized cost over the fair
value of AFS debt securities. For subsequent impairments of the same
security, represents additional declines in fair value subsequent to
previously recorded OTTI, if applicable.
(b) Excludes realized losses on securities sold of $3 million, $12 million and
$24 million for the years ended December 31, 2014, 2013 and 2012,
respectively that had been previously reported as an OTTI loss due to the
intention to sell the securities.
comprehensive income on previously
credit-impaired securities
Reductions:
Sales and redemptions of credit-
impaired securities
(2)
Balance, end of period
(522) (214)
3 $ 1 $ 522
Gross unrealized losses have generally decreased since
December 31, 2013. Though losses on securities that have
been in an unrealized loss position for 12 months or more
have increased, the increase is not material. The Firm has
recognized the unrealized losses on securities it intends to
sell. As of December 31, 2014, the Firm does not intend to
sell any securities with a loss position in AOCI, and it is not
likely that the Firm will be required to sell these securities
before recovery of their amortized cost basis. Except for the
securities reported in the table above, for which credit
losses have been recognized in income, the Firm believes
that the securities with an unrealized loss in AOCI are not
other-than-temporarily impaired as of December 31, 2014.
JPMorgan Chase & Co./2014 Annual Report
233
Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2014, of JPMorgan Chase's
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2014
(in millions)
Due in one
year or less
Due after one
year through
Gross unrealized losses
Losses reclassified from other
Securities the Firm intends to
sell(b)
(28)
2013
2012
Changes in the credit loss component of credit-impaired
debt securities
The following table presents a rollforward for the years
ended December 31, 2014, 2013 and 2012, of the credit
loss component of OTTI losses that have been recognized in
income, related to AFS debt securities that the Firm does
not intend to sell.
not intend to sell that have
credit losses
Total OTTI (a)
$
(2)
$ (1)
$ (113)
Losses recorded in/
Year ended December 31, (in millions)
Balance, beginning of period
2014
2013
$
1 $
2012
522 $ 708
(reclassified from) AOCI
-- 85
Additions:
Total credit losses
Newly credit-impaired securities
2
1
21
recognized in income
(2)
(1)
Debt securities the Firm does
-%
$
2,240
Net liability
balance
Gross
liability
balance
Amounts
netted on the
Consolidated
balance
sheets
Net liability
balance
December 31, (in millions)
Securities sold under repurchase agreements
Securities sold under repurchase agreements
with an appropriate legal opinion
Securities sold under repurchase agreements
where an appropriate legal opinion has not
been either sought or obtained(a)
Total securities sold under repurchase
agreements
Securities loaned (b)
$ 289,619 $ (142,719) $ 146,900
$ 257,630 (f)
$ (115,408) $ 142,222 (f)
22,906
2013
22,906
N/A $
$ 312,525 $ (142,719) $ 169,806 (c) $ 275,773
$ 25,927
25,927 (d)(e) $ 25,769
(a) Includes repurchase agreements that are not subject to a master netting agreement but do provide rights to collateral.
18,143 (f)
$ (115,408) $ 160,365 (c)
N/A $ 25,769 (d)(e)
(b) Included securities-for-securities borrow vs. pledge transactions of $4.1 billion and $5.8 billion at December 31, 2014 and 2013, respectively, when
acting as lender and as presented within other liabilities in the Consolidated balance sheets.
(c) At December 31, 2014 and 2013, included securities sold under repurchase agreements of $3.0 billion and $4.9 billion, respectively, accounted for at fair
value.
(d) At December 31, 2013, included securities loaned of $483 million accounted for at fair value; there were no securities loaned accounted for at fair value
at December 31, 2014.
(e) Included $537 million and $397 million at December 31, 2014 and 2013, respectively, of securities loaned where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement.
(f) The prior period amounts have been revised with a corresponding impact in the table below. This revision had no impact on the Firm's Consolidated
balance sheets or its results of operations.
236
JPMorgan Chase & Co./2014 Annual Report
The following table presents information as of December 31, 2014 and 2013, regarding the securities sold under repurchase
agreements and securities loaned for which an appropriate legal opinion has been obtained with respect to the master netting
agreement. The below table excludes information related to repurchase agreements and securities loaned where such a legal
opinion has not been either sought or obtained.
18,143 (f)
balance
sheets
Consolidated
2014
Amounts
netted on the
Amounts not nettable on
the Consolidated balance
sheets(a)
2013
Amounts not nettable on
the Consolidated balance
sheets(a)
December 31, (in millions)
Securities purchased under
resale agreements with an
appropriate legal opinion
Securities borrowed
Net asset
balance
Financial
Cash
instruments(b) collateral
Net exposure
Net asset
balance
Financial
Cash
instruments (b) collateral
Net exposure
$
199,270
$ 82,464
$
$
(196,136) $
(80,267) $
(232) $
-
$
2,902 $ 239,406
2,197 $ 84,531
$
$
(234,495) $
(81,127) $
(98) $
4,813
$
3,404
(a) For some counterparties, the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net
asset balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net reverse repurchase agreement
or securities borrowed asset with that counterparty. As a result a net exposure amount is reported even though the Firm, on an aggregate basis for its
securities purchased under resale agreements and securities borrowed, has received securities collateral with a total fair value that is greater than the
funds provided to counterparties.
(b) Includes financial instrument collateral received, repurchase liabilities and securities loaned liabilities with an appropriate legal opinion with respect to the
master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met.
The following table presents as of December 31, 2014 and 2013, the gross and net securities sold under repurchase
agreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidated
balance sheets net of securities purchased under resale agreements where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion
has not been either sought or obtained, the securities sold under repurchase agreements are not eligible for netting and are
shown separately in the table below. Securities loaned are presented on a gross basis on the Consolidated balance sheets.
Gross
liability
balance
2014
2014
Amounts not nettable on
the Consolidated balance
sheets(a)
Amounts not nettable on the
Consolidated balance sheets(a)
In addition, at December 31, 2014 and 2013, the Firm held
$13.8 billion and $14.6 billion, respectively, of financial
assets for which the rights have been transferred to third
parties; however, the transfers did not qualify as a sale in
accordance with U.S. GAAP. These transfers have been
recognized as collateralized financing transactions. The
transferred assets are recorded in trading assets, other
assets and loans, and the corresponding liabilities are
predominantly recorded in other borrowed funds on the
Consolidated balance sheets.
JPMorgan Chase & Co./2014 Annual Report
237
Notes to consolidated financial statements
Note 14 - Loans
Loan accounting framework
The accounting for a loan depends on management's
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans based on the following categories:
•
Originated or purchased loans held-for-investment (i.e.,
"retained"), other than purchased credit-impaired (“PCI”)
loans
• Loans held-for-sale
• Loans at fair value
•
PCI loans held-for-investment
Transfers not qualifying for sale accounting
The following provides a detailed accounting discussion of
these loan categories:
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the life of the
loan to produce a level rate of return.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is in doubt, or when principal and interest has been in
default for a period of 90 days or more, unless the loan is
both well-secured and in the process of collection. A loan is
determined to be past due when the minimum payment is
not received from the borrower by the contractually
specified due date or for certain loans (e.g., residential real
estate loans), when a monthly payment is due and unpaid
for 30 days or more. Finally, collateral-dependent loans are
typically maintained on nonaccrual status.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full. However, the Firm separately establishes an allowance
for the estimated uncollectible portion of accrued interest
and fee income on credit card loans. The allowance is
established with a charge to interest income and is reported
as an offset to loans.
Allowance for loan losses
The allowance for loan losses represents the estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date. Changes in the
allowance for loan losses are recorded in the provision for
credit losses on the Firm's Consolidated statements of
income. See Note 15 for further information on the Firm's
accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking,
risk-rated auto and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the Federal Financial Institutions
Examination Council ("FFIEC"). Residential real estate loans,
non-modified credit card loans and scored business banking
loans are generally charged off at 180 days past due. In the
second quarter of 2013, the Firm revised its policy to
charge-off modified credit card loans that do not comply
with their modified payment terms at 120 days past due
rather than 180 days past due. Auto and student loans are
charged off no later than 120 days past due.
238
JPMorgan Chase & Co./2014 Annual Report
RSUs, employee stock options and SARS activity
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are measured at the principal amount
outstanding, net of the following: allowance for loan losses;
net charge-offs; interest applied to principal (for loans
accounted for on the cost recovery method); unamortized
discounts and premiums; and net deferred loan fees or
costs. Credit card loans also include billed finance charges
and fees net of an allowance for uncollectible amounts.
Interest income
For further information regarding assets pledged and
collateral received in securities financing agreements, see
Note 30.
JPMorgan Chase's policy is to take possession, where
possible, of securities purchased under resale agreements
and of securities borrowed. The Firm monitors the value of
the underlying securities (primarily G7 government
securities, U.S. agency securities and agency MBS, and
equities) that it has received from its counterparties and
either requests additional collateral or returns a portion of
the collateral when appropriate in light of the market value
of the underlying securities. Margin levels are established
initially based upon the counterparty and type of collateral
and monitored on an ongoing basis to protect against
declines in collateral value in the event of default. JPMorgan
Chase typically enters into master netting agreements and
other collateral arrangements with its resale agreement and
securities borrowed counterparties, which provide for the
right to liquidate the purchased or borrowed securities in
the event of a customer default. As a result of the Firm's
credit risk mitigation practices with respect to resale and
securities borrowed agreements as described above, the
Firm did not hold any reserves for credit impairment with
respect to these agreements as of December 31, 2014 and
2013.
(d) The prior period amounts have been revised with a corresponding impact in the table above. This revision had no impact on the Firm's Consolidated
balance sheets or its results of operations.
December 31, (in millions)
Net liability
balance
Financial
Cash
instruments(b) collateral
Net amount(c)
Net liability
balance
Financial
instruments (b)
Cash
collateral
Net amount(c)
Securities sold under
repurchase agreements
with an appropriate legal
opinion
$ 146,900
$
Securities loaned
$ 25,390
$
(143,985) $
(25,040) $
(363) $
$
2,552
350
$ 142,222 (d)
$ 25,372
$
$
(139,051) (d) $
(25,125) $
(450) $
2,721
$
247
(a) For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net
liability balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net repurchase agreement or
securities loaned liability with that counterparty.
(b) Includes financial instrument collateral transferred, reverse repurchase assets and securities borrowed assets with an appropriate legal opinion with
respect to the master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting
criteria are not met.
(c) Net amount represents exposure of counterparties to the Firm.
2013
Obligations of U.S. states and municipalities
The following table presents information as of December 31, 2014 and 2013, regarding the securities purchased under resale
agreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the master
netting agreement. The below table excludes information related to resale agreements and securities borrowed where such a
legal opinion has not been either sought or obtained.
235
Amortized cost
$
Fair value
Average yield (b)
-%
-%
-%
$
2,513
2,530
0.25%
$
2,513
2,530
0.25%
Available-for-sale equity securities
Total available-for-sale securities
$
Fair value
Average yield (b)
21,711 $
21,767
2.74%
40,816 $
41,751
2.06%
60,666 $
61,906
1.58%
167,786 $
173,328
3.28%
290,979
298,752
2.71%
Total held-to-maturity securities
Amortized cost
$
Amortized cost
2.73%
3.32%
1.58%
$
17,439
$
22,992 $
42,671
2,254
17,541
23,014
42,809
1.66%
1.75%
1.73%
1.73%
Total available-for-sale debt securities
Amortized cost
$
21,711 $
40,816
$
Fair value
21,767
41,751
60,666 $
61,906
165,273 $
288,466
296,222
Average yield (b)
2.74%
2.06%
Fair value
Notes to consolidated financial statements
Average yield (b)
$
(142,719) $
199,270
$
354,814 $ (115,408) $
239,406
Securities purchased under resale agreements
where an appropriate legal opinion has not
been either sought or obtained
15,751
15,751
8,279
8,279
Total securities purchased under resale
agreements
$
341,989 $
357,740 $
$
110,435
(142,719) $
215,021 (a)
N/A $ 110,435 (b)(c)
$
$
363,093 $ (115,408) $
111,465
247,685 (a)
N/A $
111,465 (b)(c)
(a) At December 31, 2014 and 2013, included securities purchased under resale agreements of $28.6 billion and $25.1 billion, respectively, accounted for at
fair value.
(b) At December 31, 2014 and 2013, included securities borrowed of $992 million and $3.7 billion, respectively, accounted for at fair value.
(c) Included $28.0 billion and $26.9 billion at December 31, 2014 and 2013, respectively, of securities borrowed where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement.
JPMorgan Chase & Co./2014 Annual Report
Securities borrowed
Net asset
balance
balance
sheets
Gross asset
balance
54 $
54
487 $
512
48,711
50,588
$
49,252
4.33%
4.81%
3.98%
51,154
3.98%
(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each
security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging
derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly,
actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
(c) Includes securities with no stated maturity. Substantially all of the Firm's residential mortgage-backed securities and collateralized mortgage obligations
are due in 10 years or more, based on contractual maturity. The estimated duration, which reflects anticipated future prepayments, is approximately five
years for agency residential mortgage-backed securities, three years for agency residential collateralized mortgage obligations and four years for
nonagency residential collateralized mortgage obligations.
234
JPMorgan Chase & Co./2014 Annual Report
Note 13 - Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase
agreements, securities borrowed transactions and securities
loaned transactions (collectively, “securities financing
agreements") primarily to finance the Firm's inventory
positions, acquire securities to cover short positions,
accommodate customers' financing needs, and settle other
securities obligations.
Securities financing agreements are treated as
collateralized financings on the Firm's Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed and
securities loaned transactions are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty are
reported on a net basis. For further discussion of the
offsetting of assets and liabilities, see Note 1. Fees received
and paid in connection with securities financing agreements
are recorded in interest income and interest expense on the
Consolidated statements of income.
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 4. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements; securities loaned or sold under
repurchase agreements; and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
The following table presents as of December 31, 2014 and 2013, the gross and net securities purchased under resale
agreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidated
balance sheets net of securities sold under repurchase agreements where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion
has not been either sought or obtained, the securities purchased under resale agreements are not eligible for netting and are
shown separately in the table below. Securities borrowed are presented on a gross basis on the Consolidated balance sheets.
December 31, (in millions)
Securities purchased under resale agreements
Securities purchased under resale agreements
with an appropriate legal opinion
2014
Amounts
netted on the
Consolidated
2013
Amounts
netted on the
Consolidated
Gross asset
balance
balance
sheets
Net asset
balance
-%
306
170,798
56
(233)
(614)
(457)
81
688
2,153
Net realized gains
OTTI losses
Credit-related
Securities the Firm intends to sell(a)
སྱེསྱེ
(2)
(1)
$2,610
(28)
(20)
(15)
Total OTTI losses recognized in
income
(4)
(21)
(43)
Net securities gains
$
77
$ 667
$2,110
(a) Excludes realized losses on securities sold of $3 million, $12 million and
$24 million for the years ended December 31, 2014, 2013 and 2012,
respectively that had been previously reported as an OTTI loss due to the
intention to sell the securities.
(2)
$1,302
$ 314
2012
20,398
14,989
Total noncompensation
31,114
39,657
34,144
expense
Total noninterest expense
$ 61,274 $ 70,467 $ 64,729
(a) Included firmwide legal expense of $2.9 billion, $11.1 billion and $5.0
billion and for the years ended December 31, 2014, 2013 and 2012,
respectively.
(b) Included FDIC-related expense of $1.0 billion, $1.5 billion and $1.7 billion
for the years ended December 31, 2014, 2013 and 2012, respectively.
Note 12
-
Securities
Securities are classified as trading, AFS or held-to-maturity
("HTM"). Securities classified as trading assets are
discussed in Note 3. Predominantly all of the Firm's AFS and
HTM investment securities (the "investment securities
portfolio") are held by CIO in connection with its asset-
liability management objectives. At December 31, 2014,
the average credit rating of the debt securities comprising
the investment securities portfolio was AA+ (based upon
external ratings where available, and where not available,
based primarily upon internal ratings which correspond to
ratings as defined by S&P and Moody's). AFS securities are
carried at fair value on the Consolidated balance sheets.
Unrealized gains and losses, after any applicable hedge
accounting adjustments, are reported as net increases or
decreases to accumulated other comprehensive income/
(loss). The specific identification method is used to
determine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on the
Consolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidated
balance sheets. For both AFS and HTM debt securities,
purchase discounts or premiums are generally amortized
into interest income over the contractual life of the security.
During the first quarter of 2014, the Firm transferred U.S.
government agency mortgage-backed securities and
obligations of U.S. states and municipalities with a fair value
of $19.3 billion from AFS to HTM. These securities were
transferred at fair value, and the transfer was a non-cash
transaction. AOCI included net pretax unrealized losses of
$9 million on the securities at the date of transfer. The
transfer reflected the Firm's intent to hold the securities to
maturity in order to reduce the impact of price volatility on
AOCI and certain capital measures under Basel III.
Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm's
ongoing assessment of other-than-temporary impairment
("OTTI"). For most types of debt securities, the Firm
considers a decline in fair value to be other-than-temporary
when the Firm does not expect to recover the entire
amortized cost basis of the security. For beneficial interests
in securitizations that are rated below "AA" at their
acquisition, or that can be contractually prepaid or
otherwise settled in such a way that the Firm would not
recover substantially all of its recorded investment, the Firm
considers an OTTI to have occurred when there is an
adverse change in expected cash flows. For AFS equity
securities, the Firm considers a decline in fair value to be
other-than-temporary if it is probable that the Firm will not
recover its cost basis.
Potential OTTI is considered using a variety of factors,
including the length of time and extent to which the market
value has been less than cost; adverse conditions
specifically related to the industry, geographic area or
financial condition of the issuer or underlying collateral of a
security; payment structure of the security; changes to the
rating of the security by a rating agency; the volatility of the
fair value changes; and the Firm's intent and ability to hold
the security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities. For debt securities
in an unrealized loss position that the Firm has the intent
and ability to hold, the expected cash flows to be received
from the securities are evaluated to determine if a credit
loss exists. In the event of a credit loss, only the amount of
impairment associated with the credit loss is recognized in
income. Amounts relating to factors other than credit losses
are recorded in OCI.
The Firm's cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
For securities issued in a securitization, the Firm estimates
cash flows considering underlying loan-level data and
structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
230
JPMorgan Chase & Co./2014 Annual Report
For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases the
Firm considers the relevant factors noted above, as well as
the Firm's intent and ability to retain its investment for a
period of time sufficient to allow for any anticipated
recovery in market value, and whether evidence exists to
support a realizable value equal to or greater than the cost
basis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair value
of the security.
Realized gains and losses
The following table presents realized gains and losses and
credit losses that were recognized in income from AFS
securities.
Year ended December 31,
(in millions)
Realized gains
Realized losses
2014
2013
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
11,146
December 31, (in millions)
2014
2,778
908
23
1
930
Non-U.S.
43,550
1,010
44,560
57,448
1,314
1
58,761
27
Commercial
438
17
21,108
15,891
560
26
16,425
Total mortgage-backed securities
133,598
3,842
118
137,322
153,419
20,687
61
2,744
5,644
691
2013
Gross
Amortized unrealized
cost
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
Mortgage-backed securities:
U.S. government agencies(a)
$ 63,089 $ 2,302 $
72
$ 65,319
$ 76,428 $
2,364 $
977
$ 77,815
Residential:
Prime and Alt-A
5,595
78
29
Subprime
677
14
Available-for-sale debt securities
4,322
Other(a)(b)
2,500
(2,059)
41.90
ΝΑ
NA
(972)
200.86
Outstanding, December 31
Exercisable, December 31
100,568 $
NA
47.81
ΝΑ
59,195 $
37,171
45.00
36.59
46.46
4.3
862,374
The total fair value of RSUs that vested during the years ended December 31, 2014, 2013 and 2012, was $3.2 billion, $2.9
billion and $2.8 billion, respectively. There were no material grants of stock options or SARS in 2014. The weighted-average
grant date per share fair value of stock options and SARS granted during the years ended December 31, 2013 and 2012, was
$9.58 and $8.89, respectively. The total intrinsic value of options exercised during the years ended December 31, 2014, 2013
and 2012, was $539 million, $507 million and $283 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee stock-based
incentive plans in its Consolidated statements of income.
The following table sets forth the cash received from the
exercise of stock options under all stock-based incentive
arrangements, and the actual income tax benefit realized
related to tax deductions from the exercise of the stock
options.
Year ended December 31, (in millions)
Cost of prior grants of RSUS and SARS
that are amortized over their
applicable vesting periods
2014
2013
2012
$ 1,371
$ 1,440 $ 1,810
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit realized(a)
5.2 $1,313,939
(24,950)
40.67
47.32
(4,225)
RSUS
6,530
Options/SARS
Year ended December 31, 2014
Weighted-
(in thousands, except weighted-average data, and
where otherwise stated)
Number of
shares
Weighted-
average grant
date fair value
average
Number of
awards
exercise
price
Weighted-average
remaining
contractual life
(in years)
Aggregate
intrinsic
value
Outstanding, January 1
121,241 $
41.47
87,075 $
44.24
Granted
37,817
57.88
101
59.18
Exercised or vested
(54,265)
Forfeited
Canceled
2014
2,577
$ 63
2013
$ 166
42
Notes to consolidated financial statements
Note 11 Noninterest expense
-
The following table presents the components of noninterest
expense.
Year ended December 31,
(in millions)
2012
2014
2013
Compensation expense
$ 30,160 $ 30,810
$ 30,585
Noncompensation expense:
229
Occupancy
3,693
3,925
Technology, communications
and equipment
5,425
5,224
Professional and outside
7,705
7,641
7,429
services
Marketing
2,550
3,909
JPMorgan Chase & Co./2014 Annual Report
The expected dividend yield is determined using forward-
looking assumptions. The expected volatility assumption is
derived from the implied volatility of JPMorgan Chase's
stock options. The expected life assumption is an estimate
of the length of time that an employee might hold an option
or SAR before it is exercised or canceled, and the
assumption is based on the Firm's historical experience.
6.6
2012
$ 333
53
Accrual of estimated costs of stock-
based awards to be granted in future
periods including those to full-career
eligible employees
Total noncash compensation expense
related to employee stock-based
incentive plans
819
779
735
$ 2,190 $ 2,219 $ 2,545
At December 31, 2014, approximately $758 million
(pretax) of compensation cost related to unvested awards
had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.0 year. The Firm does not
capitalize any compensation cost related to share-based
compensation awards to employees.
Cash flows and tax benefits
Income tax benefits related to stock-based incentive
arrangements recognized in the Firm's Consolidated
statements of income for the years ended December 31,
2014, 2013 and 2012, were $854 million, $865 million
and $1.0 billion, respectively.
(a) The tax benefit realized from dividends or dividend equivalents paid on
equity-classified share-based payment awards that are charged to retained
earnings are recorded as an increase to additional paid-in capital and
included in the pool of excess tax benefits available to absorb tax
deficiencies on share-based payment awards.
Valuation assumptions
The following table presents the assumptions used to value
employee stock options and SARs granted during the years
ended December 31, 2013 and 2012, under the Black-
Scholes valuation model. There were no material grants of
stock options or SARS for the year ended December 31,
2014.
Year ended December 31,
Weighted-average annualized valuation
assumptions
Risk-free interest rate
Expected dividend yield
Expected common stock price volatility
Expected life (in years)
2013
2012
1.18%
1.19%
2.66
3.15
28
35
6.6
104
1,032
5,804
U.S. Treasury and government agencies (a)
Corporate debt securities
2,492
22
80
2
2,572
24
Asset-backed securities:
Collateralized loan obligations
13,909
76
9,012
106
21
22,921
Other
2,258
11
2,258
11
Total available-for-sale debt securities
41,720
173
15,614
214
57,334
387
Available-for-sale equity securities
182
5,339
17
906
Total mortgage-backed securities
7,761
30
5,486
88
13,247
118
U.S. Treasury and government agencies
8,412
14
|
-
8,412
14
Obligations of U.S. states and municipalities
1,405
15
130
1
1,535
16
Certificates of deposit
1,050
1
1,050
1
Non-U.S. government debt securities
4,433
4
-
17
-
-
1,061
152
27
22
1,061
27
1
152
1
158
1
158
1
Total mortgage-backed securities
3,980
3,980
26
25,486
949
1,308
83
26,794
1,032
U.S. Treasury and government agencies
6,293
156,709
250
237
26
Commercial
Non-U.S.
Subprime
Held-to-maturity securities
December 31, 2013 (in millions)
Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies
Residential:
41,720 $
173 $
15,614 $
214 $
57,334 $
387
Securities with gross unrealized losses
Less than 12 months
12 months or more
Fair value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
$
20,293 $
895
$
1,150 $
82 $
21,443 $
977
Prime and Alt-A
-
4,895
Total securities with gross unrealized losses $
92
122
56,248
18,158
398
24
18,532
21,043
498
29
21,512
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
863
Other
Available-for-sale equity securities
Total available-for-sale securities
30,229
147
182
30,194
28,130
236
136
28,230
12,442
184
11
Total available-for-sale debt securities
55,507
13,603
21
56
14
2
13,645
21,310
385
306
21,389
Obligations of U.S. states and municipalities
27,841
2,243
16
30,068
29,741
707
987
29,461
Certificates of deposit
1,103
1
1
1,103
1,041
1
1
1,041
Non-U.S. government debt securities
51,492
1,272
12,615
12,062
52,743
3
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
Available-for-sale debt securities
Mortgage-backed securities:
U.S.government agencies
Residential:
Prime and Alt-A
Subprime
Non-U.S.
1,118 $
5
$
4,989 $
67 $
6,107 $
72
1,840
10
405
19
2,245
29
186
Commercial
4,803
15
Fair value
December 31, 2014 (in millions)
$
Less than 12 months
8,143
12 months or more
12,245
387
$ 290,979 $
17
8,160 $
296,222
2,530
322,253
3,125
7,198
288,466
2,513
17
326,835
3,142
387
$ 298,752
Total held-to-maturity securities (b)
2,616
Securities with gross unrealized losses
7,215 $ 2,616
22 $ 317
$ 329,977
$ 23,731
$ 325,378 $
$ 51,154 $ 24,026 $
(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $59.3 billion and $67.0 billion at December 31, 2014 and 2013, respectively,
which were predominantly mortgage-related.
(b) As of December 31, 2014, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $35.3 billion, MBS issued by U.S. government
agencies with an amortized cost of $3.7 billion and obligations of U.S. states and municipalities with an amortized cost of $10.2 billion. As of December 31, 2013,
consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $23.1 billion and obligations of U.S. states and municipalities with an
amortized cost of $920 million.
JPMorgan Chase & Co./2014 Annual Report
231
Notes to consolidated financial statements
Securities impairment
$ 49,252 $ 1,902 $
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2014 and 2013.
Unpaid principal balance of
impaired loans (d)
162
$ 422 $ 494
2,603
1,451
1,515
127 $
64 $
$
144
147 $
$
94
2,625
666
8,990
1,127
$
931
1,737
1,559
3,750
7,813
632
628
nonaccrual status(e)
18,591
16,067
5,461
4,200
641
94
2014
$
With an allowance
2013
2014
2013
2014
2013
$
2014
2013
2014
Total residential
real estate
- excluding PCI
Junior lien
Subprime
Prime, including
option ARMS
2013
84 $
Without an allowance(a)
579
related to impaired loans
Allowance for loan losses
$ 8,462 $ 10,154
2,966 3,013
$ 11,428 $ 13,167
2,239 $ 2,989
639
709
2,878 $ 3,698
$
$ 6,145 $ 7,004
552 $ 567
549
$
$
722 $ 727
582
592
1,304 $ 1,319
$
1,146
$ 1,101 $
Total impaired loans (b)(c)
4,949 $ 5,871
1,196 1,133
4,171
200
621 $ 490 $ 195 $
(a) Represents collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in
accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower
("Chapter 7 loans") as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2014, Chapter 7 residential real estate loans
included approximately 19% of senior lien home equity, 12% of junior lien home equity, 25% of prime mortgages, including option ARMS, and 18% of subprime
mortgages that were 30 days or more past due.
280
262
5,989
7,214
3,798
3,444
6,730
238
26
55
53
42
82
82
848
16
1,297
54
28
JPMorgan Chase & Co./2014 Annual Report
Senior lien
Loan modifications
246
Total residential real estate - excluding PCI $ 12,609 $ 13,460 $ 10,941 $
(a) Generally, interest income on loans modified in TDRS is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the
new terms.
87
59
209 $
55
51
581 $
183
182
3,494
31
Impaired loans on
1,313
40 $
2013
2014
2012
2013
2014
2012
2012
loans on a cash basis(a)
Interest income on
impaired loans (a)
The following table presents average impaired loans and the related interest income reported by the Firm.
(e) As of December 31, 2014 and 2013, nonaccrual loans included $2.9 billion and $3.0 billion, respectively, of TDRs for which the borrowers were less than 90 days
past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework on pages 238-240 of this
Note.
(d) Represents the contractual amount of principal owed at December 31, 2014 and 2013. The unpaid principal balance differs from the impaired loan balances due to
various factors, including charge-offs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(b) At December 31, 2014 and 2013, $4.9 billion and $7.6 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage
Association ("Ginnie Mae") in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When
such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans
that do not re-perform become subject to foreclosure.
Interest income on impaired
12
Average impaired loans
2013
Year ended December 31,
37 $
$
27
59 $
55 $
$
2014
$ 1,122 $ 1,151 $ 610
Prime, including option ARMS
Mortgages
Junior lien
Senior lien
Home equity
(in millions)
Subprime
Mortgages
615
Impaired loans
The following tables represent the Firm's delinquency statistics for junior lien home equity loans and lines as of December 31,
2014 and 2013.
JPMorgan Chase & Co./2014 Annual Report
244
(h) At December 31, 2014 and 2013, included mortgage loans insured by U.S. government agencies of $12.1 billion and $13.7 billion, respectively.
(g) The prior period prime, including option ARMs have been revised. This revision had no impact on the Firm's Consolidated balance sheets or its results of operations.
Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
December 31, 2014
(f)
(c) These balances, which are 90 days or more past due but insured by U.S. government agencies, are excluded from nonaccrual loans. In predominantly all cases, 100% of the principal balance
of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. These amounts have been excluded from nonaccrual
loans based upon the government guarantee. At December 31, 2014 and 2013, these balances included $4.2 billion and $4.7 billion, respectively, of loans that are no longer accruing
interest because interest has been curtailed by the U.S. government agencies although, in predominantly all cases, 100% of the principal is still insured. For the remaining balance, interest
is being accrued at the guaranteed reimbursement rate.
(b) At December 31, 2014 and 2013, Prime, including option ARMS loans excluded mortgage loans insured by U.S. government agencies of $9.5 billion and $9.0 billion, respectively. These
amounts have been excluded from nonaccrual loans based upon the government guarantee.
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.6 billion and $4.7 billion; 30-149 days past due included
$3.5 billion and $2.4 billion; and 150 or more days past due included $6.0 billion and $6.6 billion at December 31, 2014 and 2013, respectively.
$ 162,719 $ 152,129
$ 5,056 $ 7,104
$ 87,162
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on home
valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not available.
These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates.
(e) Junior lien represents combined LTV, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without consideration of
subordinate liens on the property.
$ 104,921
(in millions, except ratios)
30-89 days
past due
$
141
$
69
$
233
Delinquencies
$
HELOCS:(a)
Total 30+ day
delinquency
rate
Total loans
150+ days
past due
past due
90-149 days
Within the revolving period (b)
25,252
$ 36,375 $ 40,750
Total retained loans
1,298
1,150
Ohio
2,951
2,908
178
778
121
1,203
976
848
799
The Firm is required to provide borrower relief under the
terms of certain Consent Orders and settlements entered
into by the Firm related to its mortgage servicing,
originations and residential mortgage-backed securities
activities. This borrower relief includes reductions of
principal and forbearance.
736
998
$ 16,367 $ 17,113
907
112
45,993
47,719
2,736
1,964
30,343
34,149
466
9,370
3,544
3,345
All other(h)
2,832
2,655
161
8,261
1.75%
Beyond the revolving period
108
Total
3.26
3,922
16
26
86
$
HELOANS
4,980
46
21
84
Beyond the revolving period
1.91%
3.03
31,848
511
151
(in millions)
December 31,
The table below sets forth information about the Firm's residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific
allowance as described in Note 15.
Impaired loans
Notes to consolidated financial statements
245
$
JPMorgan Chase & Co./2014 Annual Report
Home equity lines of credit ("HELOCS") beyond the
revolving period and home equity loans ("HELOANS") have
higher delinquency rates than do HELOCS within the
revolving period. That is primarily because the fully-
amortizing payment that is generally required for those
products is higher than the minimum payment options
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also
include HELOCS originated by Washington Mutual that require interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCS during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are
experiencing financial difficulty or when the collateral does not support the loan amount.
2.17%
40,750
224 $
$
available for HELOCS within the revolving period. The higher
delinquency rates associated with amortizing HELOCS and
HELOANS are factored into the loss estimates produced by
the Firm's delinquency roll-rate methodology, which
estimates defaults based on the current delinquency status
of a portfolio.
$
162
$
$
407
$
Total
3.34
3,144
126 $
19
66
HELOANS
3.16
7,979
107
37
20
267
$
36,375
104
$
341
$
Within the revolving period (b)
HELOCS:(a)
Total 30+ day
delinquency
rate
Total loans
150+ days
past due
90-149 days
past due
30-89 days
past due
Delinquencies
(in millions, except ratios)
December 31, 2013
2.20%
Home equity
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend to
borrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.
203
The following table presents new TDRs reported by the
Firm.
3.69
2.92
2.78
4.14
3.52
3.37
17
3.67
1.94
2.14
2.00
3.23 4.61
3.03
TDR
2.69 2.77
extensions-after
19
19
23
23
23
24
24
24
18
24
25
25
25
20
20
20
24
24
or payment
(in years) of
4.81% 5.05% 5.45%
6.38% 6.35% 7.20%
before TDR
reductions -
interest rate
loans with
4.82% 5.28% 6.14% 7.16% 7.33% 7.73%
2012
2014
2012
2014 2013
2014 2013 2012
2013 2012
2014
2013
loans with term
5.61% 5.88% 6.57%
interest rate of
contractual term
remaining
Weighted-average
before TDR
or payment
extensions -
loans with term
Weighted-average
(in years) of
remaining
Weighted-average
TDR
reductions - after
interest rate
loans with
contractual term
2014 2013 2012
24
31
505
207
324
218
89
249
651
206
58
51
203
74
43
43
83
19
Balance of loans
within one year of
permanent
Michigan
JPMorgan Chase & Co./2014 Annual Report
248
At December 31, 2014 and 2013, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $1.5 billion
and $2.1 billion, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
Active and suspended foreclosure
At December 31, 2014, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 6 years for
senior lien home equity, 8 years for junior lien home equity,
9 years for prime mortgages, including option ARMS, and 8
years for subprime mortgage. The estimated remaining
lives of these loans reflect estimated prepayments, both
voluntary and involuntary (i.e., foreclosures and other
forced liquidations).
that redefaulted
$ 19 $ 26 $ 30 $ 10 $ 20 $ 46
(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within
one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For
residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a
modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of
loans modified within the last 12 months may not be representative of ultimate redefault levels.
$ 106 $ 156 $ 243
$ 93
$ 255
$ 164
$ 121
modification (a)
$ 316 $ 487
30
133
39
Charge-offs
34
36
36
32
35
recognized upon
36
37
37
32
34
35
28
36
129
permanent
3
23
24
$2$7$8$25 $ 70 $ 65 $ 9 $ 16 $ 35 $ 3 $ 5 $ 29 $ 39 $ 98 $ 137
2250
21
20
modification
30
Principal forgiven
11
4
7
5
Principal deferred
14
Nature and extent of modifications
Total residential real estate
- excluding PCI
Prime, including
option ARMS
626
1,719 1,695
939
Number
Number
of loans
approved
for a trial
modification
2012
884
2013
2012
Total residential real estate
- excluding PCI
Subprime
2014 2013
2012
2013
2014
2014
2012
918
2,056 4,233 4,841
granted:(a)
Concession
16,525 30,822
9,632
3,141 5,364 9,964
4,356 9,043
1,052 2,846 3,895
2,507
1,171 1,765 4,385
modified
permanently
of loans
9,682 11,349
4,673
2,813 5,040 7,430
reduction
2013
2012
Prime, including option ARMS
Subprime
Junior lien
Mortgages:
711
388
211
210 $ 835
287
110 $
Senior lien
Home equity:
2012
2013
2014
Year ended December 31,
(in millions)
$
2014
770
124
2013
2014
Year ended
Dec. 31,
Prime, including
option ARMS
Junior lien
Senior lien
2,918
Mortgages
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm's loss mitigation programs during the periods presented. This table excludes Chapter 7 loans where the sole concession
granted is the discharge of debt.
Making Home Affordable ("MHA”), as well as the Firm's proprietary modification programs, generally provide various
concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment
extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the
original agreement.
$ 732 $ 1,687 $ 5,507
Total residential real estate -
excluding PCI
1,043
319
Home equity
Subprime
53%
83%
12
21
18
7
13
12
Principal
forgiveness
Other(b)
16
19
17
24
23
6
12
30
16
36 38 11 22 32 23 51 38 29 53 48 42 413929
(b) Represents variable interest rate to fixed interest rate modifications.
Junior lien
Senior lien
Mortgages
Home equity
interest rate of
Weighted-average
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds
100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate
reductions and/or term or payment extensions.
data and number
of loans)
Year ended
December 31,
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the Firm's loss mitigation programs and about redefaults of certain loans
modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers
frequently change between the trial modification and the permanent modification, the following table presents only the
financial effects of permanent modifications. This table also excludes Chapter 7 loans where the sole concession granted is the
discharge of debt.
Financial effects of modifications and redefaults
Notes to consolidated financial statements
247
JPMorgan Chase & Co./2014 Annual Report
(in millions, except
weighted-average
70%
deferred
and/or
40
67
Principal
extension
payment
Term or
76
77%
58%
47% 72% 69%
43% 73% 74%
88%
88%
84%
77%
interest
47
83
55
10
70
63
41
56
47
53
57
73
51
76
80
83
40
4,034
Interest rate
150
6,601
1,852
$
(a)(b)
Total
Wholesale
Credit card
$
Consumer, excluding
credit card
7,211
9,077
8,641
$
697
4,232
5,641
309
2012
1,261
$
$
$
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
Consumer, excluding credit card
2012
2013
2014
Year ended December 31, (in millions)
827
3,423
The following table provides information about gains and losses, including lower of cost or fair value adjustments, on loan sales
by portfolio segment.
(a) Purchases predominantly represent the Firm's voluntary repurchase of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines.
The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with
applicable requirements of Ginnie Mae, the Federal Housing Administration ("FHA"), Rural Housing Services ("RHS") and/or the U.S. Department of
Veterans Affairs ("VA").
1,547
504
1,043
5,275
7,428
(b) Excluded retained loans purchased from correspondents that were originated in accordance with the Firm's underwriting standards. Such purchases were
$15.1 billion, $5.7 billion and $1.4 billion for the years ended December 31, 2014, 2013 and 2012, respectively.
Credit card
4,845
328
1,190
6,655
7,434
$
(a)(b)
Credit card
Wholesale
Consumer, excluding
credit card
Retained loans reclassified to held-for-sale
Sales
Purchases
(in millions)
Year ended December 31,
Retained loans reclassified to held-for-sale
2014
$
Total
291
3,039
$
7,616
$
(a)(b)
Total
Wholesale
$
Credit card
2013
4,810
14,327
8,319
$
885
7,381
581
Consumer, excluding
credit card
Sales
Wholesale
$
Subprime mortgage
4,175
17,915
3,673
15,708
12,038
10,220
Prime mortgage
Option ARMS
18,927
Home equity
Residential real estate - PCI
11,557
10,970
Student and other
18,951
17,095
20,058
Total retained loans
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear that the borrower is likely
either unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
Loan delinquency(a)
(in millions, except ratios)
December 31,
Residential real estate - excluding PCI loans
Notes to consolidated financial statements
243
$ 294,979 $ 288,449
JPMorgan Chase & Co./2014 Annual Report
Risk-rated business banking and auto loans are similar to
wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers' ability to fulfill their obligations. For
further information about risk-rated wholesale loan
credit quality indicators, see page 255 of this Note.
Residential real estate - excluding PCI loans
The following table provides information by class for
residential real estate - excluding retained PCI loans in the
consumer, excluding credit card, portfolio segment.
For scored auto, scored business banking and student
loans, geographic distribution is an indicator of the
credit performance of the portfolio. Similar to residential
real estate loans, geographic distribution provides
insights into the portfolio performance based on
regional economic activity and events.
insight into a borrower's continued willingness to pay, as
the delinquency rate of high-LTV loans tends to be
greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower's current or "refreshed" FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower's credit
payment history. Thus, a loan to a borrower with a low
FICO score (660 or below) is considered to be of higher
risk than a loan to a borrower with a high FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
.
For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV can provide
•
The following factors should be considered in analyzing
certain credit statistics applicable to the Firm's residential
real estate - excluding PCI loans portfolio: (i) junior lien
home equity loans may be fully charged off when the loan
becomes 180 days past due, and the value of the collateral
does not support the repayment of the loan, resulting in
relatively high charge-off rates for this product class; and
(ii) the lengthening of loss-mitigation timelines may result
in higher delinquency rates for loans carried at the net
realizable value of the collateral that remain on the Firm's
Consolidated balance sheets.
Total net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)
(a) Excludes sales related to loans accounted for at fair value.
Business banking
54,536
$
The table below provides information about retained
consumer loans, excluding credit card, by class.
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans, business banking loans, and
student and other loans, with a focus on serving the prime
consumer credit market. The portfolio also includes home
equity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain payment-
option loans originated by Washington Mutual that may
result in negative amortization.
JPMorgan Chase & Co./2014 Annual Report
242
293
16,367 $
36,375
240 $
(76)
(9)
3
122
313 $
341 $
(241)
101
201 $
180
52,757
17,113
40,750
2014
Auto
Other consumer loans
7,104
5,056
Subprime
87,162
December 31, (in millions)
104,921
Mortgages:
Junior lien
Senior lien
Home equity:
Residential real estate - excluding PCI
2013
Prime, including option ARMS
Current
Purchases
Year ended December 31,
• Student and other
⚫ Business banking (b)
Other consumer loans
Auto(b)
• Subprime mortgage
Prime mortgage, including
option ARMS
•
Residential real estate - PCI
⚫ Home equity - junior lien
Residential real estate - excluding PCI
Consumer, excluding
credit card (a)
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment, the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class:
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.
Loan portfolio
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
• Home equity - senior lien
Foreclosed property
Credit card
Wholesale (c)
(b) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(a) Includes loans held in CCB, prime mortgage and home equity loans held in AM and prime mortgage loans held in Corporate.
Option ARMS
• Subprime mortgage
Prime mortgage
Home equity
• Credit card loans
Government agencies
Other(d)
•
Financial institutions
•
Real estate
•
• Commercial and industrial
•
(c) Includes loans held in CIB, CB, AM and Corporate. Excludes prime mortgage and home equity loans held in AM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
JPMorgan Chase & Co./2014 Annual Report
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (a) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (b) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, loan-to-value ("LTV")
ratios, and other current market considerations. In certain
limited and well-defined circumstances in which the loan is
current at the modification date, such loans are not placed
on nonaccrual status at the time of modification.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm's established asset-specific allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR remains
subject to the asset-specific allowance methodology
throughout its remaining life, regardless of whether the
loan is performing and has been returned to accrual status
and/or the loan has been removed from the impaired loans
disclosures (i.e., loans restructured at market rates). For
further discussion of the methodology used to estimate the
Firm's asset-specific allowance, see Note 15.
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees and discounts or
premiums are an adjustment to the basis of the loan and
therefore are included in the periodic determination of the
lower of cost or fair value adjustments and/or the gain or
loss recognized at the time of sale.
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Held-for-sale loans are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Loans held-for-sale
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm obtains a broker's price opinion of the home based on
an exterior-only valuation ("exterior opinions"), which is
then updated at least every six months thereafter. As soon
as practicable after the Firm receives the property in
satisfaction of a debt (e.g., by taking legal title or physical
possession), generally, either through foreclosure or upon
the execution of a deed in lieu of foreclosure transaction
with the borrower, the Firm obtains an appraisal based on
an inspection that includes the interior of the home
("interior appraisals"). Exterior opinions and interior
appraisals are discounted based upon the Firm's experience
with actual liquidation values as compared to the estimated
values provided by exterior opinions and interior appraisals,
considering state- and product-specific factors.
Held-for-sale loans are subject to the nonaccrual policies
described above.
When a loan is charged down to the estimated net realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
• Auto loans are written down to net realizable value upon
repossession of the automobile and after a redemption
period (i.e., the period during which a borrower may cure
the loan) has passed.
• Loans to borrowers who have experienced an event (e.g.,
bankruptcy) that suggests a loss is either known or highly
certain are subject to accelerated charge-off standards.
Residential real estate and auto loans are charged off
when the loan becomes 60 days past due, or sooner if the
loan is determined to be collateral-dependent. Credit card
and scored business banking loans are charged off within
60 days of receiving notification of the bankruptcy filing
or other event. Student loans are generally charged off
when the loan becomes 60 days past due after receiving
notification of a bankruptcy.
A charge-off is recognized when a loan is modified in a
TDR if the loan is determined to be collateral-dependent.
A loan is considered to be collateral-dependent when
repayment of the loan is expected to be provided solely
by the underlying collateral, rather than by cash flows
from the borrower's operations, income or other
resources.
Certain consumer loans will be charged off earlier than the
FFIEC charge-off standards in certain circumstances as
follows:
4,241
Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm's claim in bankruptcy, expectations
of the workout/restructuring of the loan and valuation of
the borrower's equity or the loan collateral.
240
Because held-for-sale loans are recognized at the lower of
cost or fair value, the Firm's allowance for loan losses and
charge-off policies do not apply to these loans.
239
Such modifications are accounted for and reported as
troubled debt restructurings ("TDRS"). A loan that has been
modified in a TDR is generally considered to be impaired
until it matures, is repaid, or is otherwise liquidated,
regardless of whether the borrower performs under the
modified terms. In certain limited cases, the effective
interest rate applicable to the modified loan is at or above
the current market rate at the time of the restructuring. In
such circumstances, and assuming that the loan
subsequently performs under its modified terms and the
Firm expects to collect all contractual principal and interest
cash flows, the loan is disclosed as impaired and as a TDR
only during the year of the modification; in subsequent
years, the loan is not disclosed as an impaired loan or as a
TDR so long as repayment of the restructured loan under its
modified terms is reasonably assured.
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss, avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments.
Loan modifications
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm's allowance
methodology. For a further discussion of the methodologies
used in establishing the Firm's allowance for loan losses,
see Note 15.
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
Loan classification changes
JPMorgan Chase & Co./2014 Annual Report
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan's origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 251 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
See Note 4 for further information on the Firm's elections of
fair value accounting under the fair value option. See Note 3
and Note 4 for further information on loans carried at fair
value and classified as trading assets.
Because these loans are recognized at fair value, the Firm's
nonaccrual, allowance for loan losses, and charge-off
policies do not apply to these loans.
For these loans, the earned current contractual interest
payment is recognized in interest income. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Loans at fair value
Notes to consolidated financial statements
PCI loans
(in millions)
(d) Other primarily includes loans to SPES and loans to private banking clients. See Note 1 for additional information on SPES.
241
127,465
326
$
288,449
614
(b)
Total
Wholesale
$
Credit card(a)
$
330,914
$
131,048
$
2,611
757,336
2,611
308,263
11,290
2,011
724,177
12,230
Retained loans reclassified to held-for-sale
Sales
Purchases
(in millions)
Year ended December 31,
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure to
credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
$
(a) Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and
premiums, and net deferred loan costs of $1.3 billion and $1.9 billion at December 31, 2014 and 2013, respectively.
321,564
$
127,791
$
289,063
2,011
738,418
JPMorgan Chase & Co./2014 Annual Report
-
3,801
(in millions)
December 31, 2013
Total
At fair value
Held-for-sale
Retained
-
128,027
3,021
$
Consumer, excluding
credit card
(in millions)
December 31, 2014
The following tables summarize the Firm's loan balances by portfolio segment.
Notes to consolidated financial statements
294,979
395
7,217
$ 295,374
credit card
747,508
$
324,502
$
(b)
Total
Consumer, excluding
Wholesale
$
$
Total
At fair value
Held-for-sale
Retained
Credit card(a)
Mortgages
$
ARMS
12,110
-
13,712
13,122
12,330
2,293
13,712
1,791
94,513
116,469
1,961
1,586
59,634
81,805
4,906
12,110
5,071
-
Total retained loans
$ 36,375 $ 40,750
8,429
7,685
2,732
$ 28,133
$ 8,144 $ 9,240
$ 2,232 $ 2,397
2,805
$ 16,367 $ 17,113
New York
Geographic region
$ 162,719 $ 152,129
$ 7,104
$ 5,056
$ 87,162
$ 104,921
California
16,550
-
3,396
11,409
614
432
4,749
3,863
7,995
14,216
6,481
633
Equal to or greater than 660
Less than 660
80% to 100% and refreshed FICO
scores:
2,790
1,630
597
858
U.S. government-guaranteed
226
1,780
19,732
20,030
3,407
13,186
2,362
2,226
13,048
Equal to or greater than 660
Less than 660
326
Less than 80% and refreshed FICO
scores:
3,802
1,141
770
1,590
1,026
2,128
5,185
298
$ 21,876
14,085
$ 1,069
927
Arizona
6,090
6,475
339
227
1,019
2,679
2.442
2,233
630
654
New Jersey
7,028
3,361
8,044
1,595
1,805
109
Prime, including option
1,951
2,410
1,378
1,216
1,827
555
Washington
4,375
4,439
144
112
1,385
506
$ 718
220
3,565
10,772
280
207
5,216
6,654
2,815
9,559
2,605
1,306
Illinois
26,188
27,717
942
$ 39,227 $ 34,582
1,248
177
Florida
847
4,935
1,199
1,087
2,044
1,845
Texas
861
8,497
885
632
4,598
5,106
2,167
1,923
8,522
679
677
1,407
$ 104,921
$ 40,750
$ 36,375
$ 17,113
$ 16,367
Total retained loans
$ 87,162
8,970
5,388
7,779
502
271
7,899
646
489
4,761
3,155
$ 5,056
$ 162,719
$
90 or more days past due and still
accruing
3.09%
2.27%
16.16%
15.03%
$ 7,104
2.32%
2.17%
2.20%
3.76%
3.89%
% of 30+ days past due to total
retained loans (b)
$ 152,129
1.42%
- $ - $ - $ - $
224
345
- excluding PCI
Total residential real estate
Subprime
2014
2013
2014
2013
2013
2013
2014
Junior lien
340
Senior lien
Home equity
2014
267
2014
$ 15,730
662
533
$ 138,398
$ 149,552
$ 5,956
$ 4,296
2013
$ 76,108
$ 39,864
$ 35,575
$ 16,470
298
275
362
150 or more days past due
30-149 days past due
$ 93,951
$
4,091
6,879
government guaranteed (c)
846
197
51
281
103
346
101% to 125% and refreshed
138
$
618
$
52
$
10
1,429
$
FICO scores:
134
923
107
69
90 or more days past due and
Less than 660
6,316
Equal to or greater than 660
4,049
118
1,210
648
4,645
3,149
212
249
$ 236
302
932
2,666
2,190
1,876
1,590
938
7,823
1,390
7,544
7,544
$
$
120
-
Nonaccrual loans
7,823
5,754
1,036
10
40
4 20
22
6,864
$
$ 1,101
$
21
$
Equal to or greater than 660
Less than 660
Greater than 125% and refreshed
FICO scores:
Current estimated LTV ratios (d)(e)(f)(g)
$
$
467
JPMorgan Chase & Co./2014 Annual Report
2012
2014
2013
If the cardholder does not comply with the modified
payment terms, then the credit card loan agreement reverts
back to its pre-modification payment terms. Assuming that
the cardholder does not begin to perform in accordance
with those payment terms, the loan continues to age and
will ultimately be charged-off in accordance with the Firm's
standard charge-off policy. In addition, if a borrower
successfully completes a short-term modification program,
weighted-average data)
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who are
experiencing financial difficulty. Most of the credit card
loans have been modified under long-term programs for
borrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing the
customer on a fixed payment plan, generally for 60 months.
The Firm may also offer short-term programs for borrowers
who may be in need of temporary relief; however, none are
currently being offered. Modifications under all short- and
long-term programs typically include reducing the interest
rate on the credit card. Substantially all modifications are
considered to be TDRs.
Notes to consolidated financial statements
198
123
$ 2,503 $ 3,882 $ 5,893
2012
2013
Weighted-average interest rate
2014
308
of loans before TDR
Wholesale loans include loans made to a variety of
customers, ranging from large corporate and institutional
clients to high-net-worth individuals.
15.37% 15.67%
Loan modifications
255
The primary credit quality indicator for wholesale loans is
the risk rating assigned each loan. Risk ratings are used to
identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the
probability of default ("PD”) and the loss given default
("LGD"). The PD is the likelihood that a loan will default and
not be fully repaid by the borrower. The LGD is the
estimated loss on the loan that would be realized upon the
default of the borrower and takes into consideration
collateral and structural support for each credit facility.
Management considers several factors to determine an
appropriate risk rating, including the obligor's debt capacity
and financial flexibility, the level of the obligor's earnings,
the amount and sources for repayment, the level and nature
of contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm's
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those defined
Wholesale loan portfolio
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the loans become two
payments past due. A substantial portion of these loans is
expected to be charged-off in accordance with the Firm's
standard charge-off policy. Based on historical experience,
the estimated weighted-average default rate for credit card
loans modified was expected to be 27.91%, 30.72% and
38.23% as of December 31, 2014, 2013 and 2012,
respectively.
(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balance
of such loans as of the end of the quarter in which they defaulted.
by S&P and Moody's. Investment-grade ratings range from
"AAA/Aaa" to "BBB-/Baa3." Noninvestment-grade ratings
are classified as noncriticized (“BB+/Ba1 and B-/B3") and
criticized ("CCC+"/"Caal and below"), and the criticized
portion is further subdivided into performing and
nonaccrual loans, representing management's assessment
of the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticized
loans.
$ 167 $ 309
119
$
Loans that redefaulted within
one year of modification(a)
5.19
4.38
4.40
Weighted-average interest rate
of loans - after TDR
14.96%
impaired credit card loans
Credit card impaired loans and loan modifications
The table below sets forth information about the Firm's
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRS.
Average impaired credit card loans
reverted to pre-modification payment
terms(d)
Modified credit card loans that have
1,775 $ 2,746
$
Credit card loans with modified payment
terms(c)
2013
2014
Impaired credit card loans with an
allowance(a)(b)
December 31, (in millions)
JPMorgan Chase & Co./2014 Annual Report
254
85.1%
14.9
$ 127,465
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
85.7%
14.3
Total impaired credit card loans (e)
$
254
2,029 $
3,115
Year ended December 31,
(in millions)
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
(e) Predominantly all impaired credit card loans are in the U.S.
(d) Represents credit card loans that were modified in TDRS but that have
subsequently reverted back to the loans' pre-modification payment terms.
At December 31, 2014 and 2013, $159 million and $226 million,
respectively, of loans have reverted back to the pre-modification payment
terms of the loans due to noncompliance with the terms of the modified
loans. The remaining $95 million and $143 million at December 31, 2014
and 2013, respectively, of these loans are to borrowers who have
successfully completed a short-term modification program. The Firm
continues to report these loans as TDRS since the borrowers' credit lines
remain closed.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit
card modification program as of the date presented.
(b) There were no impaired loans without an allowance.
(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
Interest income on
Year ended December 31,
(in millions, except
New enrollments in these loan modification programs for
the years ended December 31, 2014, 2013 and 2012, were
$807 million, $1.2 billion and $1.7 billion, respectively.
then the loan reverts back to its pre-modification payment
terms. However, in most cases, the Firm does not reinstate
the borrower's line of credit.
369
971
500 $
$
Allowance for loan losses related to
impaired credit card loans
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
updated information affecting the obligor's ability to fulfill
its obligations.
$10,462
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
75,964
5,408
821
78,118
4,119
599
155
140
1
25
18
346
480
236
42
10,992
10,075
440
300
3
Total noninvestment
grade
46,556
Total retained loans
$109,625
2.58%
$ 128,027
2.22%
% of total criticized to
total retained loans
82,193
$308,263
82,836
$324,502
11,627
$91,121
6,674
272
10,451
$92,538
483
303
6,971
$33,683
7,419
$34,530
16,956
$ 69,151
18,107
$ 79,113
46,156
$103,846
$8,696
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. See
Note 5 for further detail on industry concentrations.
7,085
316
16,541
1,313
253
2014
2013
2014
2013
2014
2013
2014
Total
retained loans
Other(d)
Government
agencies
Financial
institutions
Real estate
Commercial
and industrial
Loans by risk ratings
As of or for the year
ended December 31,
(in millions, except
ratios)
2013
2014
2013
2014
43,477
2,385
294
44,117
2,251
188
Criticized performing
Criticized nonaccrual
Noninvestment grade:
Noncriticized
$226,070
$241,666
$82,087 $79,494
14,381
2,229
$ 9,979
$26,712
$27,111
$52,195
$61,006
$ 63,069 $ 57,690
Investment grade
2013
$8,393
53,030
HELOCS:(a)
3,239
The table below sets forth the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31,
2014, 2013 and 2012, and represents the Firm's estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
(b) Substantially all undrawn HELOCS within the revolving period have been closed.
(c) Includes loans modified into fixed-rate amortizing loans.
(a) In general, these HELOCS are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of
the loan's term.
6.84%
15,914
$
647
$
120
$
321
$
8.15
908
39
Year ended December 31,
(in millions, except ratios)
Beginning balance
Accretion into interest income
(2,491)
19,072
$
18,457
(2,201)
(287)
198
533
$
16,167
(1,934)
(174)
11
$
2013
2014
Total PCI
Accretable yield percentage
Balance at December 31
Other changes in expected cash flows (a)
Changes in interest rates on variable-rate loans
2012
(449)
24
2,336
Beyond the revolving period (c)
Within the revolving period (b)
(in millions, except ratios)
December 31, 2013
6.55%
13,851
$
575
$
81
$
251
$
Total
1.98 %
HELOANS
Total
Delinquencies
30-89 days
past due
82
21
54
6.76%
12,670
$
526
6.72
$
$
243
$
Total 30+ day
delinquency
rate
150+ days
past due
90-149 days
past due
Total loans
88
51,403
2,325
$
0.70
1.67%
1.44%
$ 127,465
1,108
1,022
$128,027
-
943
895
$ 125,335
$ 126,189
3.14%
3,429 $ 3,879
2.75%
$
2013
2014
0.80
$ 17,940
$ 17,194
11,088
3,263
3,618
3,552
4,462
4,489
4,881
4,707
Equal to or greater than 660
Less than 660
5,554
7,178
7,398
7,412
7,497
10,497
10,940
10,400
5,750
14,592
Percentage of portfolio based on carrying
value with estimated refreshed FICO
scores
All other
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
Credit card loan portfolio
Notes to consolidated financial statements
253
At December 31, 2014 and 2013, the Firm had PCI
residential real estate loans with an unpaid principal
balance of $3.2 billion and $4.8 billion, respectively, that
were not included in REO, but were in the process of active
or suspended foreclosure.
loan liquidation periods reduce the accretable yield
percentage (because the same accretable yield balance is
recognized against a higher-than-expected loan balance
over a longer-than-expected period of time), shortened
loan liquidation periods would have the opposite effect.
Active and suspended foreclosure
Since the date of acquisition, the decrease in the accretable
yield percentage has been primarily related to a decrease in
interest rates on variable-rate loans and, to a lesser extent,
extended loan liquidation periods. Certain events, such as
extended or shortened loan liquidation periods, affect the
timing of expected cash flows and the accretable yield
percentage, but not the amount of cash expected to be
received (i.e., the accretable yield balance). While extended
JPMorgan Chase & Co./2014 Annual Report
The factors that most significantly affect estimates of gross
cash flows expected to be collected, and accordingly the
accretable yield balance, include: (i) changes in the
benchmark interest rate indices for variable-rate products
such as option ARM and home equity loans; and (ii) changes
in prepayment assumptions.
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model
assumptions. For the year ended December 31, 2014, other changes in expected cash flows were driven by changes in prepayment assumptions. For the year ended
December 31, 2013, other changes in expected cash flows were due to refining the expected interest cash flows on HELOCS with balloon payments, partially offset
by changes in prepayment assumptions. For the year ended December 31, 2012, other changes in expected cash flows were principally driven by the impact of
modifications, but also related to changes in prepayment assumptions.
4.38%
4.31%
4.19%
18,457
$
16,167
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator.
However, the distribution of such scores provides a general
indicator of credit quality trends within the portfolio.
Refreshed FICO score information, which is obtained at least
quarterly, for a statistically significant random sample of
the credit card portfolio is indicated in the table below; FICO
is considered to be the industry benchmark for credit
scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in credit score
technology.
The table below sets forth information about the Firm's
credit card loans.
Virginia
Michigan
Pennsylvania
Ohio
New Jersey
New York
Illinois
Florida
Texas
Total retained credit card loans
Credit card loans by geographic region
California
% of 30+ days past due to total retained
loans
Total retained credit card loans
Loan delinquency ratios
90 or more days past due and still accruing
Nonaccrual loans
30-89 days past due and still accruing
Current and less than 30 days past due
and still accruing
% of net charge-offs to retained loans
Loan delinquency
As of or for the year ended December 31,
(in millions, except ratios)
Net charge-offs
% of 90+ days past due to total retained
loans
3.72%
243 $
297
20
0.88 %
Impaired loans
2013
2014
2013
2014
2013
2014
2013
2014
2013
Total
retained loans
Other
Government
agencies
Financial
institutions
Real estate
2014
With an allowance
$
Without an allowance(a)
174 $ 236
24
166
73
52
-
-
$ 597
471
2013
85 $
- $
15 $ 17 $
3 8
$
193 $ 258
109
87
58
$
1 $ 89 $
248
2014
December 31,
$
3
$
110 $ 143 $
$
191
126 $
$
Criticized nonaccrual
3.72%
1.98%
0.56%
0.49%
2.20%
0.98%
17
$
9
$
Commercial
and industrial
Wholesale impaired loans are comprised of loans that have been placed on nonaccrual status and/or that have been modified
in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 15.
The table below sets forth information about the Firm's wholesale impaired loans.
Wholesale impaired loans and loan modifications
0.50%
0.32%
0.18%
0.27%
(in millions)
0.08%
0.90%
0.63%
0.43%
0.25%
% of criticized nonaccrual to total
real estate retained loans
346
253 $
-%
8.30%
Total impaired loans
198 $ 294
17
784
873
412 $
484
17
8.83
Other
Government agencies
Financial institutions
Real estate
$
Commercial and industrial
2012
2013
2014
Year ended December 31, (in millions)
9
Total(a)
$
155
715 $
JPMorgan Chase & Co./2014 Annual Report
258
For scored loans, the statistical calculation is performed on
pools of loans with similar risk characteristics (e.g., product
type) and generally computed by applying loss factors to
outstanding principal balances over an estimated loss
emergence period. The loss emergence period represents
the time period between the date at which the loss is
estimated to have been incurred and the ultimate
realization of that loss (through a charge-off). Estimated
loss emergence periods may vary by product and may
change over time; management applies judgment in
estimating loss emergence periods, using available credit
information and trends.
The asset-specific component of the allowance for impaired
loans that have been modified in TDRS incorporates the
effects of foregone interest, if any, in the present value
calculation and also incorporates the effect of the
modification on the loan's expected cash flows, which
considers the potential for redefault. For residential real
estate loans modified in TDRs, the Firm develops product-
specific probability of default estimates, which are applied
at a loan level to compute expected losses. In developing
these probabilities of default, the Firm considers the
relationship between the credit quality characteristics of
the underlying loans and certain assumptions about home
prices and unemployment, based upon industry-wide data.
The Firm also considers its own historical loss experience to
date based on actual redefaulted modified loans. For credit
card loans modified in TDRs, expected losses incorporate
projected redefaults based on the Firm's historical
experience by type of modification program. For wholesale
loans modified in TDRs, expected losses incorporate
redefaults based on management's expectation of the
borrower's ability to repay under the modified terms.
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in
performing risk-rated loans and all consumer loans, except
for any loans restructured in TDRS and PCI loans. See Note
14 for more information on PCI loans.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the provision for loan losses. In certain cases,
the asset-specific allowance is determined using an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan's fair value. Impaired collateral-dependent
loans are charged down to the fair value of collateral less
costs to sell and therefore may not be subject to an asset-
specific reserve as are other impaired loans. See Note 14
for more information about charge-offs and collateral-
dependent loans.
JPMorgan Chase's allowance for loan losses covers the
consumer, including credit card, portfolio segments
(primarily scored); and wholesale (risk-rated) portfolio, and
represents management's estimate of probable credit losses
inherent in the Firm's loan portfolio. The allowance for loan
losses includes an asset-specific component, a formula-
based component and a component related to PCI loans, as
described below. Management also estimates an allowance
for wholesale and consumer lending-related commitments
using methodologies similar to those used to estimate the
allowance on the underlying loans. During 2014, the Firm
did not make any significant changes to the methodologies
or policies used to determine its allowance for credit losses;
such policies are described in the following paragraphs.
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRs as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger loans are
evaluated individually, while smaller loans are evaluated as
pools using historical loss experience for the respective
class of assets. Scored loans (i.e., consumer loans) are
pooled by product type, while risk-rated loans (primarily
wholesale loans) are segmented by risk rating.
Note 15 - Allowance for credit losses
The following table presents the Firm's average impaired loans for the years ended 2014, 2013 and 2012.
Notes to consolidated financial statements
JPMorgan Chase & Co./2014 Annual Report
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing
financial difficulty. All TDRs are reported as impaired loans in the tables above. TDRs were not material as of December 31,
2014 and 2013.
(a) The related interest income on accruing impaired loans and interest income recognized on a cash basis were not material for the years ended December 31, 2014, 2013 and
2012.
1,960
1,124 $
277
211
257
$
(c) Based upon the domicile of the borrower, predominantly all wholesale impaired loans are in the U.S.
(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically
occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(c)
845
$
637 (c)
158 $
141 $
1 $
$
-
25 $
18 $
$
367
280 $
$
Allowance for loan losses
related to impaired loans
$
34 $
1,168
835
241
22 24 1 202
454
345
448
(b) Represents the contractual amount of principal owed at December 31, 2014 and 2013. The unpaid principal balance differs from the impaired loan balances due to various
factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on
purchased loans.
266
Unpaid principal balance of
$ 181
$4 $ 16 $ - $ - $ 13 $ 27 $ 87
63
36 $
$
75
impaired loans (b)
0.97 %
4.82%
1.28%
0.29%
(0.04)% (0.29)%
(0.01)% 0.01%
0.10%
0.02%
(recoveries) to end-of-
period retained loans
% of net charge-offs/
16
12 $
9 $
$ (14) $
1
$ 25 $
$ (99)
(12)
0.01%
(0.02)% 0.01%
-%
0.01%
104
164
275
181
566
and still accruing
30-89 days past due
$
$321,612 $305,548
$8,627 $10,421
$ 68,627 $34,408 $33,426
$78,552
$103,357
$108,857
Current and less than 30
days past due and still
accruing
Loan delinquency(b)
$91,168 $89,717
226
6
99 $
0.15
0.01
0.07
0.05
0.50
0.32
0.28
0.17
% of nonaccrual loans
to total retained loans
2.02%
1.45%
0.70%
0.41 %
0.41%
0.03%
0.17
0.18
0.27
Loans by geographic
distribution(a)
22 $
$
Net charge-offs/
(recoveries)
$100,865 $104,057
223,637 204,206
$324,502 $308,263
$42,961 $43,376
49,577 47,745
$92,538 $91,121
$1,122 $ 2,146
7,574 8,316
$8,696 $10,462
$22,726
10,957
$ 33,683
(9) $
$ 20,944
13,586
$34,530
$ 2,099
77,014
$79,113
$ 34,440
69,406
$103,846
75,886
$109,625
Total retained loans
Total U.S.
$ 33,739
Total non-U.S.
$ 1,369
67,782
$ 69,151
2.57%
69
1,201
2014
2013
2014
2013
2014
2013
2014
(in millions, except ratios)
December 31,
Other
Commercial construction
and development
Commercial lessors
Multifamily
The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment
for the periods indicated. The real estate class primarily consists of secured commercial loans mainly to borrowers for multi-
family and commercial lessor properties. Multifamily lending specifically finances apartment buildings. Commercial lessors
receive financing specifically for real estate leased to retail, office and industrial tenants. Commercial construction and
development loans represent financing for the construction of apartments, office and professional buildings and malls. Other
real estate loans include lodging, real estate investment trusts ("REITS"), single-family, homebuilders and other real estate.
JPMorgan Chase & Co./2014 Annual Report
2013
Real estate retained loans
Criticized
$ 51,049
652
% of criticized to total real estate
retained loans
2,575
1,566
Total real estate loans
2014
2013
$ 79,113 $ 69,151
$ 6,362 $ 5,139
29
31
81
256
42
841
$ 3,674
4,264
$
$ 15,949
$ 17,438
$ 44,389
1,142
1,323
40
(d) Other primarily includes loans to SPES and loans to private banking clients. See Note 1 for additional information on SPES.
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations rather than relying on
346
253
294
188
Criticized nonaccrual
6
14
33
14
14
due and still accruing (c)
90 or more days past
1,844
2,215
1,233
18
25
Total retained loans
$109,625
$308,263
$324,502
$92,538 $91,121
$10,462
$8,696
821
599
the past due status, which is generally a lagging indicator of credit quality. For a discussion of more significant risk factors, see pages 255-256 of this Note.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
50
16
155
29
140
1
$33,683
$34,530
$79,113 $ 69,151
$103,846
76
736
252
7
Without an allowance(a)
$
47
2013
2014
With an allowance
Impaired loans
(in millions)
December 31,
The table below sets forth information about the Firm's
other consumer impaired loans, including risk-rated
business banking and auto loans that have been placed on
nonaccrual status, and loans that have been modified in
TDRs.
Other consumer impaired loans and loan
modifications
Notes to consolidated financial statements
249
JPMorgan Chase & Co./2014 Annual Report
December 31, 2014 and 2013, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of
$654 million and $737 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be
criticized and/or nonaccrual.
These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of
insured amounts is proceeding normally.
557 $
35
Individual delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program ("FFELP") as follows:
current included $4.3 billion and $4.9 billion; 30-119 days past due included $364 million and $387 million; and 120 or more days past due included $290
million and $350 million at December 31, 2014 and 2013, respectively.
571
$
Loan modifications
(d) Represents the contractual amount of principal owed at December 31,
2014 and 2013. The unpaid principal balance differs from the impaired
loan balances due to various factors, including charge-offs; interest
payments received and applied to the principal balance; net deferred loan
fees or costs; and unamortized discounts or premiums on purchased loans.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $599 million, $648 million
and $733 million for the years ended December 31, 2014, 2013 and
2012, respectively. The related interest income on impaired loans,
including those on a cash basis, was not material for the years ended
December 31, 2014, 2013 and 2012.
(a) When discounted cash flows, collateral value or market price equals or
exceeds the recorded investment in the loan, the loan does not require an
allowance. This typically occurs when the impaired loans have been
partially charged off and/or there have been interest payments received
and applied to the loan balance.
441
788
456
719
Impaired loans on nonaccrual status
loans (d)
Unpaid principal balance of impaired
107
117 $
impaired loans
Allowance for loan losses related to
618
592 $
Total impaired loans (b)(c)
The following table provides information about the Firm's
other consumer loans modified in TDRs. All of these TDRS
are reported as impaired loans in the tables above.
354
$ 23,590
$14,619
$ 9,968
$ 9,822
Noncriticized
Loans by risk ratings (c)
Total retained loans
$ 83,265
$ 85,564
$ 11,557
$10,970
$ 18,951
$52,757 $20,058
$54,536
33,517
33,758
4,973
4,503
$ 13,622
765
ΝΑ
$ 24,441
213
743
(d)
(c)
(b)
(a)
Criticized nonaccrual
ΝΑ
NA
316
ΝΑ
ΝΑ
711
708
213
54
38
35
Criticized performing
ΝΑ
Financial effects of modifications and redefaults
For auto loans, TDRs typically occur in connection with the
bankruptcy of the borrower. In these cases, the loan is
modified with a revised repayment plan that typically
incorporates interest rate reductions and, to a lesser
extent, principal forgiveness.
For business banking loans, concessions are dependent on
individual borrower circumstances and can be of a short-
term nature for borrowers who need temporary relief or
longer term for borrowers experiencing more fundamental
financial difficulties. Concessions are predominantly term or
payment extensions, but also may include interest rate
reductions.
Loan delinquency (based on unpaid principal
4,158
2013
2014
$46,696 $53,055
3,325
494
194
180
$17,915
Total PCI
Option ARMS
2014 2013
$15,708
$ 4,175
$ 3,673
180
$12,038
1,726
2013
Subprime mortgage
2014
2013
2014
$10,220
1,193
balance)
2013
$18,927
1,758
Current
$18,135
1,006
$42,586 $47,766
$15,501
$13,814
858
662
536
589
$ 4,012
$ 3,565
$10,118
$ 8,912
500
837
1,112
1,000
150 or more days past due
583
445
30-149 days past due
$16,295
1,758
Related allowance for loan losses(b)
$17,095
Other consumer new TDRS were $291 million, $156
million, and $249 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
(b) Additional commitments to lend to borrowers whose loans have been
modified in TDRS as of December 31, 2014 and 2013 were immaterial.
(a) The impact of these modifications was not material to the Firm for the
years ended December 31, 2014 and 2013.
201
306
TDRs on nonaccrual status
378
442 $
$
restructurings(a)(b)
Loans modified in troubled debt
2013
2014
(in millions)
December 31,
In May 2014 the Firm began extending the deferment
period for up to 24 months for certain student loans, which
resulted in extending the maturity of the loans at their
original contractual interest rates. These modified loans are
considered TDRs and placed on nonaccrual status.
The balance of business banking loans modified in TDRS
that experienced a payment default, and for which the
payment default occurred within one year of the
modification, was $25 million, $43 million and $42 million,
during the years ended December 31, 2014, 2013 and
2012, respectively. The balance of auto loans modified in
TDRS that experienced a payment default, and for which the
payment default occurred within one year of the
modification, was $43 million, $54 million, and $46
million, during the years ended December 31, 2014, 2013,
and 2012, respectively. A payment default is deemed to
occur as follows: (1) for scored auto and business banking
loans, when the loan is two payments past due; and (2) for
risk-rated business banking loans and auto loans, when the
borrower has not made a loan payment by its scheduled
due date after giving effect to the contractual grace period,
if any.
250
JPMorgan Chase & Co./2014 Annual Report
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. With respect to
the Washington Mutual transaction, all of the consumer PCI
loans were aggregated into pools of loans with common risk
characteristics.
Carrying value(a)
2014
(in millions, except ratios)
Prime mortgage
Home equity
December 31,
The table below sets forth information about the Firm's consumer, excluding credit card, PCI loans.
-
4,489
Residential real estate – PCI loans
251
JPMorgan Chase & Co./2014 Annual Report
The PCI portfolio affects the Firm's results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutual
transaction were funded based on the interest rate
characteristics of the loans. For example, variable-rate
loans were funded with variable-rate liabilities and fixed-
rate loans were funded with fixed-rate liabilities with a
similar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as of
December 31, 2014, to have a remaining weighted-average
life of 8 years.
The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full by the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool's nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool's allowance for
loan losses. Beginning in the fourth quarter of 2014, write-
offs of PCI loans also include other adjustments, primarily
related to interest forgiveness modifications. Because the
Firm's PCI loans are accounted for at a pool level, the Firm
does not recognize charge-offs of PCI loans when they
reach specified stages of delinquency (i.e., unlike non-PCI
consumer loans, these loans are not charged off based on
FFIEC standards).
If the timing and/or amounts of expected cash flows on PCI
loans were determined not to be reasonably estimable, no
interest would be accreted and the loans would be reported
as nonaccrual loans; however, since the timing and amounts
of expected cash flows for the Firm's PCI consumer loans
are reasonably estimable, interest is being accreted and the
loans are being reported as performing loans.
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm's
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm's
quarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any foregone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, the
amounts and timing of prepayments and other factors that
reflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related foregone interest cash flows, discounted at the
pool's effective interest rate. Impairments are recognized
through the provision for credit losses and an increase in
the allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are recognized
prospectively as adjustments to interest income.
Notes to consolidated financial statements
2,339
4,516
24,739
1.47% (d)
2.52% (d)
2.15% (d)
2.32%
1.73%
1.15%
$ - $ - $ - $ - $
Geographic region
Nonaccrual loans
90 or more days past due and
still accruing (b)
% of 30+ days past due to total
retained loans
115
1.23%
$ 83,265
$ 85,564
$ 11,557
$10,970
1.60% (d)
$ 18,951
367
428
$ 1,143
2,374
$ 3,008
$ 5,615
$ 6,294
California
632
664
86
270
385
279
161
428
$
367
$
$
$ 1,112
$ 20,058
$54,536
2013
2014
(in millions, except ratios)
December 31,
Total other consumer
Student and other
Business banking
Auto
$19,710
208
599
6
7
120 or more days past due
663
$52,152
$53,866
The table below provides information for other consumer retained loan classes, including auto, business banking and student
loans.
Other consumer loans
2014
$52,757
2013
2013
Total retained loans
$ 81,192
1,539
534
$ 83,656
1,447
461
368
314
660
576
280
160
140
$ 10,529
$ 10,080
$ 18,511
30-119 days past due
Current
Loan delinquency(a)
2013
2014
2014
$ 10,445
$ 9,101
New York
227
235
234
258
950
1,019
Washington
3,153
3,325
252
239
1,046
1,083
1,855
2,003
Arizona
2,803
1,512
2,774
1,411
1,633
4,253
4,140
708
629
1,316
1,354
2,229
2,157
All other
Ohio
3,798
3,474
513
466
1,383
1,375
1,902
Michigan
397
378
392
4,998
5,277
740
729
1,341
1,373
2,917
3,175
Illinois
8,200
8,108
1,218
1,259
3,084
3,187
3,898
3,662
Florida
2,301
2,012
827
451
2,014
1,945
New Jersey
8,834
9,102
878
868
24,055
2,646
5,310
5,608
Texas
3,197
38
539
521
646
2,626
2,840
3,649
$19,830
281
106
92
327
273
Texas
5,034
4,257
1,817
1,440
526
432
826
689
1,865
1,696
Florida
328
1,568
85
731
187
167
361
323
Arizona
1,629
1,345
701
553
213
165
334
279
381
348
New Jersey
861
100
85
1,332
397
$ 1,293
$ 1,138
$ 6,845
$ 5,965
$11,937
$10,671
California
balance)
Geographic region (based on unpaid principal
9,210
9,504
$49,137 $56,400
$16,496 $19,223
3,869
3,904
1,400
$ 5,471
$ 4,652
$10,249 $11,876
$ 9,190
481
$10,419
New York
283
229
353
301
451
405
Illinois
3,528
2,944
1,196
933
563
463
807
672
962
876
$26,964 $30,494
95
227
264
Total loans
Total 30+ day
delinquency
150+ days
past due
90-149 days
past due
30-89 days
past due
Delinquencies
(in millions, except ratios)
December 31, 2014
Approximately 20% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following tables set forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
unpaid principal balance as of December 31, 2014 and 2013.
JPMorgan Chase & Co./2014 Annual Report
(d) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Management concluded as part of the Firm's regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a
decrease in expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and
forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios
are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions,
as well as unused lines, related to the property.
9,627
8,348
$49,137 $56,400
3,501
3,025
$16,496 $19,223
$11,876 $ 4,652 $ 5,471
rate
$10,249
HELOCS:(a)
$
$17,740
20
HELOANS
6.42
4,143
166
24
76
Beyond the revolving period (c)
6.42%
8,972
$
371
$
50
$
155
Within the revolving period (b)
1,829
1,562
1,908
189
166
62
53
1,913
1,674
463
395
112
95
266
225
1,072
959
Washington
907
802
130
145
182
206
1,645
2,389
$19,830
2,116
$17,740
Total unpaid principal balance
All other
237
209
75
$17,740 $19,830
69
72
55
48
23
20
Ohio
602
531
84
Total unpaid principal balance
Michigan
16,799
$ 1,168
$
45
$ 240
$
34
$
115
$ 89 $ 301
$ 681
$ 1,824
Less than 660
273
662
97
290
160
459
150
575
680
1,986
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
2,245
513
3,248
$
Current estimated LTV ratios (based on unpaid
principal balance)(c)(d)
1,169
$11,876
551
797
$ 4,652
$ 5,471
1,824
$16,496
14,166
$10,249
2,716
4,212
5,794
$19,223
$49,137
$56,400
8.15%
8.55%
13.05%
14.80%
23.37%
26.67%
16.26% 19.36%
13.33%
15.31%
Total loans
% of 30+ days past due to total loans
Equal to or greater than 660
456
Greater than 125% and refreshed FICO scores:
215
1,647
1,782
1,316
1,699
1,006
1,197
1,996
2,769
5,965
7,447
Lower than 80% and refreshed FICO scores:
Equal to or greater than 660
5,824
5,077
3,663
2,897
Less than 660
1,017
1,879
2,116
2,062
719
1,490
521
6,593
5,671
Less than 660
11,115
1,994
575
9,262
1,073
Less than 660
5,745
1,541
3,491
1,164
316
402
509
919
771
1,563
884
4,907
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
3,311
2,418
544
519
4,171
2,755
4,473
2,154
2,787
Commercial Banking: CB makes investments in and provides lending to community development entities that may meet the
definition of a VIE. In addition, CB provides financing and lending-related services to certain client-sponsored VIES. In
general, CB does not control the activities of these entities and does not consolidate these entities.
262
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's other creditors.
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (which is generally 4%). As of
December 31, 2014 and 2013, the Firm held undivided
interests in Firm-sponsored credit card securitization trusts
of $10.9 billion and $14.3 billion, respectively. The Firm
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 22%
and 30% for the years ended December 31, 2014 and
2013, respectively. The Firm also retained $40 million and
$130 million of senior securities and $5.3 billion and $5.5
billion of subordinated securities in certain of its credit card
securitization trusts as of December 31, 2014 and 2013,
respectively. The Firm's undivided interests in the credit
card trusts and securities retained are eliminated in
consolidation.
The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
Credit card securitizations
Significant Firm-sponsored variable interest entities
The Firm also invests in and provides financing and other services to VIES sponsored by third parties, as described on page 268
of this Note.
Corporate: The Private Equity business, within Corporate, may be involved with entities that are deemed VIES. However,
the Firm's private equity business is subject to specialized investment company accounting, which does not require the
consolidation of investments, including VIES.
JPMorgan Chase & Co./2014 Annual Report
The Card business securitizes originated and purchased
credit card loans, primarily through the Chase Issuance
Trust (the “Trust”). The Firm's continuing involvement in
credit card securitizations includes servicing the
receivables, retaining an undivided seller's interest in the
receivables, retaining certain senior and subordinated
securities and maintaining escrow accounts.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans (including automobile and
student loans) primarily in its CCB and CIB businesses.
AFS
securities
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans; holding senior interests or subordinated interests; recourse or guarantee
arrangements; and derivative transactions. In certain instances, the Firm's only continuing involvement is servicing the loans.
See Securitization activity on page 269 of this Note for further information regarding the Firm's cash flows with and interests
retained in nonconsolidated VIES, and pages 269-270 of this Note for information on the Firm's loan sales to U.S. government
agencies.
Principal amount outstanding
JPMorgan Chase interest in securitized
assets in nonconsolidated VIES(c)(d)(e)
Total assets
Assets held
in
held by
consolidated
securitization securitization
Asset Management: Sponsors and manages certain funds that are deemed VIES. As asset manager of the funds, AM earns a
fee based on assets managed; the fee varies with each fund's investment objective and is competitively priced. For fund
entities that qualify as VIES, AM's interests are, in certain cases, considered to be significant variable interests that result
in consolidation of the financial results of these entities.
Assets held in
nonconsolidated
securitization
VIES with
VIES
VIES
continuing
involvement
Trading
assets
Depending on the particular transaction, as well as the line
of business involved, the Firm may act as the servicer of the
loans and/or retain certain beneficial interests in the
securitization trusts.
The Firm's other business segments are also involved with VIES, but to a lesser extent, as follows:
263-265
Municipal bond vehicles
434,814 $
1,027,988
JPMorgan Chase & Co./2014 Annual Report
261
Notes to consolidated financial statements
Note 16 - Variable interest entities
For a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES, see Note 1.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a
"sponsored" VIE to include any entity where: (1) JPMorgan Chase is the principal beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
Line-of-Business Transaction Type
CCB
CIB
Annual Report
Activity
page references
Credit card securitization trusts
Securitization of both originated and purchased
credit card receivables
262
Investor intermediation activities:
Multi-seller conduits
267
265-266
265-267
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
Credit-related note and asset swap vehicles
263-265
263-265
Securitization of originated student loans
Securitization of originated and purchased
residential mortgages
Mortgage and other securitization trusts
Other securitization trusts
Mortgage securitization trusts
Securitization of both originated and purchased
residential and commercial mortgages, automobile
and student loans
Total
interests held
by JPMorgan
Chase
AFS
securities
Securitization-related
December 31, 2013 (a) (in billions)
Principal amount outstanding
Total assets
held by
Assets held
in
consolidated
securitization securitization
VIES
VIES
JPMorgan Chase interest in securitized
assets in nonconsolidated VIES(c)(d)(e)
Assets held in
nonconsolidated
Total
securitization
VIES with
continuing
involvement
interests held
5.2
Trading
assets
by JPMorgan
Chase
Securitization-related
Residential mortgage:
Prime/Alt-A and Option ARMS
Subprime
$
Commercial and other (b)
Total
$
109.2 $
32.1
130.4
271.7 $
3.2 $
1.3
90.4
$
0.5 $
$
4.2 $
1.0 $
$
Residential mortgage:
Prime/Alt-A and Option ARMS
$
96.3 $
2.7 $
78.3
$
0.5 $
0.7 $
1.2
Subprime
28.4
0.8
25.7
0.1
-
0.1
Commercial and other (b)
129.6
0.2
94.4
0.4
3.5
3.9
Total
$
254.3 $
3.7 $
198.4
December 31, 2014 (a) (in billions)
533,018
(2)
60,156
13,938
218,945
59,737
653,371
53,061
6
53,055
307,412
17,745
845 $
$
3,115
124,350
221,609
13,785
$
21,936
$
4,143 $
5,501
$
12,292
$
16,264
4,013 $
$
3,795
$ 7 $ - $ 61
1
$
8
$
$
77 $
4,762
1,475 $
0.3 $
$
973
3,272
$
272
3,467
37 $
362
$ - $
235
3,105
$
726,835
306,222 $
$
127,993
$
$
724,177 $
308,263 $
$
127,465
$
288,449
$
59,756
19
646,904
304,728
123,231
20,175
292,620
$
1,050
3,717
697 $
705 $
7
$
$
661 $
668
$
$
$
56,057
529,383
$
571
56,057
529,383
$
206 $
446,026
446,232 $
206 $
$
$
355 $
355
1,031,466
1,031,672 $
60,156
533,018
434,459
1,027,633
$
445
564
645
661 $
36
668
$ 7 $ - $
666 $
673
37
(2)
(3)
(3)
$
697 $
705
$
7
7
$
661 $
668
$ - $ - $ 60 $
60 $
$
$
97 $
97
$
$
8 5 5
637
$
0.8
48.3 $
0.1
2.4
2.1
-
2.1
0.3
-
1.0
1.3
0.1
0.1
0.2
$
9.1 $
2.2
68.9 $
79.8
$
52.4 $
0.9 $
53.3
Assets
Liabilities
December 31, 2013 (in billions) (a)
Trading
assets
Loans
Other(c)
Total
assets(d)
Beneficial
interests in
VIE assets(e)
1.8 $
Other(f)
0.2
0.8
Student loan securitization entities
Other
Total
assets
Loans
Other(c)
Total
assets(d)
Beneficial
interests in
VIE assets(e)
Other(f)
Total
liabilities
17.7
0.7 $
0.1
49.0
2.9
$
$
31.2
17.8
12.0
12.0
5.3
5.3
4.9
4.9
3.3
0.7
4.0
2.1
31.2 $
Mortgage securitization entities(b)
Total
liabilities
Firm-sponsored credit card trusts
2.2
2.5
0.1
2.4
Student loan securitization entities
3.8
0.9
2.9
4.0
1.7
2.3
Mortgage securitization entities(b)
2.9
2.2
2.9
3.4
Municipal bond vehicles
14.9
14.9
19.1
0.1
19.0
-
Firm-administered multi-seller conduits
26.6
$
26.6 $
$
3.4
VIE program type
Other
0.1
$
$
46.9 $
1.1 $
48.0
$
JPMorgan Chase & Co./2014 Annual Report
268
(f) Includes liabilities classified as accounts payable and other liabilities in the Consolidated balance sheets.
(e) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests do not have recourse to the general credit
of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $35.4 billion and $31.8 billion at December 31,
2014 and 2013, respectively. The maturities of the long-term beneficial interests as of December 31, 2014, were as follows: $10.9 billion under one year,
$19.0 billion between one and five years, and $5.5 billion over five years, all respectively.
(c) Includes assets classified as cash, derivative receivables, AFS securities, and other assets within the Consolidated balance sheets.
(d) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total
assets and total liabilities recognized for consolidated VIES represents the Firm's interest in the consolidated VIES for each program type.
(b) Includes residential and commercial mortgage securitizations as well as re-securitizations.
(a) Excludes intercompany transactions, which were eliminated in consolidation.
0.7
50.7
49.6 $
$
78.7
2.2 $
70.1 $
6.4 $
$
Total
0.3
0.2
0.1
1.7
0.9
1.1 $
Municipal bond vehicles
Firm-administered multi-seller conduits
$
As of December 31, 2014 and 2013, total assets (including
the notional amount of interest-only securities) of
nonconsolidated Firm-sponsored private-label re-
securitization entities in which the Firm has continuing
involvement were $2.9 billion and $2.8 billion, respectively.
At December 31, 2014 and 2013, the Firm held
approximately $2.4 billion and $1.3 billion, respectively, of
interests in nonconsolidated agency re-securitization
entities, and $36 million and $6 million, respectively, of
senior and subordinated interests in nonconsolidated
private-label re-securitization entities. See the table on
page 263 of this Note for further information on interests
held in nonconsolidated securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that purchase interests in, and make loans
secured by, pools of receivables and other financial assets
pursuant to agreements with customers of the Firm. The
conduits fund their purchases and loans through the
issuance of highly rated commercial paper. The primary
source of repayment of the commercial paper is the cash
flows from the pools of assets. In most instances, the assets
are structured with deal-specific credit enhancements
provided to the conduits by the customers (i.e., sellers) or
other third parties. Deal-specific credit enhancements are
generally structured to cover a multiple of historical losses
expected on the pool of assets, and are typically in the form
of overcollateralization provided by the seller. The deal-
specific credit enhancements mitigate the Firm's potential
losses on its agreements with the conduits.
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to purchase interests in
or make loans secured by pools of receivables in the event
that the conduits do not obtain funding in the commercial
paper market, each asset pool financed by the conduits has
a minimum 100% deal-specific liquidity facility associated
with it provided by JPMorgan Chase Bank, N.A. JPMorgan
Chase Bank, N.A. also provides the multi-seller conduit
vehicles with uncommitted program-wide liquidity facilities
and program-wide credit enhancement in the form of
standby letters of credit. The amount of program-wide
credit enhancement required is based upon commercial
paper issuance and approximates 10% of the outstanding
balance.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
JPMorgan Chase & Co./2014 Annual Report
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. See page
268 of this Note for further information on consolidated VIE
assets and liabilities.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held $5.7
billion and $4.1 billion of the commercial paper issued by
the Firm-administered multi-seller conduits at
December 31, 2014 and 2013, respectively. The Firm's
investments reflect the Firm's funding needs and capacity
and were not driven by market illiquidity. The Firm is not
obligated under any agreement to purchase the commercial
paper issued by the Firm-administered multi-seller
conduits.
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded portion of these
commitments was $9.9 billion and $9.1 billion at
December 31, 2014 and 2013, respectively, and are
reported as off-balance sheet lending-related commitments.
For more information on off-balance sheet lending-related
commitments, see Note 29.
VIEs associated with investor intermediation activities
As a financial intermediary, the Firm creates certain types
of VIES and also structures transactions with these VIES,
typically using derivatives, to meet investor needs. The Firm
may also provide liquidity and other support. The risks
inherent in the derivative instruments or liquidity
commitments are managed similarly to other credit, market
or liquidity risks to which the Firm is exposed. The principal
types of VIES for which the Firm is engaged in on behalf of
clients are municipal bond vehicles, credit-related note
vehicles and asset swap vehicles.
Municipal bond vehicles
The Firm has created a series of trusts that provide short-
term investors with qualifying tax-exempt investments, and
that allow investors in tax-exempt securities to finance their
investments at short-term tax-exempt rates. In a typical
transaction, the vehicle purchases fixed-rate longer-term
highly rated municipal bonds and funds the purchase by
issuing two types of securities: (1) puttable floating-rate
certificates and (2) inverse floating-rate residual interests
("residual interests"). The maturity of each of the puttable
floating-rate certificates and the residual interests is equal
to the life of the vehicle, while the maturity of the
underlying municipal bonds is typically longer. Holders of
the puttable floating-rate certificates may “put," or tender,
the certificates if the remarketing agent cannot successfully
remarket the floating-rate certificates to another investor. A
liquidity facility conditionally obligates the liquidity provider
to fund the purchase of the tendered floating-rate
certificates. Upon termination of the vehicle, proceeds from
265
private-label re-securitizations. See the table on page 268
of this Note for more information on the consolidated re-
securitization transactions.
Notes to consolidated financial statements
JPMorgan Chase Bank, N.A. often serves as the sole liquidity
provider, and J.P. Morgan Securities LLC serves as
remarketing agent, of the puttable floating-rate certificates.
The liquidity provider's obligation to perform is conditional
and is limited by certain termination events, which include
bankruptcy or failure to pay by the municipal bond issuer or
credit enhancement provider, an event of taxability on the
municipal bonds or the immediate downgrade of the
municipal bond to below investment grade. In addition, the
Firm's exposure as liquidity provider is further limited by
the high credit quality of the underlying municipal bonds,
the excess collateralization in the vehicle, or in certain
transactions, the reimbursement agreements with the
residual interest holders.
The long-term credit ratings of the puttable floating rate
certificates are directly related to the credit ratings of the
underlying municipal bonds, the credit rating of any insurer
of the underlying municipal bond, and the Firm's short-term
credit rating as liquidity provider. A downgrade in any of
these ratings would affect the rating of the puttable
floating-rate certificates and could cause demand for these
certificates by investors to decline or disappear. However, a
downgrade of JPMorgan Chase Bank, N.A.'s short-term
rating does not affect the Firm's obligation under the
liquidity facility.
As remarketing agent, the Firm may hold puttable floating-
rate certificates of the municipal bond vehicles. At
December 31, 2014 and 2013, the Firm held $55 million
and $262 million, respectively, of these certificates on its
Consolidated balance sheets. The largest amount held by
the Firm at any end of day during 2014 was $250 million,
or 3.0%, of the municipal bond vehicles' aggregate
outstanding puttable floating-rate certificates. The Firm did
not have and continues not to have any intent to protect any
residual interest holder from potential losses on any of the
municipal bond holdings.
The Firm consolidates municipal bond vehicles if it owns the
residual interest. The residual interest generally allows the
owner to make decisions that significantly impact the
economic performance of the municipal bond vehicle,
primarily by directing the sale of the municipal bonds
owned by the vehicle. In addition, the residual interest
owners have the right to receive benefits and bear losses
that could potentially be significant to the municipal bond
vehicle. The Firm does not consolidate municipal bond
vehicles if it does not own the residual interests, since the
Firm does not have the power to make decisions that
significantly impact the economic performance of the
municipal bond vehicle. See page 268 of this Note for
further information on consolidated municipal bond
vehicles.
The Firm's exposure to nonconsolidated municipal bond VIES at December 31, 2014 and 2013, including the ratings profile of
the VIES' assets, was as follows.
December 31,
(in billions)
Fair value of assets
held by VIES
Maximum
Liquidity facilities Excess/(deficit) (a)
exposure
the sale of the underlying municipal bonds would first repay
any funded liquidity facility or outstanding floating-rate
certificates and the remaining amount, if any, would be paid
to the residual interests. If the proceeds from the sale of the
underlying municipal bonds are not sufficient to repay the
liquidity facility, in certain transactions the liquidity
provider has recourse to the residual interest holders for
reimbursement. Certain residual interest holders may be
required to post collateral with the Firm, as liquidity
provider, to support such reimbursement obligations should
the market value of the municipal bonds decline.
Nonconsolidated municipal bond vehicles
JPMorgan Chase & Co./2014 Annual Report
Additionally, the Firm may invest in beneficial interests of
third-party securitizations and generally purchases these
interests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct the
most significant activities of the re-securitization trust,
either because it was not involved in the initial design of the
trust, or the Firm is involved with an independent third-
party sponsor and demonstrates shared power over the
creation of the trust; therefore, the Firm does not
consolidate the re-securitization VIE.
0.1
-
98.0
0.5
3.5
4.0
4.5 $
216.4
$
1.1 $
3.8 $
4.9
(a) Excludes U.S. government agency securitizations. See pages 269-270 of this Note for information on the Firm's loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions.
As of December 31, 2014 and 2013, the Firm did not
consolidate any agency re-securitizations. As of
December 31, 2014 and 2013, the Firm consolidated
assets of $77 million and $86 million, respectively, and
liabilities of $21 million and $23 million, respectively, of
(c) The table above excludes the following: retained servicing (see Note 17 for a discussion of MSRs); securities retained from loan sales to U.S. government
agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See
Note 6 for further information on derivatives); senior and subordinated securities of $136 million and $34 million, respectively, at December 31, 2014,
and $151 million and $30 million, respectively, at December 31, 2013, which the Firm purchased in connection with CIB's secondary market-making
activities.
(e) As of December 31, 2014 and 2013, 77% and 69%, respectively, of the Firm's retained securitization interests, which are carried at fair value, were risk-
rated "A" or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.1 billion and $551 million of
investment-grade and $185 million and $260 million of noninvestment-grade retained interests at December 31, 2014 and 2013, respectively. The
retained interests in commercial and other securitizations trusts consisted of $3.7 billion and $3.9 billion of investment-grade and $194 million and $80
million of noninvestment-grade retained interests at December 31, 2014 and 2013, respectively.
JPMorgan Chase & Co./2014 Annual Report
263
Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans
originated or purchased by CCB, and for certain mortgage
loans purchased by CIB. For securitizations serviced by CCB,
the Firm has the power to direct the significant activities of
the VIE because it is responsible for decisions related to
loan modifications and workouts. CCB may also retain an
interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests)
in residential mortgage securitizations upon securitization,
and/or reacquires positions in the secondary market in the
normal course of business. In certain instances, as a result
of the positions retained or reacquired by CIB or held by
CCB, when considered together with the servicing
arrangements entered into by CCB, the Firm is deemed to
be the primary beneficiary of certain securitization trusts.
See the table on page 268 of this Note for more information
on consolidated residential mortgage securitizations.
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. At December 31,
2014 and 2013, the Firm did not consolidate the assets of
certain Firm-sponsored residential mortgage securitization
VIES, in which the Firm had continuing involvement,
primarily due to the fact that the Firm did not hold an
interest in these trusts that could potentially be significant
to the trusts. See the table on page 268 of this Note for
more information on the consolidated residential mortgage
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests in commercial
mortgage securitizations at the time of securitization but,
generally, the Firm does not service commercial loan
securitizations. For commercial mortgage securitizations
the power to direct the significant activities of the VIE
generally is held by the servicer or investors in a specified
class of securities ("controlling class"). See the table on
page 268 of this Note for more information on the
consolidated commercial mortgage securitizations,
and the table on the previous page of this Note for further
information on interests held in nonconsolidated
securitizations.
264
The Firm retains servicing responsibilities for certain
student loan securitizations. The Firm has the power to
direct the activities of these VIES through these servicing
responsibilities. See the table on page 268 of this Note for
more information on the consolidated student loan
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Fannie Mae, Freddie Mac and
Ginnie Mae) and nonagency (private-label) sponsored VIES,
which may be backed by either residential or commercial
mortgages. The Firm's consolidation analysis is largely
dependent on the Firm's role and interest in the re-
securitization trusts. During the years ended December 31,
2014, 2013 and 2012, the Firm transferred $22.7 billion,
$25.3 billion and $10.0 billion, respectively, of securities to
agency VIES, and $1.1 billion, $55 million and $286
million, respectively, of securities to private-label VIES.
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a re-
securitization trust independently and not in conjunction
with specific clients. In these circumstances, the Firm is
deemed to have the unilateral ability to direct the most
significant activities of the re-securitization trust because of
the decisions made during the establishment and design of
the trust; therefore, the Firm consolidates the re-
securitization VIE if the Firm holds an interest that could
potentially be significant.
(d) Includes interests held in re-securitization transactions.
2014
$
2013
(a) Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b) The ratings scale is presented on an S&P-equivalent basis.
266
JPMorgan Chase & Co./2014 Annual Report
Credit-related note and asset swap vehicles
Credit-related note vehicles
The Firm structures transactions with credit-related note
vehicles in which the VIE purchases highly rated assets
(generally investment-grade), such as government bonds,
corporate bonds or asset-backed securities, and enters into
a credit derivative contract with the Firm to obtain exposure
to a referenced credit which the VIE otherwise does not
hold. The VIE then issues credit-linked notes ("CLNS") to
transfer the risk of the referenced credit to the VIE'S
investors. Clients and investors often prefer using a CLN
vehicle since they may be of the view that the CLNs issued
by the VIE is of a higher credit quality than equivalent notes
issued directly by JPMorgan Chase. The Firm divides its
credit-related note structures broadly into two types: static
and managed. In a static credit-related note structure, the
CLNs and associated credit derivative contract either
reference a single credit (e.g., a multi-national corporation),
or all or part of a fixed portfolio of credits. In a managed
credit-related note structure, the CLNs and associated credit
derivative generally reference all or part of an actively
managed portfolio of credits.
The Firm's involvement with CLN vehicles is generally
limited to being a derivative counterparty and it does not
act as a portfolio manager for managed CLN VIES. The Firm
does not provide any additional contractual financial
support to the VIE over and above its contractual
obligations as derivative counterparty, but may also make a
market in the CLNs issued by such VIES, although it is under
no obligation to do so. The Firm has not historically
provided any financial support to the CLN vehicles over and
above its contractual obligations. As a derivative
counterparty the assets held by the VIE serve as collateral
for any derivatives receivables. As such the collateral
represents the maximum exposure the Firm has to these
vehicles, which was $5.9 billion and $8.7 billion as of
December 31, 2014 and 2013, respectively. The Firm's
maximum exposure arises through the derivatives executed
with the VIES; the exposure varies over time with changes in
the fair value of the derivatives. The Firm relies on the
collateral held by the VIES to pay any amounts due under
the derivatives; the vehicles are structured at inception so
that the par value of the collateral is expected to be
sufficient to pay amounts due under the derivative
contracts
Since each CLN is established to the specifications of the
investors, the investors have the power over the activities of
that VIE that most significantly affect the performance of
the CLN. The Firm consolidates credit-related note entities
only in limited circumstances where it holds positions in
these entities that provided the Firm with control over the
entity. The Firm consolidated credit-related note vehicles
with collateral fair values of $163 million and $311 million,
at December 31, 2014 and 2013, respectively. These
consolidated VIES included some that were structured by
the Firm where the Firm provides the credit derivative, and
some that have been structured by third parties where the
Firm is not the credit derivative provider.
The Firm reports derivatives with unconsolidated CLN
vehicles as well as any CLNs that it holds as market-maker
on its Consolidated balance sheets at fair value with
changes in fair value reported in principal transactions
revenue. The Firm's exposure to non-consolidated CLN VIES
as of December 31, 2014 and 2013 was not material.
Asset swap vehicles
The Firm structures transactions with asset swap vehicles
on behalf of investors. In such transactions, the VIE
purchases a specific asset or assets (substantially all of
which are investment-grade) and then enters into a
derivative with the Firm in order to tailor the interest rate
or foreign exchange currency risk, or both, according to
investors' requirements. Investors typically invest in the
notes issued by such VIES in order to obtain exposure to the
credit risk of the specific assets, as well as exposure to
foreign exchange and interest rate risk that is tailored to
their specific needs.
The Firm's involvement with asset swap vehicles is generally
limited to being an interest rate or foreign exchange
derivative counterparty. The Firm does not provide any
additional contractual financial support to the VIE over and
above its contractual obligations as derivative counterparty,
but may also make a market in the notes issued by such
VIES, although it is under no obligation to do so. The Firm
has not historically provided any financial support to asset
swap vehicles over and above its contractual obligations. As
a derivative counterparty the assets held by the VIE serve
as collateral for any derivatives receivables. As such the
collateral represents the maximum exposure the Firm has
to these vehicles, which was $5.7 billion and $7.7 billion as
of December 31, 2014 and 2013, respectively. The Firm's
maximum exposure arises through the derivatives executed
with the VIES; the exposure varies over time with changes in
the fair value of the derivatives. The Firm relies on the
collateral held by the VIES to pay any amounts due under
the derivatives; the vehicles are structured at inception so
that the par value of the collateral is expected to be
sufficient to pay amounts due under the derivative
contracts
Since each asset swap vehicle is established to the
specifications of the investors, the investors have the power
over the activities of that VIE that most significantly affect
the performance of the entity. Accordingly, the Firm does
not generally consolidate these asset swap vehicles and did
not consolidate any asset swap vehicles at December 31,
2014 and 2013.
7.2
The Firm reports derivatives with unconsolidated asset
swap vehicles that it holds as market-maker on its
Consolidated balance sheets at fair value with changes in
fair value reported in principal transactions revenue. The
Firm's exposure to non-consolidated asset swap VIES as of
December 31, 2014 and 2013 was not material.
267
Notes to consolidated financial statements
VIES sponsored by third parties
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, trustee or custodian. These
transactions are conducted at arm's-length, and individual
credit decisions are based on the analysis of the specific
VIE, taking into consideration the quality of the underlying
assets. Where the Firm does not have the power to direct
Consolidated VIE assets and liabilities
the activities of the VIE that most significantly impact the
VIE's economic performance, or a variable interest that
could potentially be significant, the Firm records and
reports these positions on its Consolidated balance sheets
similarly to the way it would record and report positions in
respect of any other third-party transaction.
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2014 and 2013.
Assets
Liabilities
Trading
December 31, 2014 (in billions) (a)
VIE program type
Firm-sponsored credit card trusts
JPMorgan Chase & Co./2014 Annual Report
11.8
$
0.2
11.5 $
11.8
6.3 $
6.9
5.2 $
6.3
4.9
6.9
Ratings profile of VIE assets (b)
Investment-grade
Noninvestment-
grade
December 31,
(in billions, except where otherwise noted)
AAA to
ААА-
2014
$
2013
2.7 $
2.7
AA+ to AA- A+ to A-
8.4 $
0.4 $
BBB+ to
BBB-
assets held
BB+ and below
$
by VIES
Fair value of
Wt. avg.
expected life
of assets
(years)
$
11.5
4.9
8.9
28.0
8,456
21
5,711
2,132
Gross charge-offs
16,264
$
4,013
$
3,831
3,795
8,456
$
Beginning balance at January 1,
Allowance for loan losses
Total
Wholesale
$
151
6,114
Gross recoveries
3,079
414
Provision for loan losses
533
533
4,759
12
3,429
1,318
Net charge-offs/(recoveries)
(1,355)
(139)
(402)
(814)
Write-offs of PCI loans (a)
2014
(269)
Credit card
Year ended December 31,
(in millions)
Other
Ending balance at December 31,
$
13
$
$
Provision for lending-related commitments
3 $ $ ;
$
705
5
(90)
(85)
2
697
Beginning balance at January 1,
Allowance for lending-related commitments
3,351
The table below summarizes information about the allowance for loan losses, loans by impairment methodology, the allowance
for lending-related commitments and lending-related commitments by impairment methodology.
Allowance for credit losses and loans and lending-related commitments by impairment methodology
Notes to consolidated financial statements
259
JPMorgan Chase & Co./2014 Annual Report
Determining the appropriateness of the allowance is
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the Chief Risk
Officer, the Chief Financial Officer and the Controller of the
Firm and discussed with the Risk Policy and Audit
Committees of the Board of Directors of the Firm. As of
December 31, 2014, JPMorgan Chase deemed the
allowance for credit losses to be appropriate (i.e., sufficient
to absorb probable credit losses inherent in the portfolio).
Management establishes an asset-specific allowance for
lending-related commitments that are considered impaired
and computes a formula-based allowance for performing
consumer and wholesale lending-related commitments.
These are computed using a methodology similar to that
used for the wholesale loan portfolio, modified for expected
maturities and probabilities of drawdown.
Management applies judgment within an established
framework to adjust the results of applying the statistical
calculation described above. The determination of the
appropriate adjustment is based on management's view of
loss events that have occurred but that are not yet reflected
in the loss factors and that relate to current macroeconomic
and political conditions, the quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the portfolio. For the scored
loan portfolios, adjustments to the statistical calculation are
made in part by analyzing the historical loss experience for
each major product segment. Factors related to
unemployment, home prices, borrower behavior and lien
position, the estimated effects of the mortgage foreclosure-
related settlement with federal and state officials and
uncertainties regarding the ultimate success of loan
modifications are incorporated into the calculation, as
appropriate. For junior lien products, management
considers the delinquency and/or modification status of any
senior liens in determining the adjustment. In addition, for
the risk-rated portfolios, any adjustments made to the
statistical calculation take into consideration model
imprecision, deteriorating conditions within an industry,
product or portfolio type, geographic location, credit
concentration, and current economic events that have
occurred but that are not yet reflected in the factors used to
derive the statistical calculation.
For risk-rated loans, the statistical calculation is the product
of an estimated PD and an estimated LGD. These factors are
differentiated by risk rating and expected maturity. In
assessing the risk rating of a particular loan, among the
factors considered are the obligor's debt capacity and
financial flexibility, the level of the obligor's earnings, the
amount and sources for repayment, the level and nature of
contingencies, management strength, and the industry and
geography in which the obligor operates. These factors are
based on an evaluation of historical and current
information, and involve subjective assessment and
interpretation. Emphasizing one factor over another or
considering additional factors could impact the risk rating
assigned by the Firm to that loan. PD estimates are based
on observable external through-the-cycle data, using credit-
rating agency default statistics. LGD estimates are based on
the Firm's history of actual credit losses over more than one
credit cycle. Estimates of PD and LGD are subject to periodic
refinement based on changes to underlying external and
Firm-specific historical data.
A nationally recognized home price index measure is used
to estimate both the PD and the loss severity on residential
real estate loans at the metropolitan statistical areas
("MSA") level. Loss severity estimates are regularly
validated by comparison to actual losses recognized on
defaulted loans, market-specific real estate appraisals and
property sales activity. The economic impact of potential
modifications of residential real estate loans is not included
in the statistical calculation because of the uncertainty
regarding the type and results of such modifications.
Loss factors are statistically derived and sensitive to
changes in delinquency status, credit scores, collateral
values and other risk factors. The Firm uses a number of
different forecasting models to estimate both the PD and
the loss severity, including delinquency roll rate models and
credit loss severity models. In developing PD and loss
severity assumptions, the Firm also considers known and
anticipated changes in the economic environment, including
changes in home prices, unemployment rates and other risk
indicators.
$
$
154
326
Consumer,
excluding
credit card
2
3,224
31
236,263
14,686
637 $
2,029
$
12,020
125,998
$
Formula-based
Asset-specific
Loans by impairment methodology
14,185
$
3,696
PCI
323,861
686,122
$
Loans measured at fair value of collateral less cost to sell
$
133
$
Net charge-offs
Impaired collateral-dependent loans
Total retained loans
747,508
$
324,502
$
$ 128,027
46,700
4
46,696
294,979
$
Other
3,439
7,050
Asset-specific (b)
Allowance for loan losses by impairment methodology
14,185
$
3,696
$
$
3,439
7,050
$
Ending balance at December 31,
(11)
(36)
(6)
$
539
$
500
$
Total allowance for loan losses
3,325
-
3,325
PCI
9,734
3,609
2,939
3,186
Formula-based
1,126
$
87
(c) $
$
609
3,025
622
5,755
4,805
7,467
241
4,472
2,754
346
27,609
$
6,999
$
16,294
21,936
4,143 $
4,316 $
10,906
(847)
(593)
53
9,063
(178)
4,944
4,297
5,802
16
3,879
1,907
(1,843)
(524)
(811)
(508)
(1,665)
(225)
$
53
5,501
12,292
$ 1,056,172
1,056,069
471,953
472,056
$
525,963
525,963
$
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter
of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm's PCI loan portfolio, primarily reflecting the
cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm's Consolidated statements of income.
58,153
58,153
103
$
103
$
Total lending-related commitments
Formula-based
$
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans' original contractual
interest rates and does not consider any incremental penalty rates.
260
$
Total
Wholesale
2012
Credit card
credit card
Total
excluding
Consumer,
Wholesale
2013
Credit card
Consumer,
excluding
(table continued from previous page)
JPMorgan Chase & Co./2014 Annual Report
$
(1,872)
credit card
(119)
Lending-related commitments by impairment methodology
Asset-specific
$ - $ - $
5,711
4,158
4,158
13,496
622
3,824
5,852
10,353
3,832
2,824
3,697
2,729
3,820
$
609
$
Asset-specific
Allowance for lending-related commitments by impairment methodology
2,179
$
Formula-based
Total allowance for lending-related commitments
$
133
- $ - $ 6
60
$
60
549
562
$
319 $
(c) $
60
$
8,456
$
3
8
2
(7)
(5)
5
(6)
(4)
3,387
1,681
3,444
302
188
$
3,795
(359)
4,013 $
(c)
729
181 $
$
971
$
21,936
4,143 $
601
5,501
$
12,292
1,753
$
16,264
$
JPMorgan Chase & Co./2014 Annual Report
2014
Net production revenue:
CCB mortgage fees and related
income
Year ended December 31,
(in millions)
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2014, 2013 and 2012.
Notes to consolidated financial statements
273
(h) For the year ending December 31, 2014, the decrease was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn, resulted
in an increase in the option adjusted spread ("OAS"). The resulting OAS assumption continues to be consistent with capital and return requirements that the Firm
believes a market participant would consider, taking into account factors such as the current operating risk environment and regulatory and economic capital
requirements.
(c) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected
prepayments.
(f) Included $11 million, $18 million and $23 million related to commercial real estate at December 31, 2014, 2013, and 2012, respectively.
(e) Represents changes in prepayments other than those attributable to changes in market interest rates. For the year ended December 31, 2013, the decrease was
driven by changes in the inputs and assumptions used to derive prepayment speeds, primarily increases in home prices.
(d) For the year ended December 31, 2013, the increase was driven by the inclusion in the MSR valuation model of servicing fees receivable on certain delinquent
loans.
2013
(b) Included changes related to commercial real estate of $(7) million, $(5) million and $(8) million for the years ended December 31, 2014, 2013 and 2012,
respectively.
(a) Predominantly represents excess mortgage servicing rights transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS").
In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained the remaining balance of those
SMBS as trading securities. Also includes sales of MSRS in 2013 and 2012.
10.9
9.6 $
$
8.5
$
(g) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest to a trust, taxes and insurance), which will generally be reimbursed within a
short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these advances is minimal
because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to investors if
the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in accordance with
applicable rules and agreements.
2012
Weighted-average prepayment speed
assumption ("CPR")
December 31,
Weighted-average option adjusted spread
867
Net mortgage servicing revenue
Impact on fair value of 20% adverse
change
5,511
3,004
1,190
Net production revenue
(272)
$ (362)
$ (337)
Impact on fair value of 10% adverse
change
$5,783
$ 2,673
331
458
Repurchase (losses)/benefits
$ 732
Production revenue
9.80%
2013
2014
8.07%
(in millions, except rates)
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2014 and 2013, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
822 $
(1,608)
756
(452)
109
133
(589)
2,122
(1,228)
(1,102)
(911)
2,254
1,490
559
(579)
(725)
(209)
457
1
11
2,376
2,214
757
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(g)
Third-party mortgage loans serviced at December 31, (in billions)
(652)
9.43%
(459) (h)
(78)
(98)
108
$
3,783
3,309 $
$
2,884
$
(635)
1,612 $
(1,826) $
$
7,614
$
9,614 $
7,436
$
(635)
1,612 $
(1,826) $
$
(46)
(510)
(218)
504
(541)
$
(705)
Gross amount
3,540 $
Operating revenue:
119
378 $
497
Other credit card-related intangibles
131
3,409 $
Net
carrying value
amortization
Contractual service fees, late fees and other ancillary fees included in income
$
34
166 $
200 $
$
Purchased credit card relationships
2013
Accumulated
Net
carrying value
2014
Accumulated
amortization (a)
Gross amount(a)
December 31, (in millions)
The components of credit card relationships, core deposits and other intangible assets were as follows.
JPMorgan Chase & Co./2014 Annual Report
274
542
369 $
173
Core deposit intangibles
The following table presents amortization expense related to credit card relationships, core deposits and other intangible
assets.
Amortization expense
(b) Includes intangible assets of approximately $600 million consisting primarily of asset management advisory contracts, which were determined to have an
indefinite life and are not amortized.
(a) The decrease in the gross amount and accumulated amortization from December 31, 2013, was due to the removal of fully amortized assets,
predominantly related to intangible assets acquired in the 2004 merger with Bank One Corporation ("Bank One").
1,618
8,971 $
10,589 $
1,192 $
2,199 $
1,155
1,219 $
Other intangible assets are recorded at their fair value upon
completion of a business combination or certain other
transactions, and generally represent the value of customer
relationships or arrangements. Subsequently, the Firm's
intangible assets with finite lives, including core deposit
intangibles, purchased credit card relationships, and other
intangible assets, are amortized over their useful lives in a
manner that best reflects the economic benefits of the
intangible asset. The $426 million decrease in other
intangible assets during 2014 was predominantly due to
$380 million in amortization.
2,374
898 $
1,880
3,391 $
$
Total other intangible assets
Other intangibles (b)
159
3,974 $
4,133
57
757 $
814
982
7.77%
Other intangible assets
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices). For the year ended
December 31, 2013, the decrease was driven by changes in the inputs
and assumptions used to derive prepayment speeds, primarily
increases in home prices.
(1,606)
due to market interest rates and
other(a)
Changes in MSR asset fair value
Risk management:
CPR: Constant prepayment rate.
(1,094) (1,222)
2,458
2,550
2,398
Total operating revenue
(905)
expected cash flows
(750)
(578)
Impact on fair value of 200 basis points
adverse change
due to collection/realization of
Changes in MSR asset fair value
(389)
$
$ (300)
Impact on fair value of 100 basis points
adverse change
3,772
3,552
3,303
Loan servicing revenue
2,119
(587)
Other changes in MSR asset fair
value due to other inputs and
7
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
$8,687
$ 5,205
$3,563
Mortgage fees and related income
3,169
2,191
10
3
All other
2,370
The sensitivity analysis in the preceding table is
hypothetical and should be used with caution. Changes in
fair value based on variation in assumptions generally
cannot be easily extrapolated, because the relationship of
the change in the assumptions to the change in fair value
are often highly interrelated and may not be linear. In this
table, the effect that a change in a particular assumption
may have on the fair value is calculated without changing
any other assumption. In reality, changes in one factor may
result in changes in another, which would either magnify or
counteract the impact of the initial change.
revenue
1,252
619
(1,875)
(267)
(28)
Total risk management
1,796
other
Change in derivative fair value and
(46)
(511)
(218)
assumptions in model(b)
Total CCB net mortgage servicing
Change in unrealized gains/(losses) included in income related to MSRS
held at December 31,
377
Total changes in valuation due to inputs and assumptions (b)
782 $
260 $
$
Proceeds received from loan
sales as cash
55,802 $ 166,028 $ 179,008
Carrying value of loans sold (a)
2012
2013
2014
Year ended December 31,
(in millions)
The following table summarizes the activities related to
loans sold to the GSES, loans in securitization transactions
pursuant to Ginnie Mae guidelines, and other third-party-
sponsored securitization entities.
See Note 17 for additional information about the impact of
the Firm's sale of certain excess mortgage servicing rights.
Notes to consolidated financial statements
269
guarantee provisions (e.g., credit enhancement of the
loans). The Firm also sells loans into securitization
transactions pursuant to Ginnie Mae guidelines; these loans
are typically insured or guaranteed by another U.S.
government agency. The Firm does not consolidate the
securitization vehicles underlying these transactions as it is
not the primary beneficiary. For a limited number of loan
sales, the Firm is obligated to share a portion of the credit
risk associated with the sold loans with the purchaser. See
Note 29 for additional information about the Firm's loan
sales-and securitization-related indemnifications.
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRS on a nonrecourse basis,
predominantly to Fannie Mae and Freddie Mac (the “GSEs”).
These loans and excess MSRs are sold primarily for the
purpose of securitization by the GSES, who provide certain
JPMorgan Chase & Co./2014 Annual Report
Loans and excess MSRS sold to the GSES, loans in
securitization transactions pursuant to Ginnie Mae
guidelines, and other third-party-sponsored
securitization entities
(f) Includes commercial and student loan securitizations.
5.9 and 3.9 for the years ended December 31, 2014 and 2013, respectively, and weighted-average discount rate of 3.4% and 2.5% for the years ended
December 31, 2014 and 2013, respectively. There were no residential mortgage securitizations during 2012. Key assumptions used to measure
commercial and other retained interests originated during the year included weighted-average life (in years) of 6.5, 8.3 and 8.8 for the years ended
December 31, 2014, 2013, and 2012, respectively, and weighted-average discount rate of 4.8%, 3.2% and 3.6% for the years ended December 31,
2014, 2013 and 2012, respectively.
(e) Key assumptions used to measure residential mortgage retained interests originated during the year included weighted-average life (in years) of
(d) Includes prime, Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie
Mac.
(c) Includes cash paid by the Firm to reacquire assets from off-balance sheet, nonconsolidated entities - for example, loan repurchases due to representation
and warranties and servicer clean-up calls.
(b) Proceeds from residential mortgage securitizations were received in the form of securities. During 2014, $2.4 billion of residential mortgage
securitizations were received as securities and classified in level 2, and $185 million were in level 3 of the fair value hierarchy. During 2013, $1.4 billion
of residential mortgage securitizations were received as securities and classified in level 2 of the fair value hierarchy. Proceeds from commercial mortgage
securitizations were received as securities and cash. During 2014, $11.4 billion of proceeds from commercial mortgage securitizations were received as
securities and classified in level 2, and $130 million of proceeds were classified as level 3 of the fair value hierarchy; and $568 million of proceeds from
commercial mortgage securitizations were received as cash. During 2013, $11.3 billion of commercial mortgage securitizations were classified in level 2
of the fair value hierarchy, and $207 million of proceeds from commercial mortgage securitizations were received as cash. During 2012, $5.7 billion of
commercial mortgage securitizations were classified in level 2 of the fair value hierarchy.
195
(a) Excludes re-securitization transactions.
Proceeds from loans sales as
55,117
Securitized assets
2014
2013
Total loans securitized (b)
Commercial and other
Subprime mortgage
Prime/ Alt-A & Option ARMS
Residential mortgage:
Securitized loans (a)
As of or for the year ended December 31, (in millions)
The table below includes information about components of nonconsolidated securitized financial assets, in which the Firm has
continuing involvement, and delinquencies as of December 31, 2014 and 2013.
Loan delinquencies and liquidation losses
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 29, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. As of December 31, 2014 and 2013, the Firm had
recorded on its Consolidated balance sheets $12.4 billion
and $14.3 billion, respectively, of loans that either had
been repurchased or for which the Firm had an option to
repurchase. Predominantly all of these amounts relate to
loans that have been repurchased from Ginnie Mae loan
pools. Additionally, real estate owned resulting from
voluntary repurchases of loans was $464 million and $2.0
billion as of December 31, 2014 and 2013, respectively.
Substantially all of these loans and real estate owned are
insured or guaranteed by U.S. government agencies. For
additional information, refer to Note 14.
Options to repurchase delinquent loans
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
(c) Excludes the value of MSRS retained upon the sale of loans. Gains on
loans sales include the value of MSRs.
(b) Predominantly includes securities from the GSES and Ginnie Mae that
are generally sold shortly after receipt.
(a) Predominantly to the GSES and in securitization transactions pursuant
to Ginnie Mae guidelines.
141
55,377 $164,155 $ 176,787
316 $ 302 $
Gains on loan sales(d)
$
Total proceeds received from
loan sales(c)
176,592
163,373
securities(b)
163
185
222
11,911
2,558 $
$
Commercial
and other(e)(f)
Residential
mortgage(d)(e)
Commercial
mortgage (d)(e) and other(e)(f)
Residential
Commercial
and other(e)(f)
Residential
mortgage(d)(e)
2012
2013
2014
Servicing fees collected
Proceeds from new securitizations (b)
All cash flows during the period:
Principal securitized
(in millions, except rates) (a)
Year ended December 31,
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2014,
2013 and 2012, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by the
Firm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
Securitization activity
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when the accounting
criteria for a sale are met. Those criteria are: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
$
1,404 $
11,318
$
325
156
578
179
Cash flows received on interests
294
121
Purchases of previously transferred financial assets
(or the underlying collateral) (c)
4
662
5
90 days past due
2014
2013
576
5,705
$
$
11,507
1,410 $
$
12,079
2,569 $
557
$
5,421
$
4
Liquidation losses
2014
2013
$ 78,294 $ 90,381 $ 11,363 $ 14,882 $
25,659
Mortgage servicing rights represent the fair value of
expected future cash flows for performing servicing
activities for others. The fair value considers estimated
future servicing fees and ancillary revenue, offset by
estimated costs to service the loans, and generally declines
over time as net servicing cash flows are received,
effectively amortizing the MSR asset against contractual
servicing and ancillary fee income. MSRs are either
purchased from third parties or recognized upon sale or
securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
Mortgage servicing rights
Deterioration in economic market conditions, increased
estimates of the effects of regulatory or legislative changes,
or additional regulatory or legislative changes may result in
declines in projected business performance beyond
management's current expectations. For example, in the
Firm's Mortgage Banking business, such declines could
result from increases in primary mortgage interest rates,
lower mortgage origination volume, higher costs to resolve
foreclosure-related matters or from deterioration in
economic conditions, including decreases in home prices
that result in increased credit losses. Declines in business
performance, increases in equity capital requirements, or
increases in the estimated cost of equity, could cause the
estimated fair values of the Firm's reporting units or their
associated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associated
goodwill.
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair value of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (a) a control premium that would exist in
a market transaction, (b) factors related to the level of
execution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (c) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Notes to consolidated financial statements
271
The valuations derived from the discounted cash flow
models are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the general reasonableness of the estimated fair
The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. The
models project cash flows for the forecast period and use
the perpetuity growth method to calculate terminal values.
These cash flows and terminal values are then discounted
using an appropriate discount rate. Projections of cash
flows are based on the reporting units' earnings forecasts,
which include the estimated effects of regulatory and
legislative changes (including, but not limited to the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the
"Dodd-Frank Act")), and which are reviewed with the senior
management of the Firm. The discount rate used for each
reporting unit represents an estimate of the cost of equity
for that reporting unit and is determined considering the
Firm's overall estimated cost of equity (estimated using the
Capital Asset Pricing Model), as adjusted for the risk
characteristics specific to each reporting unit (for example,
for higher levels of risk or uncertainty associated with the
business or management's forecasts and assumptions). To
assess the reasonableness of the discount rates used for
each reporting unit management compares the discount
rate to the estimated cost of equity for publicly traded
institutions with similar businesses and risk characteristics.
In addition, the weighted average cost of equity
(aggregating the various reporting units) is compared with
the Firms' overall estimated cost of equity to ensure
reasonableness.
fair value of the reporting unit (as determined in step one)
to the fair value of the net assets of the reporting unit, as if
the reporting unit were being acquired in a business
combination. The resulting implied current fair value of
goodwill is then compared with the carrying value of the
reporting unit's goodwill. If the carrying value of the
goodwill exceeds its implied current fair value, then an
impairment charge is recognized for the excess. If the
carrying value of goodwill is less than its implied current
fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units' allocated equity plus
goodwill capital as a proxy for the carrying amounts of
equity for the reporting units in the goodwill impairment
testing. Reporting unit equity is determined on a similar
basis as the allocation of equity to the Firm's lines of
business, which takes into consideration the capital the
business segment would require if it were operating
independently, incorporating sufficient capital to address
regulatory capital requirements (including Basel III),
economic risk measures and capital levels for similarly
rated peers. Proposed line of business equity levels are
incorporated into the Firm's annual budget process, which
is reviewed by the Firm's Board of Directors. Allocated
equity is further reviewed on a periodic basis and updated
as needed.
JPMorgan Chase & Co./2014 Annual Report
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value, including goodwill. If the
fair value is in excess of the carrying value (including
goodwill), then the reporting unit's goodwill is considered
not to be impaired. If the fair value is less than the carrying
value (including goodwill), then a second step is performed.
In the second step, the implied current fair value of the
reporting unit's goodwill is determined by comparing the
During 2014, the Firm recognized impairments of the
Private Equity business' goodwill totaling $276 million.
The Firm's remaining goodwill was not impaired at
December 31, 2014. Further, the Firm's goodwill was not
impaired at December 31, 2013 nor was any goodwill
written off due to impairment during 2013 or 2012.
Impairment testing
(a) Includes foreign currency translation adjustments, other tax-related
adjustments, and, during 2014, goodwill impairment associated with
the Firm's Private Equity business of $276 million.
$ 48,081 $ 48,175
(52)
(4)
(5)
(153)
(397)
$47,647
43
64
43
(80)
2012
$ 48,188
272
JPMorgan Chase & Co./2014 Annual Report
The fair value of MSRS is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRS
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,
those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives and
securities to manage changes in the fair value of MSRs. The
intent is to offset any interest-rate related changes in the
fair value of MSRs with changes in the fair value of the
related risk management instruments.
Total changes in valuation due to other inputs and assumptions
Prepayment model changes and other(e)
Discount rates
Projected cash flows (e.g., cost to service)(d)
Changes in valuation due to other inputs and assumptions:
Changes due to market interest rates and other(c)
Changes in valuation due to inputs and assumptions:
Changes due to collection/realization of expected cash flows (b)
Net additions
Disposition of MSRs (a)
Originations of MSRS
$ 48,175
MSR activity:
$
7,614
$
9,614
$
Fair value at beginning of period
2012
2013
2014
As of or for the year ended December 31, (in millions, except where otherwise noted)
The following table summarizes MSR activity for the years ended December 31, 2014, 2013 and 2012.
7,223
Fair value at December 31, (f)
$ 48,081
2014
Asset Management
Commercial Banking
Consumer & Community Banking
Corporate & Investment Bank
December 31, (in millions)
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm's businesses are
managed and how they are reviewed by the Firm's
Operating Committee. The following table presents goodwill
attributed to the business segments.
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
Note 17 - Goodwill and other intangible assets
Goodwill
JPMorgan Chase & Co./2014 Annual Report
270
(b) Includes securitized loans that were previously recorded at fair value and classified as trading assets.
(a) Total assets held in securitization-related SPES were $254.3 billion and $271.7 billion, respectively, at December 31, 2014 and 2013. The $198.4 billion
and $216.4 billion, respectively, of loans securitized at December 31, 2014 and 2013, excludes: $52.2 billion and $50.8 billion, respectively, of
securitized loans in which the Firm has no continuing involvement, and $3.7 billion and $4.5 billion, respectively, of loan securitizations consolidated on
the Firm's Consolidated balance sheets at December 31, 2014 and 2013.
$ 198,391 $ 216,407 $ 19,358 $ 24,958 $
8,111
5,364 $
1,003
1,267
2,420
1,931
2,166 $ 4,688
7,726
2,350
6,473
1,522
28,008
98,018
94,438
Total goodwill
2014
2013
2012
Balance at December 31,
Other(a)
Dispositions
Business combinations
Changes during the period from:
Balance at beginning of period
(in millions)
Year ended December 31,
amount of goodwill.
The following table presents changes in the carrying
as part of the Private Equity sale completed in January 2015. For
further information on the Private Equity sale, see Note 2.
2013
(a) The remaining $101 million of Private Equity goodwill was disposed of
377
Year ended December 31, (in millions)
Purchased credit card relationships
101
2,863
6,992
6,969
6,964
2,862
2,861
6,895
6,780 6,888
$ 30,941 $ 30,985 $31,048
$ 47,647 $ 48,081 $48,175
2014
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
2012
$
82,964
$
$
5,496
$
-
0.74-8.75%
2,176
3,269
$
$ 100,576
0.57-8.25%
0.57-8.25%
$ 100,129
2,226
3,270
0.73-8.75%
0.73-8.75%
-%
$ 155,490
$
-
-%
38,382
$
Long-term beneficial interests:
Total long-term debt (b)(c)(d)
5,496
$
276,836 (f)(g) $
Subtotal $
5,445
267,889
interests(e)
90
(a) The interest rates shown are the range of contractual rates in effect at year-end, including non-U.S. dollar fixed- and variable-rate issuances, which excludes the
effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the Firm's
exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in
effect at December 31, 2014, for total long-term debt was (0.10)% to 8.55%, versus the contractual range of 0.11% to 8.75% presented in the table above. The
interest rate ranges shown exclude structured notes accounted for at fair value.
31,830
$
35,409
$
5,526
$
0.04-15.93%
0.05-15.93%
10,958
20,872
$
13,972
21,437
$
1,398
4,128
0.05-15.93%
$ 19,003
$ 10,880
7,924
11,079
0.20-5.23%
Interest rates 0.18-1.36%
$
4,650
6,230
Variable rate
Fixed rate $
Total long-term beneficial
3,270
$
2,226
Subordinated debt:
2,587
13,692
0.26-8.00%
0.36-0.48%
Interest rates(a)
$
3,924
$
1,493
$
334
3,805
Variable rate
$
Fixed rate
Senior debt:
0.16-2.04%
3,236
58,640
$
2,204
62,790
0.11-2.04%
0.39%
$
166
1,500
53,490
0.11-0.43%
Fixed rate
$
$
5,289
$
$
9,824
$
$ 76,360
13,945
Subtotal $
$
Fixed rate
Variable rate
Interest rates (a)
Junior subordinated debt:
4.38-8.25%
0.57-6.00%
(b)
-%
2,528
7,286
$
6,936
2,364
2,364
Variable rate
5,428
23,458
0.12-8.00%
$
5,751
20,084
0.26-8.00%
1.30-7.28%
1,647
$
Interest rates (a)
(c)
(d)
(e)
838
836
JPMorgan Chase Capital XXI
2034
2004
480
466
JPMorgan Chase Capital XIII
Quarterly
LIBOR + 0.55%
Any time
2027
1997
257
249
First Chicago NBD Capital I
Quarterly
LIBOR + 0.625%
Any time
2028
1998
249
242
2007
2037
JPMorgan Chase Capital XXIII
643
JPMorgan Chase & Co./2014 Annual Report
278
(a) Represents the amount of trust preferred securities issued to the public by each trust, including unamortized original-issue discount.
(b) Represents the principal amount of JPMorgan Chase debentures issued to each trust, including unamortized original-issue discount. The principal amount
of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm's
Consolidated Financial Statements.
5,496
$
5,188
$
Total
Quarterly
Quarterly
6.70%
2015
Chase Capital VI
2040
1,500
1,500
JPMorgan Chase Capital XXIX
LIBOR + 1.00%
Quarterly
Quarterly
LIBOR + 0.95%
LIBOR + 0.95%
Any time
Any time
Any time
2047
2007
643
2010
32
Quarterly
Quarterly
Any time
issued by trust(a)
preferred
securities
December 31, 2014
(in millions)
Amount of trust
Stated maturity
The following is a summary of the outstanding trust preferred securities, including unamortized original issue discount, issued
by each trust, and the junior subordinated deferrable interest debenture issued to each trust, as of December 31, 2014.
At December 31, 2014, the Firm had outstanding nine
wholly owned Delaware statutory business trusts ("issuer
trusts") that had issued guaranteed capital debt securities.
The junior subordinated deferrable interest debentures
issued by the Firm to the issuer trusts, totaling $5.5 billion
and $5.4 billion at December 31, 2014 and 2013,
respectively, were reflected on the Firm's Consolidated
balance sheets in long-term debt, and in the table on the
preceding page under the caption "Junior subordinated
debt" (i.e., trust preferred securities). The Firm also records
the common capital securities issued by the issuer trusts in
other assets in its Consolidated balance sheets at
December 31, 2014 and 2013. Beginning in 2014, the
debentures issued to the issuer trusts by the Firm, less the
common capital securities of the issuer trusts, began being
phased out from inclusion as Tier 1 capital under Basel III.
As of December 31, 2014, $2.7 billion of these debentures
qualified as Tier 1 capital, while $2.7 billion qualified as
Tier 2 capital. As of December 31, 2013, under Basel I, the
entire balance of these debentures qualified as Tier 1
capital.
income for the year ended December 31, 2013, reflected a
modest loss related to the redemption of trust preferred
securities. On July 12, 2012, the Firm redeemed $9.0
billion, or 100% of the liquidation amount, of the following
nine series of trust preferred securities: JPMorgan Chase
Capital XV, XVII, XVIII, XX, XXII, XXV, XXVI, XXVII and XXVIII.
Other income for the year ended December 31, 2012,
reflected $888 million of pretax extinguishment gains
related to adjustments applied to the cost basis of the
redeemed trust preferred securities during the period they
were in a qualified hedge accounting relationship.
Junior subordinated deferrable interest debentures held
by trusts that issued guaranteed capital debt securities
On May 8, 2013, the Firm redeemed approximately $5.0
billion, or 100% of the liquidation amount, of the following
eight series of guaranteed capital debt securities ("trust
preferred securities"): JPMorgan Chase Capital X, XI, XII,
XIV, XVI, XIX and XXIV, and BANK ONE Capital VI. Other
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's credit
ratings, financial ratios, earnings or stock price.
The Parent Company has guaranteed certain long-term debt
of its subsidiaries, including both long-term debt and
structured notes sold as part of the Firm's market-making
activities. These guarantees rank on parity with all of the
Firm's other unsecured and unsubordinated indebtedness.
Guaranteed liabilities were $352 million and $478 million
at December 31, 2014 and 2013, respectively.
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 2.43% and 2.56% as of December 31,
2014 and 2013, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issues. The use of these
instruments modifies the Firm's interest expense on the
associated debt. The modified weighted-average interest
rates for total long-term debt, including the effects of
related derivative instruments, were 1.50% and 1.54% as
of December 31, 2014 and 2013, respectively.
Notes to consolidated financial statements
277
JPMorgan Chase & Co./2014 Annual Report
The aggregate carrying values of debt that matures in each of the five years subsequent to 2014 is $38.4 billion in 2015, $50.0 billion in 2016, $42.0 billion in
2017, $35.3 billion in 2018 and $28.2 billion in 2019.
At December 31, 2014, long-term debt in the aggregate of $23.5 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity,
based on the terms specified in the respective notes.
Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $2.2 billion and $2.0 billion of outstanding structured
notes accounted for at fair value at December 31, 2014 and 2013, respectively. Excluded short-term commercial paper and other short-term beneficial interests of
$17.0 billion and $17.8 billion at December 31, 2014 and 2013, respectively.
Included $2.9 billion and $2.7 billion of outstanding zero-coupon notes at December 31, 2014 and 2013, respectively. The aggregate principal amount of these
notes at their respective maturities is $7.5 billion and $4.5 billion, respectively.
Included $30.2 billion and $28.9 billion of long-term debt accounted for at fair value at December 31, 2014 and 2013, respectively.
Included long-term debt of $69.2 billion and $68.4 billion secured by assets totaling $156.7 billion and $131.3 billion at December 31, 2014 and 2013,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(g)
(f)
Principal
amount of
debenture
issued to trust(b)
Issue
of trust
preferred
securities and
Earliest
redemption
2027
1997
305
296
Chase Capital II|
LIBOR + 0.50%
dates
Semiannually
payment/
distribution
Interest
Interest rate of
trust preferred
securities and
debentures
8.75%
date
Any time
Any time
LIBOR + 0.55%
2027
498
482
Chase Capital II
2030
2000
726
$
474
Bank One Capital III
debentures
date
1997
$
2,006
7,800
0.27-2.04%
Interest rates(a)
2014
Interest-bearing
Noninterest-bearing
U.S. offices
December 31, (in millions)
At December 31, 2014 and 2013, noninterest-bearing and
interest-bearing deposits were as follows.
-
Note 19 Deposits
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, automobile,
student and commercial (primarily related to real estate)
loans, as well as debt securities. The primary purposes of
these securitization transactions were to satisfy investor
demand and to generate liquidity for the Firm.
Note 18 - Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.
Notes to consolidated financial statements
275
JPMorgan Chase & Co./2014 Annual Report
The impairment test for indefinite-lived intangible assets
compares the fair value of the intangible asset to its
carrying amount. If the carrying value exceeds the fair
value, then an impairment charge is recognized in
amortization expense for the difference.
The impairment test for a finite-lived intangible asset
compares the undiscounted cash flows associated with the
use or disposition of the intangible asset to its carrying
value. If the sum of the undiscounted cash flows exceeds its
carrying value, then no impairment charge is recorded. If
the sum of the undiscounted cash flows is less than its
carrying value, then an impairment charge is recognized in
amortization expense to the extent the carrying amount of
the asset exceeds its fair value.
The Firm's intangible assets are tested for impairment
annually or more often if events or changes in
circumstances indicate that the asset might be impaired.
Impairment testing
42
37
3
2
78
50
2013
$
437,558 $ 389,863
Demand(a)
2017
2016
2015
December 31, 2014
(in millions)
At December 31, 2014, the maturities of interest-bearing
time deposits were as follows.
38,412
$113,216
2013
$ 74,804
43,743
$115,373
2014
$ 71,630
Total
Non-U.S. offices
5
U.S. offices
At December 31, 2014 and 2013, time deposits in
denominations of $100,000 or more were as follows.
Non-U.S. offices
91,356
626,392
1,016,255
86,301
643,350
1,080,908
Total deposits in U.S. offices
Total interest-bearing deposits
Time (included $7,501 and $5,995 at
fair value) (c)
84,631
450,405
466,730
Savings (b)
90,319
December 31, (in millions)
2018
2019
20
70
957
$
637
$
380
$
Total amortization expense (a)
144
188
130
Other intangibles
239
196
102
265
58
51
Core deposit intangibles
Other credit card-related intangibles
309
$
195
97 $
(a) The decline in amortization expense during 2014 predominantly related to intangible assets acquired in the 2004 merger with Bank One, most of which
became fully amortized during the second quarter of 2014.
Future amortization expense
The following table presents estimated future amortization expense related to credit card relationships, core deposits and
other intangible assets at December 31, 2014.
Purchased credit
7
28
126
73
14
33
653 N
2019
2018
2017
2016
110
166
26 $
38 $
13 $
$
2015
Total
Other
intangibles
Core deposit
intangibles
Other credit
card-related intangibles
card relationships
Year ended December 31, (in millions)
89 $
2013
After 5 years
U.S.
$
0.33-6.75%
$ 2,581
Fixed rate
Subordinated debt:
7,196
Variable rate
Interest rates (a)
46,275
$
$ 13,214
Fixed rate
2013
Total
After 5 years
1-5 years
Under 1 year
Total
2014
Senior debt:
Parent company
(in millions, except rates)
By remaining maturity at
December 31,
JPMorgan Chase issues long-term debt denominated in various currencies, although predominantly U.S. dollars, with both fixed
and variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed
instruments, which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions
revenue in the Consolidated statements of income. The following table is a summary of long-term debt carrying values
(including unamortized original issue discount, valuation adjustments and fair value adjustments, where applicable) by
remaining contractual maturity as of December 31, 2014.
Note 21 - Long-term debt
JPMorgan Chase & Co./2014 Annual Report
Variable rate
1,446
28,482
0.27-7.25%
2,373
2,000
49,300
6,572
0.18-6.40%
Variable rate
$
Fixed rate
Federal Home Loan Banks
("FHLB") advances:
Subsidiaries
$ 161,868
171,211
$
$ 67,644
$ 79,130
Subtotal $ 24,437
276
0.63-8.53%
0.48-8.53%
3.38-8.00%
1.06-8.53%
0.48-5.25%
Interest rates (a)
$ 15,198
16,717
3,455
9
11,763
$ 101,074
41,030
0.19-7.25%
108,789
42,250
0.18-7.25%
4,566
Total
(c) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, see Note 4.
certain trust accounts.
The following table details the components of accounts
payable and other liabilities.
Note 20 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of payables to
customers; payables to brokers, dealers and clearing
organizations; payables from security purchases that did
not settle; income taxes payables; accrued expense,
including interest-bearing liabilities; and all other liabilities,
including litigation reserves and obligations to return
securities received as collateral.
$ 86,301 $ 43,757 $ 130,058
-
4,208
4,208
1,589
166
1,423
1,825
75
1,750
1,541
61
1,480
6,935
424
6,511
$ 113,960
$ 43,031
$ 70,929
Total
Non-U.S.
December 31, (in millions)
2014
2013
Noninterest-bearing
(a) Includes Negotiable Order of Withdrawal ("NOW") accounts, and
Total deposits
$ 1,363,427 $ 1,287,765
(b) Includes $36 million and $25 million accounted for at fair value at
December 31, 2014 and 2013, respectively.
(a) Includes payables to customers, brokers, dealers and clearing
organizations, and payables from security purchases that did not
settle.
$ 206,954 $ 194,491
$ 134,467 $ 116,391
72,487
78,100
Accounts payable and other liabilities (b)
Total
Brokerage payables(a)
17,611
19,078
(b) Includes Money Market Deposit Accounts ("MMDAS”).
38,425
253,899
271,510
Total deposits in non-U.S. offices
263,441
Total interest-bearing deposits
43,757
Time (included $1,306 and $629 at
fair value) (c)
1.083
214,391
217,011
2,673
Savings
Demand
Interest-bearing
282,519
Loan securitizations
Purchase of MSRS
Corporate (a)
Year ended December 31,
Statutory U.S. federal tax rate
Increase/(decrease) in tax rate
resulting from:
2014
35.0%
2013
35.0%
2012
35.0%
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
2.7
2.2
1.6
Tax-exempt income
(3.1)
(3.1)
Effective tax rate
(2.9)
A reconciliation of the applicable statutory U.S. income tax
rate to the effective tax rate for each of the years ended
December 31, 2014, 2013 and 2012, is presented in the
following table.
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
1,467
(269)
124
(145)
$ 1,567 $ (577) $ 990 $(4,793) $ 1,890
Total other comprehensive income/(loss)
(a) The pretax amount is reported in securities gains in the Consolidated statements of income.
$(2,903) $ 5,147 $ (1,989) $ 3,158
(b) Reclassifications of pretax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated
statements of income. The amounts were not material for the periods presented.
(c) The pretax amount is reported in the same line as the hedged items, which are predominantly recorded in net interest income in the Consolidated
statements of income.
(d) The pretax amount is reported in compensation expense in the Consolidated statements of income.
JPMorgan Chase & Co./2014 Annual Report
281
Notes to consolidated financial statements
Note 26 - Income taxes
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
Non-U.S. subsidiary earnings(a)
(2.0)
(4.9)
Income tax expense/(benefit)
Non-U.S.
2014
2013
2012
Year ended December 31,
(in millions)
Current income tax expense/(benefit)
U.S. federal
$ 1,610
$ (1,316) $ 3,225
1,353
1,308
1,782
U.S. state and local
The components of income tax expense/(benefit) included
in the Consolidated statements of income were as follows
for each of the years ended December 31, 2014, 2013, and
2012.
282
(a) Predominantly includes earnings of U.K. subsidiaries that are deemed
to be reinvested indefinitely.
26.4%
(2.4)
Business tax credits
(5.4)
(5.4)
(4.2)
Nondeductible legal expense
2.4
(852)
8.0
Other, net
(2.6)
(1.0)
(0.5)
Effective tax rate
27.0%
30.8%
(0.2)
857
2,319
(13)
165
(259)
113
(44)
69
Defined benefit pension and OPEB plans:
(53)
21
(32)
6
(2)
4
(1,697)
688
(1,009)
(424)
2,055
44
74
(319)
141
(55)
86
Reclassification adjustment for realized (gains)/
losses included in net income(c)
(24)
9
(15)
101
(41)
60
(28)
11
(17)
Net change
(30)
(750)
1,305
(537)
(43)
17
(26)
(41)
16
(25)
39
(1,683)
(32)
665
7
(14)
5
(9)
(21)
8
(27)
17
(44)
198
228
(309)
Prior service credits arising during the period
Net gains/(losses) arising during the period
Reclassification adjustments included in
net income(d):
Amortization of net loss
Prior service costs/(credits)
Foreign exchange and other
(1,018)
Net change
(29)
43
321
(124)
197
324
(126)
72
(4)
1,496
Total current income tax expense/
(benefit)
related to prior periods
477
88
234
Net deferred tax assets
$
2,191 $
6,163
Decreases based on tax positions
related to prior periods
(1,902)
(2,200)
(853)
JPMorgan Chase has recorded deferred tax assets of $570
million at December 31, 2014, in connection with U.S.
federal net operating loss ("NOL") carryforwards. At
December 31, 2014, total U.S. federal NOL carryforwards
were approximately $1.6 billion. If not utilized, the U.S.
federal NOL carryforwards will expire between 2025 and
2034.
The valuation allowance at December 31, 2014, was due to
losses associated with non-U.S. subsidiaries.
$ 4,911 $ 5,535 $ 7,158
19,594
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$17 million, $(184) million and $147 million in 2014,
2013 and 2012, respectively.
20,436
Increases based on tax positions
Balance at January 1,
$ 5,535
$ 7,158
$ 7,189
Non-U.S. operations
4,444
4,705
Increases based on tax positions
related to the current period
810
542
680
Other, net
4,891
3,459
Gross deferred tax liabilities
At both December 31, 2014 and 2013, in addition to the
liability for unrecognized tax benefits, the Firm had accrued
$1.2 billion for income tax-related interest and penalties.
Decreases related to settlements with
taxing authorities
(9)
2006-2012
JPMorgan Chase - New
York State and City
2005-2007
Field examination
Field examination
JPMorgan Chase -
California
2006-2010
The following table presents the U.S. and non-U.S.
components of income before income tax expense for the
years ended December 31, 2014, 2013 and 2012.
Income before income tax expense - U.S. and non-U.S.
Year ended December 31,
(in millions)
2014
2013
U.S.
Non-U.S.(a)
JPMorgan Chase - U.K.
2006-2010
JPMorgan Chase - U.S.
2003-2005
(53)
(50)
Decreases related to a lapse of
applicable statute of limitations
Balance at December 31,
-
(42)
JPMorgan Chase & Co./2014 Annual Report
283
2,352
Notes to consolidated financial statements
Tax examination status
December 31, 2014
Periods under
examination
Status
Field examination
completed; at
Appellate level
Field examination
Field examination of
certain select entities
JPMorgan Chase - U.S.
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many states throughout the U.S. The
following table summarizes the status of significant income
tax examinations of JPMorgan Chase and its consolidated
subsidiaries as of December 31, 2014.
2,495
Leasing transactions
2012
1,130
$ 8,030 $ 7,991 $ 7,633
Total income tax expense includes $451 million, $531
million and $200 million of tax benefits recorded in 2014,
2013, and 2012, respectively, as a result of tax audit
resolutions. In 2013, the relationship between current and
deferred income tax expense was largely driven by the
reversal of significant deferred tax assets as well as prior-
year tax adjustments and audit resolutions.
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity and certain tax benefits associated
with the Firm's employee stock-based compensation plans.
The tax effect of all items recorded directly to stockholders'
equity resulted in a decrease of $140 million in 2014, an
increase of $2.1 billion in 2013, and a decrease of $1.9
billion in 2012.
U.S. federal income taxes have not been provided on the
undistributed earnings of certain non-U.S. subsidiaries, to
the extent that such earnings have been reinvested abroad
for an indefinite period of time. Based on JPMorgan Chase's
ongoing review of the business requirements and capital
needs of its non-U.S. subsidiaries, combined with the
formation of specific strategies and steps taken to fulfill
these requirements and needs, the Firm has determined
that the undistributed earnings of certain of its subsidiaries
would be indefinitely reinvested to fund current and future
growth of the related businesses. As management does not
intend to use the earnings of these subsidiaries as a source
of funding for its U.S. operations, such earnings will not be
distributed to the U.S. in the foreseeable future. For 2014,
pretax earnings of $2.6 billion were generated and will be
indefinitely reinvested in these subsidiaries. At
December 31, 2014, the cumulative amount of
undistributed pretax earnings in these subsidiaries were
$31.1 billion. If the Firm were to record a deferred tax
liability associated with these undistributed earnings, the
amount would be $7.0 billion at December 31, 2014.
JPMorgan Chase & Co./2014 Annual Report
Deferred taxes
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
$
5,756
$
Employee benefits
3,378
8,003
4,210
Total income tax expense
Total deferred income tax expense/
(benefit)
3,820
(12)
6,503
Deferred income tax expense/(benefit)
U.S. federal
3,738
7,080
Accrued expenses and other
2,238
71
10
(327)
401
913
(781)
U.S. state and local
Non-U.S.
206
8,637
5,106
These undistributed earnings are related to subsidiaries
located predominantly in the U.K. where the 2014 statutory
tax rate was 21.5%.
Tax expense applicable to securities gains and losses for the
years 2014, 2013 and 2012 was $30 million, $261 million,
and $822 million, respectively.
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table as
of December 31, 2014 and 2013.
2014
2013
At December 31, 2014, 2013 and 2012, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.9 billion, $5.5 billion and
$7.2 billion, respectively, of which $3.5 billion, $3.7 billion
and $4.2 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service,
New York State and City, and the State of California as
summarized in the Tax examination status table below.
Based upon the status of all of the tax examinations
currently in process, it is reasonably possible that over the
next 12 months the resolution of these examinations could
result in a reduction in the gross balance of unrecognized
tax benefits in the range of $0 to approximately $2 billion.
Upon settlement of an audit, the gross unrecognized tax
benefits would decline either because of tax payments or
the recognition of tax benefits.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2014, 2013 and 2012.
Unrecognized tax benefits
Mortgage servicing rights, net of
hedges
Year ended December 31,
5,533
5,882
(in millions)
2014
2013
3,196
3,073 $
$
Depreciation and amortization
6,593
4,468
9,179
5,493
Tax attribute carryforwards
570
748
Gross deferred tax assets
23,447
26,481
Non-U.S. operations
Valuation allowance
(724)
Deferred tax assets, net of valuation
allowance
288
22,627 $
25,757
Deferred tax liabilities
(820)
(525)
59
(39)
Issued from treasury:
Employee benefits and
compensation plans
39.8
47.1
63.7
Employee stock purchase plans
Total issued from treasury
Total treasury - balance at
December 31
1.2
1.1
1.3
41.0
48.2
65.0
(390.1)
3,714.8 3,756.1
(348.8) (300.9)
(0.2)
3,804.0
(33.5)
(348.8)
(82.3)
On September 1, 2013, the Firm redeemed all of the
outstanding shares of its 8.625% Non-Cumulative Preferred
Stock, Series J at their stated redemption value.
Redemption rights
Each series of the Firm's preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a capital treatment event, as described in the terms of each
series. Any redemption of the Firm's preferred stock is
subject to non-objection from the Federal Reserve.
Subsequent events
Issuance of preferred stock
On February 12, 2015, the Firm issued $1.4 billion of
noncumulative preferred stock.
Note 23 - Common stock
At December 31, 2014 and 2013, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Common shares issued (newly issued or distributed from
treasury) by JPMorgan Chase during the years ended
December 31, 2014, 2013 and 2012 were as follows.
Year ended December 31,
(in millions)
2014
2013
2012
Total issued - balance at
January 1 and December 31
Treasury - balance at January 1
Purchase of treasury stock
Share repurchases related to
employee stock-based awards (a)
4,104.9
4,104.9 4,104.9
(300.9) (332.2)
(96.1)
Outstanding
(a) Participants in the Firm's stock-based incentive plans may have
shares withheld to cover income taxes.
JPMorgan Chase & Co./2014 Annual Report
Note 24 - Earnings per share
Earnings per share ("EPS") is calculated under the two-class
method under which all earnings (distributed and
undistributed) are allocated to each class of common stock
and participating securities based on their respective rights
to receive dividends. JPMorgan Chase grants restricted
stock and RSUs to certain employees under its stock-based
compensation programs, which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock; these unvested awards meet the definition of
participating securities. Options issued under employee
benefit plans that have an antidilutive effect are excluded
from the computation of diluted EPS.
The following table presents the calculation of basic and
diluted EPS for the years ended December 31, 2014, 2013
and 2012.
Year ended December 31,
(in millions,
except per share amounts)
Basic earnings per share
Net income
Less: Preferred stock dividends
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
Total weighted-average basic
shares outstanding
Net income per share
Diluted earnings per share
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Add: Employee stock options, SARS
and warrants (a)
2014
As of December 31, 2014, approximately 240 million
unissued shares of common stock were reserved for
issuance under various employee incentive, compensation,
option and stock purchase plans, director compensation
plans, and the Warrants, as discussed above.
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
"blackout periods." All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
when the Firm is not aware of material nonpublic
information. For additional information regarding
repurchases of the Firm's equity securities, see Part II, Item
5: Market for registrant's common equity, related
stockholder matters and issuer purchases of equity
securities, on pages 18-19.
$ - $ - $ 238
Total number of Warrants repurchased
Aggregate purchase price of Warrant
repurchases
279
Notes to consolidated financial statements
At each of December 31, 2014, 2013, and 2012,
respectively, the Firm had 59.8 million warrants
outstanding to purchase shares of common stock (the
"Warrants"). The Warrants are currently traded on the New
York Stock Exchange, and they are exercisable, in whole or
in part, at any time and from time to time until October 28,
2018. The original warrant exercise price was $42.42 per
share. The number of shares issuable upon the exercise of
each warrant and the warrant exercise price is subject to
adjustment upon the occurrence of certain events,
including, but not limited to, the extent regular quarterly
cash dividends exceed $0.38 per share. As a result of the
increase in the Firm's quarterly common stock dividend to
$0.40 per share commencing with the second quarter of
2014, the exercise price of the Warrants was adjusted each
subsequent quarter, and was $42.391 as of December 31,
2014. There has been no change in the number of shares
issuable upon exercise.
On March 13, 2012, the Board of Directors authorized a
$15.0 billion common equity (i.e., common stock and
warrants) repurchase program. As of December 31, 2014,
$3.8 billion (on a trade-date basis) of authorized
repurchase capacity remained under the program. The
amount of equity that may be repurchased by the Firm is
also subject to the amount that is set forth in the Firm's
annual capital plan that is submitted to the Federal Reserve
as part of the Comprehensive Capital Analysis and Review
("CCAR") process.
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2014,
2013 and 2012, on a trade-date basis. There were no
warrants repurchased during the years ended
December 31, 2014, and 2013.
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
2014
Dividends on fixed-rate preferred stock are payable
quarterly. Dividends on fixed-to-floating rate preferred
stock are payable semiannually while at a fixed rate, and
will become payable quarterly after converting to a floating
rate.
2013
83.4
96.1
30.9
Aggregate purchase price of common
stock repurchases
$ 4,834
$ 4,789 $ 1,329
--
18.5
2012
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus any accrued
but unpaid dividends.
(a) Represented by depositary shares.
2,006,250 1,115,750 $ 20,063 $ 11,158
Series P
90,000
90,000
900
1,258 $ 1,258
900
Series T
92,500
925
Series W
88,000
880
8/27/2012
2/5/2013
1/30/2014
6/23/2014
5.500% 9/1/2017
5.450 3/1/2018
6.700 3/1/2019
6.300 9/1/2019
금금금
ΝΑ
$
125,750
125,750
Series O
Note 22 - Preferred stock
At December 31, 2014 and 2013, JPMorgan Chase was
authorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1.00 per share.
In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase's preferred stock then outstanding takes
precedence over the Firm's common stock for the payment
of dividends and the distribution of assets.
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2014 and
2013.
Shares at December 31,
(represented by
depositary shares) (a)
2014
2013
ΝΑ
Carrying value
(in millions)
at December 31,
2014
2013
Issue date
in effect at
December 31, redemption
2014
date
Earliest
Date at
which
dividend
rate
becomes
floating
Floating annual
rate of
three-month
LIBOR plus:
Fixed-rate:
Contractual
rate
2013
ΝΑ
금금금금
Series S
200,000
2,000
Series U
100,000
1,000
Series V
250,000
2,500
Series X
160,000
1,600
4/23/2008
4/23/2013
7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
7.900% 4/30/2018 4/30/2018 LIBOR + 3.47 %
5.150 5/1/2023 5/1/2023 LIBOR + 3.25
6.000 8/1/2023 8/1/2023 LIBOR + 3.30
6.750 2/1/2024 2/1/2024 LIBOR + 3.78
6.125 4/30/2024 4/30/2024 LIBOR + 3.33
5.000 7/1/2019 7/1/2019 LIBOR + 3.32
6.100 10/1/2024 10/1/2024 LIBOR + 3.33
Total preferred stock
1,500
1,500
150,000
150,000
ΝΑ
NA
ΝΑ
ΝΑ
Fixed-to-floating rate:
Series I
600,000
ΝΑ
600,000
6,000
Series Q
150,000
150,000
1,500
1,500
Series R
6,000
$ 22,515
7,277
2012
20,637 17,118 20,631
Pretax
Tax
effect
After-
tax
Pretax
Tax
effect
After-
tax
Unrealized gains/(losses) on investment
securities:
Net unrealized gains/(losses) arising during the
period
$ 3,193
$ (1,170) $2,023
$(5,987) $ 2,323
$(3,664) $ 7,521
$(2,930) $ 4,591
After-
tax
Reclassification adjustment for realized (gains)/
losses included in net income (a)
2012
2014
Tax
effect
$ 4,773
$
(147)
$
(95)
$
(2,342)
Balance at December 31, 2013
Net change
Balance at December 31, 2014
$ 2,189
(a) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS including, as of the date of transfer during
the first quarter of 2014, $9 million of net unrealized losses related to AFS securities that were transferred to HTM. Subsequent to transfer, includes any
net unamortized unrealized gains and losses related to the transferred securities.
(b) At December 31, 2011, included after-tax non-credit related unrealized losses of $56 million on debt securities for which credit losses have been
recognized in income. There were no such losses for the other periods presented.
The following table presents the before- and after-tax changes in the components of other comprehensive income/(loss).
Year ended December 31, (in millions)
Pretax
2013
Net change
Translation adjustments:
Translation(b)
31
(51)
60
(71)
(11)
(34)
(7)
(41)
(108)
39
(69)
Net change
Cash flow hedges:
Net unrealized gains/(losses) arising during the
period
98
(82)
471
(302)
773
Hedges (b)
(77)
3,116
29
(48) (667)
(1,141) 1,975 (6,654)
261
(406) (2,110)
2,584 (4,070) 5,411
822 (1,288)
(2,108) 3,303
(1,638)
1,698
(b)
588
(659)
(807)
295
(512)
(26)
8
(18)
1,039
(1,050)
990
(1,018)
44
Note 25 - Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/
(credit) related to the Firm's defined benefit pension and OPEB plans.
Year ended December 31,
(in millions)
Balance at December 31, 2011
Net change
Balance at December 31, 2012
Net change
Accumulated
Unrealized gains/
(losses) on
investment
Translation
adjustments,
Cash flow
securities (a)
net of hedges
hedges
Defined benefit pension
and OPEB plans
other
comprehensive
JPMorgan Chase & Co./2014 Annual Report
280
(b) Participating securities were included in the calculation of diluted EPS using the
two-class method, as this computation was more dilutive than the calculation
using the treasury stock method.
(a) Excluded from the computation of diluted EPS (due to the antidilutive effect)
were certain options issued under employee benefit plans and the Warrants. The
aggregate number of shares issuable upon the exercise of such options and
Warrants was 1 million, 6 million and 148 million for the years ended
December 31, 2014, 2013 and 2012, respectively.
544
525
754
$ 20,093 $ 16,593 $ 19,877
$
3,763.5 3,782.4 3,809.4
5.34 $ 4.39 $ 5.22
$ 20,093 $ 16,593 $ 19,877
income/(loss)
3,763.5 3,782.4 3,809.4
32.5
12.8
Total weighted-average diluted
shares outstanding (b)
$
3,797.5
5.29 $
3,814.9 3,822.2
4.35 $ 5.20
Net income per share
34.0
$ 21,762 $ 17,923 $ 21,284
1,125
805
653
(b)
$
(4,070)
(41)
(259)
1,467
(2,903)
(b)
$ 2,798
1,975
$
(136)
$
(139)
$
(1,324)
1,199
(11)
$ 4,102
(2,791)
$
120
(26)
$
51
$
(2,646)
$
3,303
$ 3,565
(69)
(145)
944
3,158
$ 6,868
(b)
$
(95)
$
69
$ 17,229
JPMorgan Chase & Co./2014 Annual Report
$29,792
For each of the risk-based capital ratios the lower of the Standardized
Transitional or Advanced Transitional ratio represents the Collins Floor.
Asset and capital amounts for JPMorgan Chase's banking subsidiaries
reflect intercompany transactions; whereas the respective amounts for
JPMorgan Chase reflect the elimination of intercompany transactions.
Note: Rating agencies allow measures of capital to be adjusted upward for
deferred tax liabilities, which have resulted from both non-taxable
business combinations and from tax-deductible goodwill. The Firm had
deferred tax liabilities resulting from non-taxable business combinations
totaling $130 million and $192 million at December 31, 2014, and
December 31, 2013, respectively; and deferred tax liabilities resulting
from tax-deductible goodwill of $2.7 billion and $2.8 billion at December
31, 2014, and December 31, 2013, respectively.
As defined by the regulations issued by the Federal Reserve, OCC and
FDIC. The CET1 capital ratio became a relevant measure of capital under
the prompt corrective action requirements on January 1, 2015.
Represents requirements for bank subsidiaries pursuant to regulations
issued under the FDIC Improvement Act. There is no Tier 1 leverage
component in the definition of a well-capitalized bank holding company.
As of December 31, 2014, and 2013, JPMorgan Chase and
all of its banking subsidiaries were well-capitalized and met
all capital requirements to which each was subject.
286
JPMorgan Chase & Co./2014 Annual Report
Note 29 - Off-balance sheet lending-related
financial instruments, guarantees, and other
commitments
Adjusted average assets, for purposes of calculating the leverage ratio,
includes total quarterly average assets adjusted for unrealized gains/
(losses) on securities, less deductions for disallowed goodwill and other
intangible assets, investments in certain subsidiaries, and the total
adjusted carrying value of nonfinancial equity investments that are
subject to deductions from Tier 1 capital.
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should the
counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and
should the counterparty subsequently fail to perform
according to the terms of the contract. Most of these
commitments and guarantees expire without being drawn
or a default occurring. As a result, the total contractual
amount of these instruments is not, in the Firm's view,
representative of its actual future credit exposure or
funding requirements.
commitments is maintained. See Note 15 for further
discussion regarding the allowance for credit losses on
lending-related commitments. The following table
summarizes the contractual amounts and carrying values of
off-balance sheet lending-related financial instruments,
guarantees and other commitments at December 31, 2014
and 2013. The amounts in the table below for credit card
and home equity lending-related commitments represent
the total available credit for these products. The Firm has
not experienced, and does not anticipate, that all available
lines of credit for these products will be utilized at the same
time. The Firm can reduce or cancel credit card lines of
credit by providing the borrower notice or, in some cases as
permitted by law, without notice. The Firm may reduce or
close home equity lines of credit when there are significant
decreases in the value of the underlying property, or when
there has been a demonstrable decline in the
creditworthiness of the borrower. Also, the Firm typically
closes credit card lines when the borrower is 60 days or
more past due.
JPMorgan Chase & Co./2014 Annual Report
287
Notes to consolidated financial statements
Off-balance sheet lending-related financial instruments, guarantees and other commitments
Contractual amount
To provide for probable credit losses inherent in consumer
(excluding credit card) and wholesale lending commitments,
an allowance for credit losses on lending-related
Carrying value(i)
(d)
(b)
(a)
(b)
(b)
Minimum
capital
ratios(a)
Well-
capitalized
ratios(a)
(c)
4.0%
5.5
6.0%
8.0
10.0
4.0
5.0
Income before income tax expense
At December 31, 2014, trust preferred securities included in Basel III Tier
1 capital were $2.7 billion and $300 million for JPMorgan Chase and
JPMorgan Chase Bank, N.A., respectively. At December 31, 2014, Chase
Bank USA, N.A. had no trust preferred securities.
2013
2013
4,389 $
5,920
1,841 $
2,141
3,411 $ 11,807 $ 13,158
3,329
14,859
$
$
17,837
3,469
8,579
4,817
Prime mortgage(a)
Subprime mortgage
Auto
-
9,302
8,579
2014
Home equity - junior lien
Consumer, excluding credit card:
2014
Expires in
By remaining maturity at December 31,
(in millions)
1 year or
less
Expires
after
1 year
through
3 years
Expires
after
$ 2,166 $
3 years
5 years
Expires
after 5
years
Total
Total
Lending-related
Home equity senior lien
through
(a)
Tier 1 leverage
11.8
Chase Bank USA, N.A. (d)
Basel III
Advanced
Transitional
Basel I
(in millions,
except ratios)
Standardized
Transitional
Dec 31,
2014
Dec 31,
2013
Regulatory capital
CET1 capital
$
14,556
14,556
Dec 31,
2014
Tier 1 capital (a)
Basel III
Notes to consolidated financial statements
Tier 1 (a)
12.8
11.8
ΝΑ
11.9%
Total
14.1
Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of Tier 1 and Total capital to risk-weighted assets,
as well as minimum leverage ratios (which are defined as
Tier 1 capital divided by adjusted quarterly average assets).
Failure to meet these minimum requirements could cause
the Federal Reserve to take action. Bank subsidiaries also
are subject to these capital requirements by their respective
primary regulators. The following table presents the
minimum ratios to which the Firm and its national bank
subsidiaries are subject as of December 31, 2014.
12.5
Tier 1 leverage
8.0
8.0
7.4
JPMorgan Chase & Co./2014 Annual Report
285
14.1
14,556
14,556
$
CET1
Tier 1 (a)
14.1
9.2
12.8%
Tier 1
ΝΑ
Total
12.2
16.2
Total
Tier 1 leverage
11.4
11.4
19.8
9.2%
14.1%
CET1
Total capital
20,517
19,206
ΝΑ
12,956
16,389
Assets
Risk-weighted
103,468
157,565
100,990
Adjusted average (b)
128,111
128,111
109,731
Capital ratios (c)
Capital ratios
921
11.8%
192
10,462
$
-
$
3,009
167
12,313
$ 169,709
38,100
56,274
80
72
40,993
40,993
38,211
53,589
Loan sale and securitization-related
- $ - $ - $ 1
$ 
171,059
Unsettled reverse repurchase and securities
borrowing agreements
-
Securities lending indemnification agreements and
guarantees (g)
Derivatives qualifying as guarantees
185,451 128,209
$ 745,584 $ 140,254 $ 152,875 $
148,584
$ 171,059 $
9,812
17,459 $1,056,172
5,020
446,232
$1,031,672
1
2
1,163 1,377
$ 1,176 $ 1,385
4,331
472,056
91
indemnifications:
Loans sold with recourse
8
3,391
1,336
5,720
6,786
(121)
506
(99)
(d) At December 31, 2014 and 2013, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities,
hospitals and other non-profit entities of $14.8 billion and $18.9 billion, respectively, within other unfunded commitments to extend credit; and $13.3
billion and $17.2 billion, respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also
include liquidity facilities to nonconsolidated municipal bond VIES; see Note 16.
(e) At December 31, 2014 and 2013, included unissued standby letters of credit commitments of $45.6 billion and $42.8 billion, respectively.
(f) At December 31, 2014 and 2013, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 65% and 68%,
respectively.
(g) At December 31, 2014 and 2013, collateral held by the Firm in support of securities lending indemnification agreements was $177.1 billion and $176.4
billion, respectively. Securities lending collateral comprises primarily cash and securities issued by governments that are members of the Organisation for
Economic Co-operation and Development ("OECD") and U.S. government agencies.
(h) At December 31, 2014 and 2013, included unfunded commitments of $147 million and $215 million, respectively, to third-party private equity funds;
and $961 million and $1.9 billion, respectively, to other equity investments. These commitments included $150 million and $184 million, respectively,
related to investments that are generally fair valued at net asset value as discussed in Note 3. In addition, at both December 31, 2014 and 2013, included
letters of credit hedged by derivative transactions and managed on a market risk basis of $4.5 billion.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, the carrying value represents the fair value.
(a) Includes certain commitments to purchase loans from correspondents.
(b) Predominantly all consumer lending-related commitments are in the U.S.
(c) At December 31, 2014 and 2013, reflects the contractual amount net of risk participations totaling $243 million and $476 million, respectively, for other
unfunded commitments to extend credit; $13.0 billion and $14.8 billion, respectively, for standby letters of credit and other financial guarantees; and
$469 million and $622 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross
of risk participations.
Mortgage repurchase liability
131
7,692
Other guarantees and commitments(h)
NA
ΝΑ
NA
ΝΑ
ΝΑ
102
ΝΑ
681
ΝΑ
487
ΝΑ
ΝΑ
ΝΑ
6,063
275
877
3,363
Other guarantees and commitments
685
-
Total consumer, excluding credit card
34,170
12,045
4,291
552
7,647
56,057
13
8
Credit card
525,963
525,963
58,153
529,383
447
8
8,309
2
1
Business banking
10,557
807
-
117
11,894
11,251
11
7
Student and other
97
413
Total consumer(b)
560,133
12,045
2,555
Unused advised lines of credit
90,816
13,702
519
138
34,982
89,874
105,175
788
943
101,994
Other letters of credit (c)
Total wholesale(f)
Total lending-related
92,723
29,753
22,584
Standby letters of credit and other financial
guarantees (c)(d)(e)
4,291
7,647
584,116
585,440
13
8
Wholesale:
Other unfunded commitments to extend credit (c)(d)
68,688
83,877 112,992
7,119
272,676
246,495
374
432
47
12.8%
ΝΑ
Tier 1 leverage
JPMorgan Chase Bank, N.A.(d)
Basel III
7.1
7.6
7.6
14.4
13.1
15.0
Total
ΝΑ
11.9%
11.6
12.7
Tier 1 (a)
10.2%
11.2%
CET1
Capital ratios (c)
2,343,713
2,465,414
Basel III
2,465,414
Standardized
Transitional
1,968,131
1,171,574
1,330,175
1,230,358
Risk-weighted
Adjusted average (b)
Capital ratios (c)
CET1
Assets
CET1 capital
Tier 1 capital(a)
Total capital
165,496
$ 139,727
ΝΑ
156,898
157,222
166,662
157,222
173,659
$ 156,898 $
Regulatory capital
Basel I
Dec 31,
2013
Dec 31,
2014
Dec 31,
2014
(in millions,
except ratios)
Transitional
Advanced
1,968,131
1,387,863
1,472,602
On February 21, 2014, the Federal Reserve and the OCC
informed the Firm and its national bank subsidiaries that
they had satisfactorily completed the parallel run
requirements and were approved to calculate capital under
Basel III Advanced, in addition to Basel III Standardized, as
of April 1, 2014. In conjunction with its exit from the
parallel run, the capital adequacy of the Firm and its
national bank subsidiaries is evaluated against the Basel III
approach (Standardized or Advanced) which results, for
each quarter beginning with the second quarter of 2014, in
the lower ratio (the "Collins Floor"), as required by the
Collins Amendment of the Dodd-Frank Act.
Beginning in 2014, there are three categories of risk-based
capital under the Basel III Transitional rules: Common
Equity Tier 1 capital (“CET1 capital"), as well as Tier 1
capital and Tier 2 capital. CET1 capital predominantly
includes common stockholders' equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined benefit pension and OPEB plans), less
certain deductions for goodwill, MSRs and deferred tax
assets that arise from NOL and tax credit carryforwards.
Tier 1 capital is predominantly comprised of CET1 capital as
well as perpetual preferred stock. Tier 2 capital includes
long-term debt qualifying as Tier 2 and qualifying allowance
for credit losses. Total capital is Tier 1 capital plus Tier 2
capital.
Basel III rules under the transitional Standardized and
Advanced Approaches ("Basel III Standardized Transitional"
and "Basel III Advanced Transitional," respectively) became
effective on January 1, 2014; December 31, 2013 data is
based on Basel I rules. Basel III establishes two
comprehensive methodologies for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between the
Standardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated mostly consistent
across Basel III Standardized and Basel III Advanced, both of
which incorporate the requirements set forth in Basel 2.5.
For 2014, Basel III Standardized Transitional requires the
Firm to calculate its capital ratios using the Basel III
definition of capital divided by the Basel I definition of RWA,
inclusive of Basel 2.5 for market risk.
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
capital requirements and standards for the Firm's national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Note 28 Regulatory capital
-
JPMorgan Chase & Co./2014 Annual Report
284
restricted cash of $3.3 billion and $3.9 billion, respectively,
primarily representing cash reserves held at non-U.S.
central banks and held for other general purposes.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2014 and
2013, cash in the amount of $16.8 billion and $17.2
billion, respectively, and securities with a fair value of
$10.1 billion and $1.5 billion, respectively, were segregated
in special bank accounts for the benefit of securities and
futures brokerage customers. In addition, as of
December 31, 2014 and 2013, the Firm had other
At January 1, 2015, JPMorgan Chase's banking subsidiaries
could pay, in the aggregate, approximately $31 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2015 will be
supplemented by the banking subsidiaries' earnings during
the year.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase and certain of its affiliates from borrowing from
banking subsidiaries unless the loans are secured in
specified amounts. Such secured loans to the Firm or to
other affiliates are generally limited to 10% of the banking
subsidiary's total capital, as determined by the risk-based
capital guidelines; the aggregate amount of all such loans is
limited to 20% of the banking subsidiary's total capital.
The principal sources of JPMorgan Chase's income (on a
parent company-only basis) are dividends and interest from
JPMorgan Chase Bank, N.A., and the other banking and
nonbanking subsidiaries of JPMorgan Chase. In addition to
dividend restrictions set forth in statutes and regulations,
the Federal Reserve, the Office of the Comptroller of the
Currency ("OCC") and the FDIC have authority under the
Financial Institutions Supervisory Act to prohibit or to limit
the payment of dividends by the banking organizations they
supervise, including JPMorgan Chase and its subsidiaries
that are banks or bank holding companies, if, in the banking
regulator's opinion, payment of a dividend would constitute
an unsafe or unsound practice in light of the financial
condition of the banking organization.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average amount of reserve balances deposited by the Firm's
bank subsidiaries with various Federal Reserve Banks was
approximately $10.6 billion and $5.3 billion in 2014 and
2013, respectively.
The business of JPMorgan Chase Bank, National Association
("JPMorgan Chase Bank, N.A.”) is subject to examination
and regulation by the OCC. The Bank is a member of the U.S.
Federal Reserve System, and its deposits in the U.S. are
insured by the FDIC.
Note 27 - Restrictions on cash and
intercompany funds transfers
generated from operations located outside the U.S.
(a) For purposes of this table, non-U.S. income is defined as income
$ 24,895
8,685 4,022
$25,914 $ 28,917
2012
The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant national bank subsidiaries under both Basel III
Standardized Transitional and Basel III Advanced
Transitional at December 31, 2014, and under Basel I at
December 31, 2013.
1,608,240
(in millions,
except ratios)
Regulatory capital
Assets
Risk-weighted
Adjusted average(b)
199,286
211,022
$ 165,663
186,632
186,632
221,563
ΝΑ
164,764
$
$ 164,764
Dec 31,
2013
Dec 31,
2014
Dec 31,
2014
Basel I
Transitional
Basel III
Standardized
Advanced
Transitional
Basel III
JPMorgan Chase & Co.(d
CET1 capital
Tier 1 capital (a)
Total capital
1,900,770
$
■11 principles with 1,000+
requirements
Selected JPMorgan Chase actions
■750+ requirements with 21
regulators involved
■~27 different capital ratio
requirements
Selected requirements
■Improving the banking sector's
ability to absorb losses arising from
financial and economic stress
Description
Capital
2015 Financial Architecture
While uncertainty remains, the contours to
the new rules are largely known, and we have
made enormous progress adapting to them
The chart below describes the new rules and
regulations with which we need to comply.
And remember, these new rules affect each
product, business, legal entity and client.
Every requirement has a few hundred
However, a small percentage of our products
and services will require some surgery (more
on that later). In addition, because some
companies are making large strategic moves,
we would expect to see an ongoing shift in
market shares and pricing. It is possible that
we will benefit from both of these trends.
III. A NEW GLOBAL FINANCIAL ARCHITECTURE
22
22
Many banks will have to make some fairly
drastic changes to their strategies, and
because various banks are facing different
overarching constraints, those strategies may
be dramatically dissimilar. We are fortunate
that our strategies will remain essentially the
same, which allows us to avoid the upheaval,
both internally and externally with clients,
that often comes when strategies need to be
changed dramatically.
Fortunately, most of our strategies stay
essentially the same
• Model review. More than 300 employees
are working in Model Risk and Devel-
opment. In 2014, this highly special-
ized team completed over 500 model
reviews, implemented a system to assess
the ongoing performance of the 1,000+
most complex models in the firm, and
continued to enhance capital and loss
models for our company.
• Mortgage servicing improvements. As one
of the United States' largest mortgage
lenders, some of our practices were not
designed to handle the unprecedented
increase in volume that occurred as a
result of the financial crisis. Therefore, we
reviewed the areas that needed enhance-
ment and took the appropriate actions.
We focused on improving our operating
model, we dedicated more than 10,000
employees to assist customers that were
having difficulty making payments, and
we improved our communications with
customers to provide better counseling
and more clarity about the options avail-
able. We also invested more than 280,000
hours of our technology employees'
time to improve our Mortgage Servicing
business, including enhancing the loan
modification application to improve the
systems that track and manage customer
complaints and responses.
the account to stop payday lenders from
trying to take money from the account on
a daily basis.) In addition, we are working
with NACHA to develop new standards
for the entire industry.
• Enhanced controls in connection with payday
lender practices. We reviewed our poli-
cies, systems and processes to decrease
financial burdens on our customers and
hinder payday lenders' ability to engage in
predatory collection practices. And then
we did the following: eliminated multiple
return item fees, enhanced our policy and
systems for stop payment requests, and
allowed account closure with a pending
transaction and/or a negative balance.
(NACHA rules originally did not allow a
bank to close an account with a pending
transaction. Consumers wanted to close
Foreign correspondent banking review. Given
the regulatory scrutiny around these
activities, we have exited many relation-
ships with foreign correspondent banks
where we have risk-related concerns or
where we needed to simplify our busi-
ness. In addition to the relationship
exits, we have improved our controls for
foreign correspondent banking activities,
including enhancing our technology to
better monitor U.S. dollar correspondent
bank transactions – which allowed us to
implement 10 new transaction monitoring
scenarios to better track millions of trans-
actions each day.
•
• New anti-money laundering systems deployed.
We have implemented Mantas, an
industry-leading transaction monitoring
platform, for all U.S. dollar payment
transactions. This provides a signifi-
cant improvement in our transaction
monitoring capabilities and allows us
to decommission multiple less effective
legacy systems. We also have upgraded
our processes and technology support in
AML investigations and sanctions. We
have more to do, but a strong foundation
is in place.
■■■950+ people
■20,000+ pages of supporting
documentation
■225+ new models
Liquidity
■1,000+ pages covering 36
regulations (U.S.) and 237 final
articles (European Union)
■3,150+ pages of requirements and
guidance
■99 proposed or finalized
■3,300+ pages of requirements,
principles and guidance
■90+ new, proposed or amended
rules, notices and regulations
contained within ~13,000 pages
of regulatory text
■~2,000 pages of systemic reform
legislation introduced
proposed Recovery & Resolution
regulation, with more expected
■Annual global recovery plan
■Annual resolution plans for 34
entities, with plans by business
and critical operations
■■■10+ jurisdictions issued or
■■500+ requirements
■15+ jurisdictional variations
expected
Note: This list of regulations is not comprehensive; estimates of resources are approximate
■Restricting banks from undertaking
certain types of market activities
■Controlling risks associated with
certain trading and funds-related
activity
Bank Secrecy Act), fiduciary risk, market
conduct risk, employee compliance and
privacy. We have enhanced our policies
and implemented new procedures and
technology support.
■Promoting use of electronic trading
venues and central clearing
■Bolstering capital and margin
requirements
collect, manage and report on data
in order to facilitate greater market
and product transparency
■Enhancing data-related capabilities
by increasing accountability
and transparency for data quality
■Improving the firm's ability to
■Reforming the nation's housing
finance system
■Expanding origination, servicing
and securitization regulation
Ensuring the resiliency of firms
to prevent failure
■Preparing living wills
■ Ensuring banks hold sufficient
liquid assets to survive acute
liquidity stress
■Prevent overreliance on
short-term wholesale funding
Volcker
Derivatives
Data reporting
and management
Mortgages
Recovery & Resolution
■Enhancing pre- and post-trade
transparency
■400+ people
III. A NEW GLOBAL FINANCIAL ARCHITECTURE
$0.7▾
$0.6▾
We have meaningfully simplified the company
While I have said that it is good housekeeping
to keep our company as simple as possible,
we have done an extraordinary amount of
cleaning out this past year. More important,
last year, we said that we would do it, and
this year we actually did it. The chart below
shows that we did it by shedding businesses,
reducing products and materially de-risking
by reducing certain types of clients that
simply create too much risk in the new world.
In total, we have reduced approximately $25
billion in assets through this effort. All of
this makes the work of our compliance and
control executives that much easier, as they
can focus more on what's important.
III. WE WILL SUCCESSFULLY NAVIGATE THE NEW GLOBAL
FINANCIAL ARCHITECTURE (AND WE ARE WELL ON
OUR WAY TO HAVING FORTRESS CONTROLS)
20
20
So our ultimate goal is to think like a long-
term investor – build great franchises,
strengthen moats and have good through-
the-cycle financial results. Achieve the
benefits of scale and eliminate the negatives.
Develop great long-term achievable strate-
gies. And manage the business relentlessly,
like a great operator. Finally, continue to
develop excellent management that keeps
it all going. As Thomas Edison said, "Vision
without execution is hallucination."
Think like a long-term investor, manage like
an operator
Having said all this, the contours of all of
the new regulations have emerged, and
we believe that regulatory uncertainty will
diminish over time. And, we hope, so will
the drag on our P/E ratio.
share gains or other business drivers. Many
questions still remain, and they are hard to
explain or are difficult to answer, including:
Why did American regulators simply double
the G-SIB capital requirements for American
banks versus all other global banks? Will
higher capital requirements be added later?
Given that much uncertainty, which is
greater for JPMorgan Chase than for most
other banks, it is understandable that people
would pay less for our earnings than they
otherwise might pay.
Uncertainty remains around regulatory require-
ments, though we believe this will diminish over
time, too. That uncertainty is particularly
acute around the extra capital that JPMorgan
Chase will have to hold because of the new
Global Systemically Important Bank (G-SIB)
rules, the ultimate impact of the Volcker
Rule, total loss-absorbing capacity, CCAR
and Recovery & Resolution. And it's because
of that uncertainty that a majority of the
time I spend with analysts and investors
these days is devoted to regulation. Very
little time is spent talking about the actual
business, like client transactions, market
The good news is that our legal costs are
coming down and, we hope, will normalize
by 2016.
Part of the issue around legal costs is that
banks are now frequently paying penalties to
five or six different regulators (both domestic
and international) on exactly the same issue.
This is an unprecedented approach that
probably warrants a serious policy discussion
- especially if those regulators (as at least
some of them have acknowledged) don't take
into account what is being paid to the others.
For now, it's simply a reality for big banks,
and certainly for us, that when one or more
employees do something wrong, we'll hear
from multiple regulators on the subject.
again in fact, I don't think our Board would
let me take the call. The WaMu deal might
still make sense but at a much lower price to
make up for the ongoing legal uncertainty
(including the government's ability to take
away our bargained-for indemnities). I did
not, and perhaps could not, have anticipated
such a turn of events. These are expensive
lessons that I will not forget.
-
II. BUILT FOR THE LONG TERM
19
We still face legal uncertainty though we are
determined to reduce it over time. Though
we still face legal uncertainty (particularly
around foreign exchange trading), we are
determined to reduce it and believe it will
diminish over time. I should point out that
while we certainly have made our share of
costly mistakes, a large portion of our legal
expense over the last few years has come
from issues that we acquired with Bear
Stearns and WaMu. These problems were far
in excess of our expectations. Virtually 70%
of all our mortgage legal costs, which have
been extraordinary (they now total close to
$19 billion), resulted from those two acquisi-
tions. In the Bear Stearns case, we did not
anticipate that we would have to pay the
penalties we ultimately were required to pay.
And in the WaMu case, we thought we had
robust indemnities from the Federal Deposit
Insurance Corporation and the WaMu receiv-
ership, but as part of our negotiations with
the Department of Justice that led to our big
mortgage settlement, we had to give those
up. In case you were wondering: No, we
would not do something like Bear Stearns
I often have received bad advice about what
we should do to earn a higher P/E ratio.
Before the crisis, I was told that we were
too conservatively financed and that more
leverage would help our earnings. Outsiders
said that one of our weaknesses in fixed
income trading was that we didn't do enough
collateralized debt obligations and structured
investment vehicles. And others said that we
couldn't afford to invest in initiatives like our
own branded credit cards and the buildout
of our Chase Private Client franchise during
the crisis. Examples like these are exactly the
reasons why one should not follow the herd.
While we acknowledge that our P/E ratio is
lower than many of our competitors' ratio,
one must ask why. I believe our stock price
has been hurt by higher legal and regulatory
costs and continues to be depressed due to
future uncertainty regarding both.
Price/earnings (P/E) ratios, like stock prices,
are temporary and volatile and should not
be used to run and build a business. We
have built one great franchise, our way,
which has been quite successful for some
time. As long as the business being built is a
real franchise and can stand the test of time,
one should not overreact to Mr. Market.
This does not mean we should not listen to
what investors are saying - it just means
we should not overreact to their comments
- particularly if their views reflect tempo-
rary factors. While the stock market over a
long period of time is the ultimate judge of
performance, it is not a particularly good
judge over a short period of time. A more
consistent measure of value is our tangible
book value, which has had healthy growth
over time. Because of our conservative
accounting, tangible book value is a very
good measure of the growth of the value
of our company. In fact, when Mr. Market
gets very moody and depressed, we think it
might be a good time to buy back stock.
Our long-term view means that we do not
manage to temporary P/E ratios - the tail
should not wag the dog
A very good current example of how we
view investing and long-term decision
making is how we are dealing with the
squeeze on our net interest margins (NIM)
due to extremely low interest rates. The best
example of this is in our consumer business,
where NIM has gone from 2.95% to 2.20%
(from 2009 to 2014). This spread reduction
has reduced our net interest income by $2.5
billion, from $10 billion to $7.5 billion - or
if you look at it per account, from $240 to
$180. Since we strongly believe this is a
temporary phenomenon and we did not
want to take more risk to increase our NIM
(which we easily could have done), we
continued to open new accounts. Over those
years, we added 4.5 million accounts - and,
in fact, very good sizable accounts. This has
reduced our operating margins from 36%
to 32%, but we don't care. When normal
interest rates return, we believe this will add
$3 billion to revenue and improve our oper-
ating margin to more than 40%.
II. BUILT FOR THE LONG TERM
Executed Significant Business Simplification Agenda
Operating with fortress principles
We are well on our way to having fortress
controls
The intense effort over the last few years
now is yielding real results and will go a long
way in protecting the company in the future.
When we are done, we hope not just to have
met the heightened expectations of our regu-
lators but to have exceeded them. In addition
to successfully completing CCAR (which we
will strive to do every year), there are other
examples of tangible progress. Following are
some of our accomplishments:
2016 and beyond
2 EXIM = Export-Import Bank; ECA = Export Credit Agency
Does not include impact of the One Equity Partners and Private Equity portfolio sale
1
▾
$1.6
$1.6▼
2015
Expense
Revenue
($ in billions)
21
Exited ~8,000 clients in Business
Banking and Commercial Banking
Exited ~5,500 foreign Politically
Exposed Person relationships
Sold significant portion of CIB's trade
finance EXIM/ECA² portfolio
Other meaningful business actions
Sold health savings account business
Sold Retirement Plan Services unit
Exited prepaid card and Order to Pay
businesses
Sold interest in Carlson Wagonlit
Travel agency
Announced exit of Sears Canada and
several smaller non-core card partnerships
Announced exit of International
Commercial Card
Incremental financial impact¹
Exit in process of majority of Broker
Dealer Services business
Terminated transaction services for ~500
Foreign Correspondent Banking clients
Ceased originating student loans
Completed the spin-out of One Equity
Partners and closed on the sale of a
portion of our Private Equity portfolio
Exited physical commodities business
Sold Global Special Opportunities
Group portfolio
Simplifying our business
• Strengthened compliance. We have added
approximately 8,000 people across the
firm with a mission to strengthen our
compliance capabilities. We have further
aligned global leadership to drive focus
and consistency across key risk areas such
as AML/BSA (Anti-Money Laundering/
Simplified Mortgage Banking products
from 37 to 18 products as of 2014,
with a target of further reducing to 15
Rationalized Global Investment
Management products: reduced U.S.
funds # by net 6%, Asia funds net 4%
and Europe funds net 2% in 2014
De-risking through client selection
—discontinuing certain businesses with
select clients:
■Process and store 1+ billion records
requirements, with 5 regulators
involved
■1,000+ people
Industry
1%
JPM PB
market share
6%
Latin America/
Caribbean
15%
JPM PB
Industry
4%
4%
JPM PB
JPM PB
market share
U.S.
47%
>50% of JPM PB client
assets from clients with
$100+ million
86%
% client assets from clients with $10+ million (2013) 2006-2013 client asset CAGR
Trusted Advisor to the World's Most Sophisticated Clients
We particularly are excited about our payments
business in total. The combination of Chase
Paymentech, our merchant acquirer,
ChaseNet, our proprietary Visa-supported
network, and Chase Pay, our proprietary
wallet, allows us to offer merchants -
large and small – better deals in terms of
economics, simpler contracts, better data
and more effective marketing to their clients.
It also allows us to better serve consumer
clients with a wide variety of offers and ease
of use. We are going to be very aggressive in
growing this business, and we will be disap-
pointed if we don't announce some exciting
and potentially market-changing ventures.
_
Retail banking presence still has room to grow.
While we cannot acquire a retail bank in the
United States, we can and intend to - enter
cities where we have never been. We will
keep those cities we might choose to enter a
surprise but we hope to begin doing this
in 2016. And remember, when we enter a
city, we can bring the full force of JPMorgan
Chase to bear, from retail, small business and
private banking to middle market and local
coverage of large corporations.
-
9%
per day from 200+ feeds
36%
Europe/
Middle East/
Africa
28
1 PB = Private Bank; MS = Morgan Stanley; BAC = Bank of America (Merrill Lynch)
Every +10 basis points in market share internationally = $150+ million of revenue
JPM PB
Industry
<1%
JPM PB
market share
8%
Asia/
Pacific
14%
26%
(ML)
BAC¹
MS¹
UBS
JPM
JPM PB
Industry
<1%
JPM PB
market share
4%
8%
PB¹
We are going to do a better job of covering
family and private offices in both the Private
Bank and the Investment Bank. Family offices
have become larger, more sophisticated and
more global, and they actively buy minority
or whole stakes in businesses. More than
2,300 families across the globe had assets
of $1 billion or more in 2014. Together, they
control over $7 trillion in assets, a number
that has grown in excess of 10% since 2011.
While J.P. Morgan already works with many
of these families as clients, we believe we
can do a far better job of providing the full
range of products and services offered by our
Private Bank and Investment Bank.
Private banking will grow for years. In Mary
Erdoes' Investor Day presentation, she
showed that while we have the best private
bank in the United States, our business still
is rather small, and there is plenty of room
to grow. This is even truer in Asia Pacific
and Latin America. The chart below shows
how strong our business is and illustrates
that there is plenty of room to grow our
market share internationally.
27
IV. SOLID STRATEGY AND FUTURE OUTLOOK
24
In fact, parts of G-SIB are very risk insensi-
tive - for example, it does not measure our
actual and largest risks in credit markets
(still our largest exposures) - and it adds a
lot of capital for some activities that have
absolutely no risk involved. One example
will suffice: We take non-operating deposits
(deposits that are very short term in nature
from investors so they can manage their
short-term cash needs) from central banks
and large financial institutions. We have
approximately $350 billion of non-operating
deposits, a large portion from financial
institutions, which we immediately turn
around and deposit at the Federal Reserve,
and this is risk-free to us. We mostly do this
as an accommodation to large institutions
that need to move extensive sums of money
around and we generate minimal earnings
from this activity. We recently announced
that we are going to reduce these deposits
by $100 billion, which in the context of
the firm's broader actions will reduce our
common equity requirements by approxi-
mately $3.5 billion. (Since these changes
involve some of the largest financial institu-
tions in the world, we are doing this very
carefully and are trying to make sure that
clients have access to alternatives such as
access to money market funds and direct
access to Federal Reserve facilities.)
G-SIB is not a direct measure of risk. The G-SIB
calculations show that JPMorgan Chase is the
most Global Systemically Important Bank,
and, therefore, we have to hold more capital
than any other bank in the world. Some of
our shareholders believe that this designa-
tion implies that before the additional capital
is held, we may be the riskiest institution,
too. But G-SIB is not a true measure of risk,
like RWA or CCAR. (And as shareholders
have mentioned to me, many of these
measures do not indicate how they would
look at risk; i.e., margins, earnings diversi-
fication and actual performance in tough
times, in addition to criteria such as capital
and liquidity.)
G-SIB will have its highest impact on non-
operating deposits, gross derivatives, the
clearing business in general and certain
clients, particularly financial institutions,
including central banks. At the end of the
day, we believe that we can manage through
this process and reduce our capital require-
ments while maintaining our core fran-
chises. To the extent that these changes
materially impact clients, we will do it
thoughtfully and carefully and help them
find appropriate alternatives.
Unlike RWA, which lets one measure the
risk embedded in each asset and, thus, the
capital needed to hold against it, G-SIB is
multivariate. G-SIB is not a simple calcula-
tion. It requires thousands of calculations,
and it does not look at just assets - it looks
at products, services, assets, type of client
(i.e., international and financial or corporate)
and collateral type, among others in order to
determine capital levels.
Intense effort is going into understanding
and adapting to the new G-SIB capital rules.
Last year, we described how we had to
manage the company to satisfy several new
constraints (all of the liquidity, leverage,
capital and CCAR requirements). To do
this, we were pushing these new rules
and requirements all the way down to the
product and client levels. The G-SIB capital
rules are a new constraint that we also need
to manage to, and for JPMorgan Chase, they
possibly are the most important constraint,
though this may change over time. There-
fore, we also need to push the new G-SIB
rules to the product and client levels.
detailed rules around it to which we need to
adapt. While it is a lot of work, we believe we
will be able to successfully accomplish all of
it. We have spoken about many of these rules
and requirements in the past so we won't
go into greater detail here, other than on the
new G-SIB capital rules, which will have some
material effects on some of our businesses.
III. A NEW GLOBAL FINANCIAL ARCHITECTURE
23
monthly across 15 business
areas
■7 trading metrics reported
■ 300+ people
■60 workstreams
■ 700+ people
■ 120+ distinct programs with
1,400+ milestones
■1,000+ people working across
43 business groups
dedicated to systems and process
implementation
■■*1.4 million work hours
■~800,000 compliance training
hours
1+ million work hours devoted
annually
We hope to learn a lot more about the G-SIB
calculations. Many questions remain, which
we hope will be answered over time such as:
• It is unclear (it has not been made trans-
parent to us) how and why these calcula-
tions are supposed to reflect systemic risk.
In addition, they are relative calculations,
which means that even if we and
every-
body else all reduced these exposures,
our surcharge would not change, while
presumably systemic risk would drop.
III. A NEW GLOBAL FINANCIAL ARCHITECTURE
• It is unclear why the U.S. regulators
doubled the calculations versus everyone
else in the world, particularly since the
U.S. banking system, as a percentage of
the U.S. economy, is smaller than in most
other countries.
22
However, in our current environment, we
don't expect a lot of growth or robust returns
as we adjust to the new world. But we
continue to believe that the long run is quite
attractive. At Investor Day, we showed that
the Corporate & Investment Bank in 2006
was #1, #2 or #3 in eight of the 16 product
categories that we are in. Now we are #1, #2
or #3 in 15 of the 16 product categories that
we are in. But the exciting part is a program
that Daniel Pinto calls Path to #1, which
shows when you divide those 16 businesses
into sub-businesses and geographies, there
are lots of areas where we are not close to #1,
#2 or #3, and, in most of those places, we
should be able to improve. So as the busi-
ness goes through an inordinate amount of
change, the underlying needs of our clients
continue to grow, and we will grow with
them and believe we can gain share, too.
Excellent prospects for our Corporate &
Investment Bank. Our Corporate & Investment
Bank is an example of a business that has
had exceptional relative multi-year perfor-
mance. And even recently when it has been
under a lot of regulatory pressure due to
higher capital constraints and other regula-
tory demands, the business has been able
to earn a 13% return on equity¹. It is an
endgame winner, and it benefits substan-
tially from the rest of the company, which
helps drive its best-in-class results.
credit card), Paymentech, deposits and loans
all at once. We believe that if we bundle the
services that small businesses really want
and also provide meaningful advice, we can
dramatically grow this business. Looking
ahead, we know small businesses become
large companies at a much more rapid pace
than in years past. Serving these compa-
nies well now can solidify long-term client
relationships that could span several lines of
business in the future.
Small business. We are making our premier
products and services work better together
for a more holistic experience for our small
business customers, whose time and attention
should be spent on running their business,
not going to the bank. We see a huge oppor-
tunity in this fragmented market - there is
no dominant bank for the 28 million small
businesses in the United States. At JPMorgan
Chase, we serve 3.9 million American small
businesses across Business Banking, Card
Services and Chase Commerce Solutions, and
we have successfully grown all of these busi-
nesses. We want to become the easiest bank
to do business with, and we are working hard
to speed applications, simplify forms and add
digital conveniences. For example, we want a
small business to fill out an application that
can qualify it for Ink® (our small business
Chase Private Client started as a gleam in our eye
back in 2010. Chase Private Client branches
are dedicated to serving our affluent clients'
investment needs. From one test branch
(which didn't go very well, but, fortunately,
we kept on trying), we now have more than
2,500 Chase Private Client offices. They now
manage investments and deposits of $190
billion. While the branch buildout is essen-
tially complete, we think the potential for
growth remains large.
We are optimistic that all of our businesses
can grow, and, below, I describe some initia-
tives that are particularly exciting.
• It is unclear how these calculations take
into consideration the extensive number
of new rules and regulations that are
supposed to reduce systemic risk (i.e., total
loss-absorbing capacity, net stable funding
ratio, liquidity coverage ratio, supplemen-
tary leverage ratio and the new Recovery
& Resolution rules).
We already have spoken about the fact that
most of our strategy will stay essentially the
same and that while some areas may require
a little surgery, we strongly believe we will be
able to successfully navigate the new world.
Some of that surgery will slow down our
growth a little bit in certain areas, but we are
quite optimistic that we can grow in others.
Excludes legal expense
FUTURE OUTLOOK IS VERY GOOD - BUT, AS USUAL,
THERE STILL ARE A LOT OF THINGS TO THINK AND
WORRY ABOUT
Most of our growth will be organic - we have
been doing this successfully for a decade
and opportunities abound
26
G-SIB is important, and we take it seriously. The
G-SIB capital surcharge, however calculated,
is an important part of our capital needs.
And since we are outsized, relative to our
competitors (our capital surcharge currently
is estimated as 4.5% of risk-weighted assets,
yet many of our competitors are between
2%-4% of risk-weighted assets), we will be
more comfortable when the surcharge is
reduced. We already have begun to lower the
surcharge by 0.5%, and, over time, expect
to do more than that. Marianne Lake and
Daniel Pinto gave details on this topic in
their Investor Day presentations. The regula-
tors have made it clear that these are impor-
tant measures of global systemic risk, and
they have given us a clear road map to how
we can reduce these exposures - and we are
going to take that road.
We must and will meet the regulators'
demands on Recovery & Resolution -
whatever it takes
IV. WE HAVE A SOLID STRATEGY AND BELIEVE OUR
There have been two critical developments
toward giving governments and regula-
tors comfort on Recovery & Resolution,
which, according to some key regulators,
will effectively end Too Big to Fail and will
25
A critical part of eliminating "Too Big to
Fail" is meeting the regulators' demands on
Recovery & Resolution. The Recovery Plan
is the first line of defense in a crisis situ-
ation and serves as the road map for how
to prevent the firm from actually failing. It
gives the regulators the comfort that the firm
has done sufficient upfront planning and
analysis and has an outline for how the firm
could recover if confronted with a severe
financial crisis. The plan essentially helps the
regulators understand the comprehensive
set of alternatives and actions available to
enable the firm to fully recover and prevent a
failure. Resolution Plans, on the other hand,
are the playbooks for how the company can
be restructured or unwound in an orderly
way in the event of a failure so that other
banks and the general economy would not
suffer. The plans outline for the regulators a
set of strategies, necessary information and
detailed plans by legal entity. For instance,
JPMorgan Chase has reported that it has 34
legal entities and branches housing the vast
majority of the firm's essential operations
and businesses. Each legal entity has to be
understood by the regulators and must have
distinct intercompany agreements and a
comprehensive plan in place to manage the
legal entity in the event that it needs to be
resolved. We have taken these requirements
very seriously as evidenced by the more than
1,000 people working diligently on the exten-
sive Recovery & Resolution requirements.
In addition, we are working to reduce the
number of entities we have and to simplify
our structure and inter-entity arrangements.
We need to satisfy all of our regulators on
these plans, and we will do whatever it takes
to meet their expectations.
III. A NEW GLOBAL FINANCIAL ARCHITECTURE
be completed in 2015. First, the regulators
have almost finished plans around total loss-
absorbing capacity, which will require large
banks to hold a lot of additional long-term
debt, which could be converted to equity in
the event of a failure and thereby enable the
firm to remain open to serve customers and
markets. Second, the industry agreed to put
in place specific rules and guidelines on how
to deal globally with derivatives contracts of
a failed institution. This gives regulators and
governments the knowledge that, in a failure,
derivatives contracts can be properly managed
and will not make the situation worse.
The industry will be stronger and safer
because of all of the new regulations, and the
future is bright for well-run banks
There is no question that, today, the global
banking system is safer and stronger
possibly more so than it has ever been.
That is not to say that the changes do
not create a whole range of challenges,
complexities and new risks (which we will
talk about in the next section). But at the
end of the day, the system will be safer
and more stable than ever. I may sound
a little like Voltaire's optimistic character
Dr. Pangloss for saying this, but I am
hopeful that in the next five to 10 years,
high-quality banks will be thriving in their
work to support economies and help society.
$
$
3,476
$
69,109
66,856
3,939
In addition, from 2005 to 2008, Washington Mutual made
certain loan level representations and warranties in
connection with approximately $165 billion of residential
mortgage loans that were originally sold or deposited into
private-label securitizations by Washington Mutual. Of the
$165 billion, approximately $78 billion has been repaid. In
addition, approximately $49 billion of the principal amount
of such loans has liquidated with an average loss severity of
59%. Accordingly, the remaining outstanding principal
balance of these loans as of December 31, 2014, was
approximately $38 billion, of which $8 billion was 60 days
or more past due. The Firm believes that any repurchase
obligations related to these loans remain with the FDIC
receivership.
855
23,614
1,081
$
89,874
$
23,018
On November 15, 2013, the Firm announced that it had
reached a $4.5 billion agreement with 21 major
institutional investors to make a binding offer to the
trustees of 330 residential mortgage-backed securities
trusts issued by J.P.Morgan, Chase, and Bear Stearns
("RMBS Trust Settlement") to resolve all representation and
warranty claims, as well as all servicing claims, on all trusts
issued by J.P. Morgan, Chase, and Bear Stearns between
2005 and 2008. The seven trustees (or separate and
successor trustees) for this group of 330 trusts have
accepted the RMBS Trust Settlement for 319 trusts in whole
or in part and excluded from the settlement 16 trusts in
whole or in part. The trustees' acceptance is subject to a
judicial approval proceeding initiated by the trustees, which
is pending in New York state court.
of credit
Standby letters of
credit and other
financial guarantees
2,187 $
(341)
2,255 $
(383)
Sublease rental income
$
Gross rental expense
2012
2013
2014
(in millions)
Year ended December 31,
Total rental expense was as follows.
(a) Lease restoration obligations are accrued in accordance with U.S. GAAP, and are
not reported as a required minimum lease payment.
$ 10,203
(2,238)
Net minimum payment required
Less: Sublease rentals under noncancelable subleases
Total minimum payments required(a)
After 2019
230.3
163.3
169.0
$ 118.7 $ 68.1
248.2
2013
2014
2,212
(288)
Net rental expense
$
In December 2014, the Hong Kong Monetary Authority
("HKMA") announced the conclusion of its FX-related
investigation regarding JPMorgan Chase Bank, N.A. and
several other banks. The HKMA required the banks,
including JPMorgan Chase Bank, N.A., to take certain
remedial measures.
Foreign Exchange Investigations and Litigation. In November
2014, JPMorgan Chase Bank, N.A. reached separate
settlements with the U.K. Financial Conduct Authority
("FCA"), the U.S. Commodity Futures Trading Commission
("CFTC") and the U.S. Office of the Comptroller of the
Currency ("OCC") to resolve the agencies' respective civil
enforcement claims relating to the Bank's foreign exchange
("FX") trading business (collectively, the "Settlement
Agreements"). Under the Settlement Agreements, JPMorgan
Chase Bank, N.A. agreed to take certain remedial measures
and paid penalties of £222 million to the FCA, $310 million
to the CFTC and $350 million to the OCC.
Credit Default Swaps Investigations and Litigation. In July
2013, the European Commission (the "EC") filed a
Statement of Objections against the Firm (including various
subsidiaries) and other industry members in connection
with its ongoing investigation into the credit default swaps
("CDS") marketplace. The EC asserts that between 2006
and 2009, a number of investment banks acted collectively
through the International Swaps and Derivatives Association
("ISDA") and Markit Group Limited ("Markit") to foreclose
exchanges from the potential market for exchange-traded
credit derivatives. The Firm submitted a response to the
Statement of Objections in January 2014, and the EC held a
hearing in May 2014. DOJ also has an ongoing investigation
into the CDS marketplace, which was initiated in July 2009.
Separately, the Firm and other industry members are
defendants in a consolidated putative class action filed in
the United States District Court for the Southern District of
New York on behalf of purchasers and sellers of CDS. The
complaint refers to the ongoing investigations by the EC and
DOJ into the CDS market, and alleges that the defendant
investment banks and dealers, including the Firm, as well as
Markit and/or ISDA, collectively prevented new entrants into
the market for exchange-traded CDS products. Defendants
moved to dismiss this action, and in September 2014, the
Court granted defendants' motion in part, dismissing claims
for damages based on transactions effected before the
Autumn of 2008, as well as certain other claims.
three of those actions have appealed those dismissals.
Motions to dismiss have also been filed in two other
shareholder derivative actions.
JPMorgan Chase & Co./2014 Annual Report
CIO Litigation. The Firm has been sued in a consolidated
shareholder putative class action, a consolidated putative
class action brought under the Employee Retirement
Income Security Act ("ERISA") and seven shareholder
derivative actions brought in Delaware state court and in
New York federal and state courts relating to 2012 losses in
the synthetic credit portfolio managed by the Firm's Chief
Investment Office ("CIO"). Four of the shareholder
derivative actions have been dismissed, and plaintiffs in
Auto Dealer Regulatory Matter. The Firm is engaged in
discussions with the U.S. Department of Justice (“DOJ")
about potential statistical disparities in markups charged to
different races and ethnicities by automobile dealers on
loans originated by those dealers and purchased by the
Firm.
Set forth below are descriptions of the Firm's material legal
proceedings.
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $5.8 billion at December 31, 2014. This
estimated aggregate range of reasonably possible losses is
based upon currently available information for those
proceedings in which the Firm is involved, taking into
account the Firm's best estimate of such losses for those
cases for which such estimate can be made. For certain
cases, the Firm does not believe that an estimate can
currently be made. The Firm's estimate involves significant
judgment, given the varying stages of the proceedings
(including the fact that many are currently in preliminary
stages), the existence in many such proceedings of multiple
defendants (including the Firm) whose share of liability has
yet to be determined, the numerous yet-unresolved issues
in many of the proceedings (including issues regarding class
certification and the scope of many of the claims) and the
attendant uncertainty of the various potential outcomes of
such proceedings, particularly proceedings that could result
from government investigations. Accordingly, the Firm's
estimate will change from time to time, and actual losses
may vary.
As of December 31, 2014, the Firm and its subsidiaries are
defendants or putative defendants in numerous legal
proceedings, including private, civil litigations and
regulatory/government investigations. The litigations range
from individual actions involving a single plaintiff to class
action lawsuits with potentially millions of class members.
Investigations involve both formal and informal
proceedings, by both governmental agencies and self-
regulatory organizations. These legal proceedings are at
varying stages of adjudication, arbitration or investigation,
and involve each of the Firm's lines of business and
geographies and a wide variety of claims (including
common law tort and contract claims and statutory
antitrust, securities and consumer protection claims), some
of which present novel legal theories.
Note 31 - Litigation
Contingencies
Trading assets and other
JPMorgan Chase & Co./2014 Annual Report
Certain prior period amounts for both collateral, as well as
pledged assets (including the corresponding pledged assets
parenthetical disclosure for trading assets on the
Consolidated balance sheets) have been revised to conform
with the current period presentation.
deposits and derivative agreements.
respectively, were sold or repledged, generally as collateral
under repurchase agreements, securities lending
agreements or to cover short sales and to collateralize
approximately $596.8 billion and $520.1 billion,
At December 31, 2014 and 2013, the Firm had accepted
assets as collateral that it could sell or repledge, deliver or
otherwise use with a fair value of approximately $761.7
billion and $725.0 billion, respectively. This collateral was
generally obtained under resale agreements, securities
borrowing agreements, customer margin loans and
derivative agreements. Of the collateral received,
$ 535.9 $ 461.7
Collateral
Total assets pledged
1,924
1,846 $
1,872 $
294
Other FX-related regulatory investigations of the Firm are
ongoing, including a criminal investigation by DOJ. These
investigations are focused on the Firm's spot FX trading and
sales activities as well as controls applicable to those
activities. The Firm continues to cooperate with these
investigations. The Firm is also engaged in discussions
regarding potential resolution with DOJ.
12,441
5,101
Exchange & Clearing House Memberships
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, see Note 6.
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
JPMorgan Chase & Co./2014 Annual Report
292
It is difficult to estimate the Firm's maximum possible
exposure through its role as clearing member, as this would
require an assessment of transactions that clients may
execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
The Firm reflects its exposure to non-performance risk of
the client through the recognition of margin payables or
receivables to clients and CCPs, but does not reflect the
clients' underlying securities or derivative contracts in its
Consolidated Financial Statements.
As clearing member, the Firm is exposed to the risk of non-
performance by its clients, but is not liable to clients for the
performance of the CCPs. Where possible, the Firm seeks to
mitigate its risk to the client through the collection of
appropriate amounts of margin at inception and throughout
the life of the transactions. The Firm can also cease
provision of clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of non-performance by a client, the Firm would close out
the client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
clearing member.
The Firm provides clearing services for clients entering into
securities purchases and sales and derivative transactions,
with central counterparties ("CCPS"), including exchange-
traded derivatives ("ETDS") such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin. Variation margin is posted
on a daily basis based on the value of clients' derivative
contracts. Initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
Clearing Services - Client Credit Risk
Chase Paymentech incurred aggregate losses of $10
million, $14 million, and $16 million on $847.9 billion,
$750.1 billion, and $655.2 billion of aggregate volume
processed for the years ended December 31, 2014, 2013
and 2012, respectively. Incurred losses from merchant
charge-backs are charged to other expense, with the offset
recorded in a valuation allowance against accrued interest
and accounts receivable on the Consolidated balance
sheets. The carrying value of the valuation allowance was
$4 million and $5 million at December 31, 2014 and 2013,
respectively, which the Firm believes, based on historical
experience and the collateral held by Chase Paymentech of
$174 million and $208 million at December 31, 2014 and
2013, respectively, is representative of the payment or
performance risk to the Firm related to charge-backs.
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed credit card sales
transaction that is the subject of a dispute between a
cardmember and a merchant. If a dispute is resolved in the
cardmember's favor, Chase Paymentech will (through the
cardmember's issuing bank) credit or refund the amount to
the cardmember and will charge back the transaction to the
merchant. If Chase Paymentech is unable to collect the
amount from the merchant, Chase Paymentech will bear the
loss for the amount credited or refunded to the
cardmember. Chase Paymentech mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in the
unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2) Chase
Paymentech does not have sufficient collateral from the
merchant to provide customer refunds; and (3) Chase
Paymentech does not have sufficient financial resources to
provide customer refunds, JPMorgan Chase Bank, N.A.,
would recognize the loss.
Chase Paymentech Solutions, Card's merchant services
business and a subsidiary of JPMorgan Chase Bank,
N.A., is a global leader in payment processing and
merchant acquiring.
Credit card charge-backs
In connection with issuing securities to investors, the Firm
may enter into contractual arrangements with third parties
that require the Firm to make a payment to them in the
event of a change in tax law or an adverse interpretation of
tax law. In certain cases, the contract also may include a
termination clause, which would allow the Firm to settle the
contract at its fair value in lieu of making a payment under
the indemnification clause. The Firm may also enter into
indemnification clauses in connection with the licensing of
software to clients ("software licensees") or when it sells a
business or assets to a third party ("third-party
purchasers"), pursuant to which it indemnifies software
licensees for claims of liability or damages that may occur
subsequent to the licensing of the software, or third-party
purchasers for losses they may incur due to actions taken
by the Firm prior to the sale of the business or assets. It is
difficult to estimate the Firm's maximum exposure under
these indemnification arrangements, since this would
require an assessment of future changes in tax law and
future claims that may be made against the Firm that have
not yet occurred. However, based on historical experience,
management expects the risk of loss to be remote.
Indemnification agreements - general
Other off-balance sheet arrangements
will have to perform under its recourse obligations, was
$102 million and $131 million at December 31, 2014 and
2013, respectively.
Notes to consolidated financial statements
291
JPMorgan Chase & Co./2014 Annual Report
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2014 and 2013, the
unpaid principal balance of loans sold with recourse totaled
$6.1 billion and $7.7 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm's view of the likelihood it
For additional information regarding litigation, see Note 31.
Loans sold with recourse
Through the provision of clearing services, the Firm is a
member of several securities and derivative exchanges and
clearinghouses, both in the U.S. and other countries.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to members who dealt with the
defaulting member or to the amount (or a multiple of the
amount) of the Firm's contribution to the guarantee fund
maintained by a clearing house or exchange as part of the
resources available to cover any losses in the event of a
member default. Alternatively, these obligations may be a
full pro-rata share of the residual losses after applying the
guarantee fund. Additionally, certain clearinghouses require
the Firm as a member to pay a pro rata share of losses
resulting from the clearinghouse's investment of guarantee
fund contributions and initial margin, unrelated to and
independent of the default of another member. Generally a
payment would only be required should such losses exceed
the resources of the clearing house or exchange that are
contractually required to absorb the losses in the first
instance. It is difficult to estimate the Firm's maximum
possible exposure under these membership agreements,
since this would require an assessment of future claims that
may be made against the Firm that have not yet occurred.
However, based on historical experience, management
expects the risk of loss to be remote.
Guarantees of subsidiaries
In the normal course of business, JPMorgan Chase & Co.
("Parent Company") may provide counterparties with
guarantees of certain of the trading and other obligations of
its subsidiaries on a contract-by-contract basis, as
negotiated with the Firm's counterparties. The obligations
of the subsidiaries are included on the Firm's Consolidated
balance sheets or are reflected as off-balance sheet
commitments; therefore, the Parent Company has not
recognized a separate liability for these guarantees. The
Firm believes that the occurrence of any event that would
trigger payments by the Parent Company under these
guarantees is remote.
The Parent Company has guaranteed certain debt of its
subsidiaries, including both long-term debt and structured
notes sold as part of the Firm's market-making activities.
These guarantees are not included in the table on page 288
of this Note. For additional information, see Note 21.
Securities
1,121
December 31, (in billions)
1,281
1,534
1,682
1,722
$
Financial assets are pledged to maintain potential
borrowing capacity with central banks and for other
purposes, including to secure borrowings and public
deposits, and to collateralize repurchase and other
securities financing agreements. Certain of these pledged
assets may be sold or repledged by the secured parties and
are identified as financial instruments owned (pledged to
various parties) on the Consolidated balance sheets. At
December 31, 2014 and 2013, the Firm had pledged assets
of $324.5 billion and $251.3 billion, respectively, at
Federal Reserve Banks and FHLBS. In addition, as of
December 31, 2014 and 2013, the Firm had pledged to
third parties $60.1 billion and $68.4 billion, respectively, of
financial instruments it owns that may not be sold or
repledged by such secured parties. Total assets pledged do
not include assets of consolidated VIES; these assets are
used to settle the liabilities of those entities. See Note 16
for additional information on assets and liabilities of
consolidated VIES. For additional information on the Firm's
securities financing activities and long-term debt, see Note
13 and Note 21, respectively. The significant components of
the Firm's pledged assets were as follows.
Pledged assets
2019
Loans
2018
2016
2015
Year ended December 31, (in millions)
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2014.
noncancelable operating leases for premises and equipment
used primarily for banking purposes, and for energy-related
tolling service agreements. Certain leases contain renewal
options or escalation clauses providing for increased rental
payments based on maintenance, utility and tax increases,
or they require the Firm to perform restoration work on
leased premises. No lease agreement imposes restrictions
on the Firm's ability to pay dividends, engage in debt or
equity financing transactions or enter into further lease
agreements.
At December 31, 2014, JPMorgan Chase and its
subsidiaries were obligated under a number of
Lease commitments
Note 30 - Commitments, pledged assets and
collateral
Notes to consolidated financial statements
293
JPMorgan Chase & Co./2014 Annual Report
2017
Other letters
295
Since November 2013, a number of class actions have been
filed in the United States District Court for the Southern
District of New York against a number of foreign exchange
dealers, including the Firm, for alleged violations of federal
and state antitrust laws and unjust enrichment based on an
alleged conspiracy to manipulate foreign exchange rates
reported on the WM/Reuters service. In March 2014,
plaintiffs filed a consolidated amended U.S. class action
complaint; two other class actions were brought by non-
U.S.-based plaintiffs. The Court denied defendants' motion
to dismiss the U.S. class action and granted the motion to
dismiss the two non-U.S. class actions. In January 2015, the
Firm settled the U.S. class action, and this settlement is
subject to court approval.
1
$
263
$
2
Commitments with collateral
39,726
1,509
40,410
1,473
(a) The ratings scale is based on the Firm's internal ratings, which generally correspond to ratings as defined by S&P and Moody's.
Advised lines of credit
An advised line of credit is a revolving credit line which
specifies the maximum amount the Firm may make
available to an obligor, on a nonbinding basis. The borrower
receives written or oral advice of this facility. The Firm may
cancel this facility at any time by providing the borrower
notice or, in some cases, without notice as permitted by law.
Securities lending indemnifications
Through the Firm's securities lending program, customers'
securities, via custodial and non-custodial arrangements,
may be lent to third parties. As part of this program, the
Firm provides an indemnification in the lending agreements
which protects the lender against the failure of the
borrower to return the lent securities. To minimize its
liability under these indemnification agreements, the Firm
obtains cash or other highly liquid collateral with a market
value exceeding 100% of the value of the securities on loan
from the borrower. Collateral is marked to market daily to
help assure that collateralization is adequate. Additional
collateral is called from the borrower if a shortfall exists, or
collateral may be released to the borrower in the event of
overcollateralization. If a borrower defaults, the Firm would
use the collateral held to purchase replacement securities in
the market or to credit the lending customer with the cash
equivalent thereof.
Derivatives qualifying as guarantees
4,331
In addition to the contracts described above, the Firm
transacts certain derivative contracts that have the
characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also include contracts
such as stable value derivatives that require the Firm to
make a payment of the difference between the market
value and the book value of a counterparty's reference
portfolio of assets in the event that market value is less
than book value and certain other conditions have been
met. Stable value derivatives, commonly referred to as
290
“stable value wraps", are transacted in order to allow
investors to realize investment returns with less volatility
than an unprotected portfolio and are typically longer-term
or may have no stated maturity, but allow the Firm to
terminate the contract under certain conditions.
Derivatives deemed to be guarantees are recorded on the
Consolidated balance sheets at fair value in trading assets
and trading liabilities. The total notional value of the
derivatives that the Firm deems to be guarantees was
$53.6 billion and $56.3 billion at December 31, 2014 and
2013, respectively. The notional amount generally
represents the Firm's maximum exposure to derivatives
qualifying as guarantees. However, exposure to certain
stable value contracts is contractually limited to a
substantially lower percentage of the notional amount; the
notional amount on these stable value contracts was
$27.5 billion and $27.0 billion at December 31, 2014 and
2013, respectively, and the maximum exposure to loss was
$2.9 billion and $2.8 billion at both December 31, 2014
and 2013. The fair values of the contracts reflect the
probability of whether the Firm will be required to perform
under the contract. The fair value of derivatives that the
Firm deems to be guarantees were derivative payables of
$102 million and $109 million and derivative receivables of
$22 million and $37 million at December 31, 2014 and
2013, respectively. The Firm reduces exposures to these
contracts by entering into offsetting transactions, or by
entering into contracts that hedge the market risk related to
the derivative guarantees.
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, see
Note 6.
Unsettled reverse repurchase and securities borrowing
agreements
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements that settle at a future date. At settlement, these
commitments require that the Firm advance cash to and
accept securities from the counterparty. These agreements
generally do not meet the definition of a derivative, and
JPMorgan Chase & Co./2014 Annual Report
$
234
$
Allowance for lending-related commitments
Other letters
of credit
Standby letters of
credit and other
financial guarantees
Total contractual amount
Noninvestment-grade (a)
Investment-grade (a)
(in millions)
December 31,
2013
2014
The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm's customers, as of December 31, 2014 and 2013.
Standby letters of credit, other financial guarantees and other letters of credit
Notes to consolidated financial statements
therefore, are not recorded on the Consolidated balance
sheets until settlement date. The unsettled reverse
repurchase agreements and securities borrowing
agreements predominantly consist of agreements with
regular-way settlement periods.
289
Standby letters of credit and other financial guarantees
Standby letters of credit ("SBLC") and other financial
guarantees are conditional lending commitments issued by
the Firm to guarantee the performance of a customer to a
third party under certain arrangements, such as
commercial paper facilities, bond financings, acquisition
financings, trade and similar transactions. The carrying
values of standby and other letters of credit were
$789 million and $945 million at December 31, 2014 and
2013, respectively, which were classified in accounts
payable and other liabilities on the Consolidated balance
sheets; these carrying values included $235 million and
$265 million, respectively, for the allowance for lending-
related commitments, and $554 million and $680 million,
respectively, for the guarantee liability and corresponding
asset.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm's risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The recorded
amounts of the liabilities related to guarantees and
indemnifications at December 31, 2014 and 2013,
excluding the allowance for credit losses on lending-related
commitments, are discussed below.
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet lending-related arrangements to be guarantees under
U.S. GAAP: standby letters of credit and financial
guarantees, securities lending indemnifications, certain
indemnification agreements included within third-party
contractual arrangements and certain derivative contracts.
Guarantees
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role as
settlement and custody bank, the Firm is exposed to the
intra-day credit risk of its cash borrower clients, usually
broker-dealers. This exposure is secured by collateral and
typically extinguished by the end of the day. During 2014,
the Firm extended secured clearance advance facilities to
its clients (i.e. cash borrowers); these facilities contractually
limit the Firm's intra-day credit risk to the facility amount
and must be repaid by the end of the day. Through these
facilities, the Firm has reduced its intra-day credit risk
substantially; the average daily tri-party repo balance was
$253 billion during the year ended December 31, 2013,
and as of December 31, 2014, the secured clearance
advance facility maximum outstanding commitment amount
was $12.6 billion.
Also included in other unfunded commitments to extend
credit are commitments to noninvestment-grade
counterparties in connection with leveraged finance
activities, which were $23.7 billion and $18.3 billion at
December 31, 2014 and 2013, respectively. For further
information, see Note 3 and Note 4.
Other unfunded commitments to extend credit generally
comprise commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations.
$
92,723
$
5,020
JPMorgan Chase & Co./2014 Annual Report
Notes to consolidated financial statements
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
The following table summarizes the change in the mortgage
repurchase liability for each of the periods presented.
A putative class action has been filed in the United States
District Court for the District of New Jersey by investors who
were net winners (i.e., Madoff customers who had taken
more money out of their accounts than had been invested)
in Madoff's Ponzi scheme and were not included in the
previous class action settlement. These plaintiffs allege
violations of the federal securities law, federal and state
racketeering statutes and multiple common law and
statutory claims including breach of trust, aiding and
abetting embezzlement, unjust enrichment, conversion and
commercial bad faith. A similar action has been filed in the
United States District Court for the Middle District of
Florida, although it is not styled as a class action, and
includes a claim pursuant to a Florida statute. The Firm has
moved to transfer these cases to the United States District
Court for the Southern District of New York.
The Firm is a defendant in five other Madoff-related
individual investor actions pending in New York state court.
The allegations in all of these actions are essentially
identical, and involve claims against the Firm for, among
other things, aiding and abetting breach of fiduciary duty,
conversion and unjust enrichment. In August 2014, the
Court dismissed all claims against the Firm. Plaintiffs have
filed a notice of appeal.
previously raised by the court-appointed trustee for
Bernard L. Madoff Investment Securities LLC. The District
Court dismissed these complaints and the United States
Court of Appeals for the Second Circuit affirmed the District
Court's decision. Plaintiffs have petitioned the United States
Supreme Court for a writ of certiorari.
Notes to consolidated financial statements
297
In addition, a putative class action was brought by investors
in certain feeder funds against JPMorgan Chase in the
United States District Court for the Southern District of New
York, as was a motion by separate potential class plaintiffs
to add claims against the Firm and certain subsidiaries to an
already pending putative class action in the same court. The
allegations in these complaints largely track those
Madoff Litigation. Various subsidiaries of the Firm, including
J.P. Morgan Securities plc, have been named as defendants
in lawsuits filed in Bankruptcy Court in New York arising out
of the liquidation proceedings of Fairfield Sentry Limited
and Fairfield Sigma Limited, so-called Madoff feeder funds.
These actions seek to recover payments made by the funds
to defendants totaling approximately $155 million. All but
two of these actions have been dismissed.
The Firm is also one of the defendants in a number of
putative class actions alleging that defendant banks and
ICAP conspired to manipulate the U.S. dollar ISDAFIX rates.
Plaintiffs primarily assert claims under the federal antitrust
laws and Commodities Exchange Act. In December 2014,
defendants filed a motion to dismiss.
The Firm is one of the defendants in a putative class action
filed in the United States District Court for the Southern
District of New York relating to the interest rate benchmark
EURIBOR. The case is currently stayed.
The Firm is one of the defendants in a putative class action
alleging manipulation of Euroyen TIBOR and Yen LIBOR
which was filed in the United States District Court for the
Southern District of New York on behalf of plaintiffs who
purchased or sold exchange-traded Euroyen futures and
options contracts. In March 2014, the Court granted in part
and denied in part the defendants' motions to dismiss,
including dismissal of plaintiff's antitrust and unjust
enrichment claims.
District Court for the Southern District of New York. The
Court stayed all related cases while motions to dismiss the
three lead class actions were pending. In March 2013, the
Court granted in part and denied in part the defendants'
motions to dismiss the claims in the three lead class actions,
including dismissal with prejudice of the antitrust claims. In
relation to the Firm, the Court has permitted certain claims
under the Commodity Exchange Act and common law claims
to proceed. In September 2013, class plaintiffs in two of the
three lead class actions filed amended complaints, which
defendants moved to dismiss. Plaintiffs in the third class
action appealed the dismissal of the antitrust claims and the
United States Court of Appeals for the Second Circuit
dismissed the appeal for lack of jurisdiction. In January
2015, the United States Supreme Court reversed the
decision of the Court of Appeals, holding that plaintiffs have
the jurisdictional right to appeal and remanding the case to
the Court of Appeals for further proceedings. In February
2015, the District Court entered a judgment on certain
other plaintiffs' antitrust claims so that those plaintiffs
could also participate in the appeal. Motions to dismiss are
pending in the remaining previously stayed individual
actions and class actions.
JPMorgan Chase & Co./2014 Annual Report
The U.S. dollar LIBOR-related putative class actions were
consolidated for pre-trial purposes in the United States
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and class actions
filed in various United States District Courts, in which
plaintiffs make varying allegations that in various periods,
starting in 2000 or later, defendants either individually or
collectively manipulated the U.S. dollar LIBOR, Yen LIBOR,
Swiss franc LIBOR, Euroyen TIBOR and/or EURIBOR rates by
submitting rates that were artificially low or high. Plaintiffs
allege that they transacted in loans, derivatives or other
financial instruments whose values are affected by changes
in U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen
TIBOR or EURIBOR and assert a variety of claims including
antitrust claims seeking treble damages.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has received subpoenas and
requests for documents and, in some cases, interviews,
from federal and state agencies and entities, including DOJ,
the CFTC, the Securities and Exchange Commission (the
"SEC") and various state attorneys general, as well as the
EC, the FCA, the Canadian Competition Bureau, the Swiss
Competition Commission and other regulatory authorities
and banking associations around the world relating
primarily to the process by which interest rates were
submitted to the British Bankers Association ("BBA") in
connection with the setting of the BBA's London Interbank
Offered Rate ("LIBOR") for various currencies, principally in
2007 and 2008. Some of the inquiries also relate to similar
processes by which information on rates is submitted to the
European Banking Federation ("EBF") in connection with
the setting of the EBF's Euro Interbank Offered Rates
("EURIBOR") and to the Japanese Bankers' Association for
the setting of Tokyo Interbank Offered Rates ("TIBOR") as
well as to other processes for the setting of other reference
rates in various parts of the world during similar time
periods. The Firm is responding to and continuing to
cooperate with these inquiries. In December 2013,
JPMorgan Chase reached a settlement with the EC regarding
its Japanese Yen LIBOR investigation and agreed to pay a
fine of €80 million. In January 2014, the Canadian
Competition Bureau announced that it has discontinued its
investigation related to Yen LIBOR. In May 2014, the EC
issued a Statement of Objections outlining its case against
the Firm (and others) as to EURIBOR, to which the Firm has
filed a response. In October 2014, JPMorgan Chase reached
a settlement with the EC regarding the EC's Swiss franc
LIBOR investigation and agreed to pay a fine of €72 million.
In January 2015, the FCA informed JPMorgan Chase that it
has discontinued its investigation of the Firm concerning
LIBOR and EURIBOR.
ongoing. In January 2015, LBHI filed additional objections
relating to a variety of claims that the Firm had filed in the
Bankruptcy Court proceedings. The bankruptcy claims and
other claims of the Firm against Lehman entities have been
paid in full, subject to potential adjustment depending on
the outcome of the objections filed by LBHI and the
Committee.
JPMorgan Chase & Co./2014 Annual Report
In the Bankruptcy Court proceedings, LBHI and several of its
subsidiaries that had been Chapter 11 debtors have filed a
separate complaint and objection to derivatives claims
asserted by the Firm alleging that the amount of the
derivatives claims had been overstated and challenging
certain set-offs taken by JPMorgan Chase entities to recover
on the claims. The Firm responded to this separate
complaint and objection in February 2013. LBHI and the
Committee have also filed an objection to the claims
asserted by JPMorgan Chase Bank, N.A. against LBHI with
respect to clearing advances made to LBI, principally on the
grounds that the Firm had not conducted the sale of the
securities collateral held for its claims in a commercially
reasonable manner. Discovery regarding both objections is
Lehman Brothers Bankruptcy Proceedings. In May 2010,
Lehman Brothers Holdings Inc. ("LBHI”) and its Official
Committee of Unsecured Creditors (the "Committee”) filed a
complaint (and later an amended complaint) against
JPMorgan Chase Bank, N.A. in the United States Bankruptcy
Court for the Southern District of New York that asserts
both federal bankruptcy law and state common law claims,
and seeks, among other relief, to recover $7.9 billion in
collateral that was transferred to JPMorgan Chase Bank,
N.A. in the weeks preceding LBHI's bankruptcy. The
amended complaint also seeks unspecified damages on the
grounds that JPMorgan Chase Bank, N.A.'s collateral
requests hastened LBHI's bankruptcy. The Court dismissed
the counts of the amended complaint that sought to void
the allegedly constructively fraudulent and preferential
transfers made to the Firm during the months of August and
September 2008. The Firm has filed counterclaims against
LBHI alleging that LBHI fraudulently induced the Firm to
make large extensions of credit against inappropriate
collateral in connection with the Firm's role as the clearing
bank for Lehman Brothers Inc. (“LBI”), LBHI's broker-dealer
subsidiary. These extensions of credit left the Firm with
more than $25 billion in claims against the estate of LBI.
The case has been transferred from the Bankruptcy Court to
the District Court, and the Firm has moved for summary
judgment seeking the dismissal of all of LBHI's claims. LBHI
has also moved for summary judgment on certain of its
claims and seeking the dismissal of the Firm's
counterclaims.
Investment Management Litigation. The Firm is defending
two pending cases that allege that investment portfolios
managed by J.P. Morgan Investment Management ("JPMIM")
were inappropriately invested in securities backed by
residential real estate collateral. Plaintiffs Assured Guaranty
(U.K.) and Ambac Assurance UK Limited claim that JPMIM is
liable for losses of more than $1 billion in market value of
these securities. Discovery is proceeding.
prohibit surcharging credit card transactions. In December
2013, the Court issued a decision granting final approval of
the settlement. A number of merchants have appealed.
Certain merchants that opted out of the class settlement
have filed actions against Visa and MasterCard, as well as
against the Firm and other banks. Defendants' motion to
dismiss the actions was denied in July 2014.
296
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalf
of a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility ("Term Loan") for General Motors Corporation
("GM"). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditors
of Motors Liquidation Company ("Creditors Committee”)
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid. In March 2013, the Bankruptcy Court granted
JPMorgan Chase Bank, N.A.'s motion for summary judgment
and dismissed the Creditors Committee's complaint on the
grounds that JPMorgan Chase Bank, N.A. did not authorize
the filing of the UCC-3 termination statement at issue. The
Creditors Committee appealed the Bankruptcy Court's
dismissal of its claim to the United States Court of Appeals
for the Second Circuit. In January 2015, the Court of
Appeals reversed the Bankruptcy Court's dismissal of the
Creditors Committee's claim and remanded the case to the
Bankruptcy Court with instructions to enter partial
summary judgment for the Creditors Committee as to the
termination statement. JPMorgan Chase Bank, N.A. has filed
a petition requesting that the full Court of Appeals rehear
the case en banc. In the event that the request for rehearing
is denied, continued proceedings in the Bankruptcy Court
are anticipated with respect to, among other things,
additional defenses asserted by JPMorgan Chase Bank, N.A.
and the value of additional collateral on the Term Loan,
which was not the subject of the termination statement.
Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints alleging
that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees, enacted respective rules in violation of
antitrust laws, and engaged in tying/bundling and exclusive
dealing. The parties have entered into an agreement to
settle the cases for a cash payment of $6.1 billion to the
class plaintiffs (of which the Firm's share is approximately
20%) and an amount equal to ten basis points of credit
card interchange for a period of eight months to be
measured from a date within 60 days of the end of the opt-
out period. The agreement also provides for modifications
to each credit card network's rules, including those that
Three shareholder derivative actions have also been filed in
New York federal and state court against the Firm, as
nominal defendant, and certain of its current and former
Board members, alleging breach of fiduciary duty in
connection with the Firm's relationship with Bernard Madoff
and the alleged failure to maintain effective internal
controls to detect fraudulent transactions. The actions seek
declaratory relief and damages. In July 2014, the federal
court granted defendants' motions to dismiss two of the
actions. One plaintiff chose not to appeal and the other filed
a motion for reconsideration which was denied in November
2014. The latter plaintiff has filed an appeal. In the
remaining state court action, a hearing on defendants'
motion to dismiss was held in October 2014, and the court
reserved decision.
MF Global. J.P. Morgan Securities LLC has been named as
one of several defendants in a number of putative class
actions filed by purchasers of MF Global's publicly traded
securities asserting violations of federal securities laws and
alleging that the offering documents contained materially
false and misleading statements and omissions regarding
MF Global. These actions have been settled, subject to final
approval by the court. The Firm also has responded to
inquiries from the CFTC relating to the Firm's banking and
other business relationships with MF Global, including as a
depository for MF Global's customer segregated accounts.
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. JPMorgan Chase and
affiliates (together, "JPMC"), Bear Stearns and affiliates
(together, "Bear Stearns") and certain Washington Mutual
affiliates (together, “Washington Mutual") have been named
as defendants in a number of cases in their various roles in
offerings of mortgage-backed securities ("MBS"). These
cases include class action suits on behalf of MBS
purchasers, actions by individual MBS purchasers and
actions by monoline insurance companies that guaranteed
payments of principal and interest for particular tranches of
MBS offerings. Following the settlements referred to under
"Repurchase Litigation" and "Government Enforcement
Investigations and Litigation” below, there are currently
pending and tolled investor and monoline insurer claims
involving MBS with an original principal balance of
approximately $41 billion, of which $38 billion involves
JPMC, Bear Stearns or Washington Mutual as issuer and $3
billion involves JPMC, Bear Stearns or Washington Mutual
solely as underwriter. The Firm and certain of its current
and former officers and Board members have also been
sued in shareholder derivative actions relating to the Firm's
MBS activities, and trustees have asserted or have
threatened to assert claims that loans in securitization
trusts should be repurchased.
Issuer Litigation - Class Actions. Two class actions remain
pending against JPMC and Bear Stearns as MBS issuers in
the United States District Court for the Southern District of
New York. In the action concerning JPMC, plaintiffs' motion
for class certification has been granted with respect to
liability but denied without prejudice as to damages. In the
action concerning Bear Stearns, the parties have reached a
settlement in principle, which is subject to court approval.
The Firm is also defending a class action brought against
Bear Stearns in the United States District Court for the
District of Massachusetts, in which the court's decision on
defendants' motion to dismiss is pending.
Summary of changes in mortgage repurchase liability (a)
Year ended December 31,
(in millions)
Repurchase liability at beginning of
period
2014
2013
2012
$
Net realized gains/(losses) (b)
681
53
Reclassification to litigation reserve
(Benefit)/provision for repurchase (c)
Repurchase liability at end of
period
In connection with the Firm's mortgage loan sale and
securitization activities with the GSES, as described in Note
16, the Firm has made representations and warranties that
the loans sold meet certain requirements. The Firm has
been, and may be, required to repurchase loans and/or
indemnify the GSES (e.g., with "make-whole" payments to
reimburse the GSES for their realized losses on liquidated
loans). To the extent that repurchase demands that are
received relate to loans that the Firm purchased from third
parties that remain viable, the Firm typically will have the
right to seek a recovery of related repurchase losses from
the third party. Generally, the maximum amount of future
payments the Firm would be required to make for breaches
of these representations and warranties would be equal to
the unpaid principal balance of such loans that are deemed
to have defects that were sold to purchasers (including
securitization-related SPES) plus, in certain circumstances,
accrued interest on such loans and certain expense.
(459)
412
$
275 $
681 $ 2,811
(a) On October 25, 2013, the Firm announced that it had reached a $1.1
billion agreement with the FHFA to resolve, other than certain limited
types of exposures, outstanding and future mortgage repurchase
demands associated with loans sold to the GSES from 2000 to 2008.
(b) Presented net of third-party recoveries and included principal losses
and accrued interest on repurchased loans, “make-whole" settlements,
settlements with claimants, and certain related expense. Make-whole
settlements were $11 million, $414 million and $524 million, for the
years ended December 31, 2014, 2013 and 2012, respectively.
(c) Included a provision related to new loan sales of $4 million, $20
million and $112 million, for the years ended December 31, 2014,
2013 and 2012, respectively.
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
JPMorgan Chase & Co./2014 Annual Report
298
Underwriter Actions. In actions against the Firm solely as an
underwriter of other issuers' MBS offerings, the Firm has
contractual rights to indemnification from the issuers.
However, those indemnity rights may prove effectively
unenforceable in various situations, such as where the
issuers are now defunct. There are currently actions of this
type pending against the Firm in federal and state courts in
Monoline Insurer Litigation. The Firm is defending two
pending actions relating to the same monoline insurer's
guarantees of principal and interest on certain classes of 11
different Bear Stearns MBS offerings. These actions are
pending in state court in New York and are in various stages
of litigation.
Issuer Litigation - Individual Purchaser Actions. In addition
to class actions, the Firm is defending individual actions
brought against JPMC, Bear Stearns and Washington Mutual
as MBS issuers (and, in some cases, also as underwriters of
their own MBS offerings). These actions are pending in
federal and state courts across the U.S. and are in various
stages of litigation.
$ 2,811 $ 3,557
(1,561) (1,158)
(179)
(390)
$
Other unfunded commitments to extend credit
2,399
4,454
(2,715) (14,038)
Other borrowed funds
(5,778)
(7,297)
3,736
Parent company - Balance sheets
Proceeds from the issuance of
December 31, (in millions)
2014
2013
long-term debt
40,284
Assets
Payments of long-term debt
(31,050)
31,303 28,172
(21,510) (44,240)
Borrowings from subsidiaries and
affiliates(a)
Cash and due from banks
$ 24,442
Financing activities
32
22
25
(15,945)
12,509
25,529
Equity in undistributed net income
of subsidiaries
8,256
Net income
$ 21,762
Other comprehensive income, net
990
Comprehensive income
$22,752
23,445
$17,923
(2,903)
$ 15,020
16,674
$ 21,284
3,158
Net change in:
$
211 $
Deposits with banking subsidiaries
repurchased
(4,760)
Bank and bank holding company
33,810
21,693
Dividends paid
Nonbank
52,626
68,788
Investments (at equity) in subsidiaries and
affiliates:
All other financing activities, net
Net cash provided by/(used in)
financing activities
(4,789)
(6,990) (6,056) (5,194)
(1,328) (1,131) (701)
(1,653)
4,086
(9,985) (32,429)
Bank and bank holding company
subsidiaries:
Treasury stock and warrants
Advances to, and receivables from,
2,829
95,884
Trading assets
18,222
264
64,843
13,727
Excess tax benefits related to
stock-based compensation
407
137
255
All other investing activities, net
Net cash provided by/(used in)
investing activities
Proceeds from issuance of
preferred stock
Available-for-sale securities
3,321
15,228
Redemption of preferred stock
3,873
(1,800)
1,234
Loans
2,260
8,847
216,070
1,665
1,430
779
318
939
Investing activities
52
2,065
1,207
Net change in:
Other income/(loss)
508
Total income
16,717
(1,380)
4,114
579
Deposits with banking
subsidiaries
(31,040)
Bank and bank holding company
Nonbank
10,679
6,984
11,806
$
68,114
$
378
757
1,041
Other interest income
284
303
293
Other operating adjustments
(1,698) 3,180
2,376
Other income from subsidiaries,
Net cash provided by/(used in)
primarily fees:
operating activities
(2,476)
16,100
10,859
Expense
(713)
(350)
Total expense
4,641
13,937
7,914
Income (loss) before income tax
Advances to and investments in
subsidiaries and affiliates, net
3,306
14,469
9,497
benefit and undistributed net
income of subsidiaries
12,076
(9,823)
2,945
Income tax benefit
(319)
Other changes in loans, net
97,031
9,597
Available-for-sale securities:
Interest expense to subsidiaries and
affiliates(a)
169
309
836
Proceeds from paydowns and
maturities
12,076
61
4,301
621
3,645
4,031
4,679
Purchases
(12,009)
(364)
Other noninterest expense
827
Other interest expense
196,950
Nonbank(a)
Other assets
$
5,278
$
(380) $
6,496 $
6,529
Per common share data
Net income/(loss): Basic
$
1.20 $
1.37 $
1.47 $
1.29
$
1.31 $
(0.17) $
1.61
5,274
$
5,985 $
4,931 $
6,263
7,691
8,331
7,507
7,500
34
9,298
9,082
1,332
2,119
2,346
2,233
2,222
414
2,802
2,553
$
5,572 $
1.61
Diluted
1.19
3,797.1
3,767.0
3,814.3
3,847.0
Market and per common share data
Market capitalization
Common shares at period-end
$ 232,472 $ 225,188 $ 216,725
3,714.8
3,738.2
3,761.3
$ 229,770
3,784.7
$ 219,657
3,756.1
$194,312
3,759.2
$ 198,966
3,769.0
$ 179,863
3,789.8
Share price(a):
High
3,823.6
3,812.5
3,788.7
3,765.2
1.36
1.46
1.28
1.30
(0.17)
1.60
1.59
Average shares:
617
Basic
3,755.4
3,780.6
3,787.2
3,762.1
3,767.0
3,782.4
3,818.2
Diluted
3,730.9
47
(543)
104
55,454
Cash income taxes paid, net
$ 211
$ 3,921
200
$ 264 $ 216
$ 4,409 $ 5,690
2,390
3,080
171,211
11,367
161,868
Total liabilities(c)
250,157
243,017
Total stockholders' equity
232,065
211,178
Total liabilities and stockholders' equity
$ 482,222
$ 454,195
(a) Affiliates include trusts that issued guaranteed capital debt securities ("issuer trusts").
The Parent received dividends of $2 million, $5 million and $12 million from the issuer
trusts in 2014, 2013 and 2012, respectively. For further discussion on these issuer
trusts, see Note 21.
(b) At December 31, 2014, long-term debt that contractually matures in 2015 through
2019 totaled $24.4 billion, $25.5 billion, $23.0 billion, $19.3 billion and $11.3
billion, respectively.
49,586
11,918
Cash interest paid
Cash and due from banks at the
end of the year, primarily with
bank subsidiaries
$ 17,442 $ 14,328
41,173
18,645
Net increase/(decrease) in cash
and due from banks
(53)
48
84
50,996
18,877
Total assets
(c) For information regarding the Firm's guarantees of its subsidiaries' obligations, see
Note 21 and Note 29.
$ 482,222 $ 454,195
264
216
132
Liabilities and stockholders' equity
Borrowings from, and payables to,
subsidiaries and affiliates (a)
Other borrowed funds, primarily commercial
paper
Other liabilities
Long-term debt (b)(c)
Cash and due from banks at the
beginning of the year, primarily
with bank subsidiaries
3,597
25,320
28,917 $
306
Supplementary information
24,246 $ 24,454 $ 22,993
15,798
15,431
14,636
$ 23,156 $ 23,117
15,552
23,626
$ 25,211 $
15,866
25,122
15,423
7,103
8,448
9,023
8,357
7,604
(509)
9,345
9,699
840
757
692
850
22,512 $
15,409
$
2nd quarter 1st quarter
4th quarter 3rd quarter
Selected quarterly financial data (unaudited)
(Table continued on next page)
As of or for the period ended
(in millions, except per share, ratio, headcount
data and where otherwise noted)
Selected income statement data
Total net revenue
Total noninterest expense
JPMorgan Chase & Co./2014 Annual Report
Pre-provision profit/(loss)
Income before income tax expense
Income tax expense
Net income/(loss)
2014
2013
4th quarter
3rd quarter
2nd quarter 1st quarter
Provision for credit losses
3,010
18,274
775,086
1,584,055
21,284 $ 2,359,141
(697)
(2,495) $ (2,116) $ 50,571
(743)
43,634
$ 53,287 $ 52,121
43,319
44,910
12,028
11,405
10,010
12
(22)
(2,072)
(3,718)
(3,192)
(2,859)
94,205
96,606
97,031
(985)
4
(2,262)
$
2012
2014
2013
2012
2014
2013
2012
$ 9,588
$ 9,029 $ 7,847
$
1,972 $
2,440
2,376
2,163
(1,960)
3,093 $
(3,115)
190
(2,733) $
65
86
(35)
(2,859)
29,792
25,914
28,917
1,333
1,241
1,078
(1,976)
(3,493)
(3,974)
(3,718)
(3,192)
(2,859)
8,030
7,991
7,633
$
(3,192)
(3,718)
(6,594)
(10,249)
(28)
(37)
3,139
225
3,385
8,538
8,016
7,104
2013
1,159
4,559
61,274
70,467
64,729
3,486
3,324
2,820
(1,112)
10,255
2014
2012
2013
7,299
6,886
4,596
4,387
4,719
1,741
1,749
1,783
Net income/(loss)
$ 9,185 $ 11,061
Average common equity
Total assets
455,634
$ 51,000 $ 46,000
452,929
$ 10,791
$ 43,000
467,282
$ 61,000
861,819
6,054
Income tax expense/(benefit)
4,482
4,397
Noninterest expense
25,609
27,842
28,827
23,273
21,744
21,850
2,695
$ 6,925 $ 8,887 $ 8,672
$ 56,500
2,610
Income/(loss) before income tax expense/(benefit)
15,239
18,360
17,677
11,521
13,274
13,391
4,376
2,389
2,153 $ 2,083 $ 1,742
$
$ 2.648 $ 2,699
67
63
63
39
37
35
(a) Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are
eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
304
JPMorgan Chase & Co./2014 Annual Report
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital to
its lines of business and updates equity allocations to its
lines of business as refinements are implemented.
Preferred stock dividend allocation reporting change
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. Prior to the
fourth quarter of 2014, this cost was allocated to the Firm's
reportable business segments as interest expense, with an
offset recorded as interest income in Corporate. Effective
with the fourth quarter of 2014, this cost is no longer
included in interest income and interest expense in the
segments, but rather is now included in net income
applicable to common equity to be consistent with the
presentation of firmwide results. As a result of this
reporting change, net interest income and net income in the
reportable business segments increases; however, there
was no impact to the segments' return on common equity
("ROE"). The Firm's net interest income, net income,
Consolidated balance sheets and consolidated results of
operations were not impacted by this reporting change, as
preferred stock dividends have been and continue to be
distributed from retained earnings and, accordingly, were
never reported as a component of the Firm's consolidated
net interest income or net income. Prior period segment
amounts have been revised to conform with the current
period presentation.
(table continued from previous page)
Asset Management
Corporate
Reconciling Items(a)
Total
2014
57
60
58
Overhead ratio
$ 47,500
843,577
876,107
$ 14,000
195,267
13,500 $
9,500
190,782
181,502
2,635
Return on common equity
23%
25%
10%
15%
18%
18%
19%
28%
18%
$
$
(6,756) $
Total net revenue
4,629
4,794
4,533
11,658
10,976
11,175
29,465
28,985
28,431
Net interest income
$ 2,349 $ 2,298 $ 2,283
$ 23,104
$ 23,810
$ 23,458
$ 20,813
$ 17,552
44,368
$ 15,937
46,537
34,633
14,714
1,917
6,798
Interest income from subsidiaries
(189)
(479)
(232)
(161)
3,774
335
3,520
Provision for credit losses
6,912
7,092
6,882
34,762
34,786
50,278
2012
2013
2014
Asset Management ("AM"), with client assets of $2.4
trillion, is a global leader in investment and wealth
management. AM clients include institutions, high-net-
worth individuals and retail investors in every major market
throughout the world. AM offers investment management
across all major asset classes including equities, fixed
income, alternatives and money market funds. AM also
offers multi-asset investment management, providing
solutions for a broad range of clients' investment needs. For
Global Wealth Management clients, AM also provides
retirement products and services, brokerage and banking
services including trusts and estates, loans, mortgages and
deposits. The majority of AM's client assets are in actively
managed portfolios.
Asset Management
Commercial Banking ("CB") delivers extensive industry
knowledge, local expertise and dedicated service to U.S.
and multinational clients, including corporations,
municipalities, financial institutions and non-profit entities
with annual revenue generally ranging from $20 million to
$2 billion. CB provides financing to real estate investors and
owners. Partnering with the Firm's other businesses, CB
provides comprehensive financial solutions, including
lending, treasury services, investment banking and asset
management to meet its clients' domestic and international
financial needs.
Commercial Banking
brokerage, and research. Markets & Investor Services also
includes the Securities Services business, a leading global
custodian which includes custody, fund accounting and
administration, and securities lending products sold
principally to asset managers, insurance companies and
public and private investment funds.
The Corporate & Investment Bank ("CIB"), comprised of
Banking and Markets & Investor Services, offers a broad
suite of investment banking, market-making, prime
brokerage, and treasury and securities products and
services to a global client base of corporations, investors,
financial institutions, government and municipal
entities. Within Banking, the CIB offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, as
well as loan origination and syndication. Also included in
Banking is Treasury Services, which includes transaction
services, comprised primarily of cash management and
liquidity solutions, and trade finance products. The Markets
& Investor Services segment of the CIB is a global market-
maker in cash securities and derivative instruments, and
also offers sophisticated risk management solutions, prime
Corporate & Investment Bank
Consumer & Community Banking ("CCB") serves consumers
and businesses through personal service at bank branches
and through ATMs, online, mobile and telephone banking.
CCB is organized into Consumer & Business Banking,
Mortgage Banking (including Mortgage Production,
Mortgage Servicing and Real Estate Portfolios) and Card,
Merchant Services & Auto ("Card"). Consumer & Business
Banking offers deposit and investment products and
services to consumers, and lending, deposit, and cash
management and payment solutions to small businesses.
Mortgage Banking includes mortgage origination and
servicing activities, as well as portfolios comprised of
residential mortgages and home equity loans, including the
PCI portfolio acquired in the Washington Mutual
transaction. Card issues credit cards to consumers and
small businesses, provides payment services to corporate
and public sector clients through its commercial card
products, offers payment processing services to merchants,
and provides auto and student loan services.
Consumer & Community Banking
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is currently evaluated by
management. Results of these lines of business are
presented on a managed basis. For a definition of managed
basis, see Explanation and Reconciliation of the Firm's use
of non-GAAP financial measures, on pages 77-78. For a
further discussion concerning JPMorgan Chase's business
segments, see Business Segment Results on pages 79-80.
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
Note 33 - Business segments
JPMorgan Chase & Co./2014 Annual Report
302
(d) Total assets for the U.K. were approximately $434 billion, $451 billion, and $498 billion at December 31, 2014, 2013 and 2012, respectively.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(b) Revenue is composed of net interest income and noninterest revenue.
(a) Substantially reflects the U.S.
Corporate
The Corporate segment comprises Private Equity, Treasury
and Chief Investment Office ("CIO"), and Other Corporate,
which includes corporate staff units and expense that is
centrally managed. Treasury and CIO are predominantly
responsible for measuring, monitoring, reporting and
managing the Firm's liquidity, funding and structural
interest rate and foreign exchange risks, as well as
executing the Firm's capital plan. The major Other
Corporate units include Real Estate, Enterprise Technology,
Legal, Compliance, Finance, Human Resources, Internal
Audit, Risk Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups. Other
centrally managed expense includes the Firm's occupancy
and pension-related expense that are subject to allocation
to the businesses.
JPMorgan Chase & Co./2014 Annual Report
303
2012
2013
2014
2012
2013
2014
Noninterest revenue
(in millions, except ratios)
Cash dividends from subsidiaries
and affiliates (a)
As of or the year ended
December 31,
Corporate & Investment Bank
Consumer & Community Banking
Segment results and reconciliation
Business segment capital allocation changes
Effective January 1, 2013, the Firm refined the capital
allocation framework to align it with the revised line of
business structure that became effective in the fourth
quarter of 2012. The change in equity levels for the lines of
businesses was largely driven by the evolving regulatory
requirements and higher capital targets the Firm had
established under the Basel III Advanced Approach.
exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense/(benefit).
The following tables provide a summary of the Firm's
segment results as of or for the years ended December 31,
2014, 2013 and 2012 on a managed basis. Total net
revenue (noninterest revenue and net interest income) for
each of the segments is presented on a fully taxable-
equivalent ("FTE") basis. Accordingly, revenue from
investments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
comparable to taxable investments and securities. This non-
GAAP financial measure allows management to assess the
comparability of revenue arising from both taxable and tax-
Segment results
Notes to consolidated financial statements
Commercial Banking
1,972
876
14,716
2,415,689
2,359,141
23%
23%
24%
NM
NM
NM
NM
NM
NM
10%
9%
11%
71
70
71
2,573,126
NA
NA
NA
(2,620) $
-
$
$
$ 9,000 $ 9,000 $ 7,000 $
72,400 $
71,409 $ 77,352 $
-
NM
$
$ 21,762 $ 17,923 $ 21,284
$ 207,400 $ 196,409 $ 184,352
128,701
122,414
108,999
931,705
805,987
725,251
$
864 $
NM
NM
Net income
$ 21,762
$ 17,923 $ 21,284
Less: Net income of subsidiaries
Dividends from subsidiaries and
and affiliates (a)
22,972
25,496
23,474
affiliates:
Bank and bank holding company
Nonbank(a)
$
-
$ 1,175 $ 4,828
Parent company net loss
(1,210)
(7,573) (2,190)
2012
2013
2014
Income
NM
NM
65
73
67
JPMorgan Chase & Co./2014 Annual Report
305
Notes to consolidated financial statements
NM
Note 34 - Parent company
Parent company - Statements of cash flows
Year ended December 31,
(in millions)
2014
2013
2012
Year ended December 31,
Operating activities
(in millions)
Parent company - Statements of income and comprehensive income
63.49 $ 61.85 $
61.29 $ 61.48 $
58.55 $ 56.93
5,605
3,952
1,196 $
1,653
Latin America and the Caribbean
2,328
1,580
748
1,508 $
1,048
454
553,147 (d)
167,955
53,984
Total international
18,455
14,858
North America (a)
78,576
53,256
Total
$
JPMorgan Chase & Co./2014 Annual Report
308
Asia and Pacific
9,326 $
10,522 $
$
381
41,473
Total international
24,004
14,943
9,061
6,477
702,219
North America (a)
72,602
Included unsecured long-term debt of $207.5 billion, $204.7 billion, $205.6 billion, $206.1 billion, $199.4 billion, $199.2 billion, $199.1 billion and
$206.1 billion, respectively, for the periods presented.
(g) Excludes the impact of residential real estate PCI loans. For further discussion, see Allowance for credit losses on pages 128-130.
55,749
$
96,606 $
70,692 $
16,853
25,914
11,446
1,713,470
$
17,923 $ 2,415,689
2012
Europe/Middle East and Africa
Total
(f)
(e) Included held-to-maturity securities of $49.3 billion, $48.8 billion, $47.8 billion, $47.3 billion, $24.0 billion and $4.5 billion at December 31, 2014,
September 30, 2014, June 30, 2014, March 31, 2014, December 31, 2013 and September 30, 2013, respectively. Held-to-maturity balances for the
other periods were not material.
(d) Basel III Transitional rules became effective on January 1, 2014; December 31, 2013 data is based on Basel I rules. As of December 31, 2014,
September 30, 2014, and June 30, 2014, the ratios presented are calculated under the Basel III Advanced Transitional Approach. As of March 31, 2014,
the ratios presented are calculated under the Basel III Standardized Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital
under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP financial measure. See
Regulatory capital on pages 146-153 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
1.63
1.55
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans (8)
2.88%
2.69%
2.43%
2.25%
2.20%
2.08%
2.02%
1.69
1.90%
21,496
20,137 $
16,969 $ 18,248 $
$ 15,974 $ 16,485 $
14,807 $ 15,526
$
Allowance for credit losses
1st quarter
2nd quarter
3rd quarter
Allowance for loan losses to total retained
loans
145,999
1.75
Nonperforming assets
157.
(c) HQLA represents the Firm's estimate of the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule (“U.S. LCR”)
as of December 31, 2014, and under the Basel III liquidity coverage ratio ("Basel III LCR") for prior periods. For additional information, see HQLA on page
TBVPS and ROTCE are non-GAAP financial measures. TBVPS represents the Firm's tangible common equity divided by common shares at period-end.
ROTCE measures the Firm's annualized earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation
and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 77-78.
(b)
(a) Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange. JPMorgan Chase's common stock is also listed and traded
on the London Stock Exchange and the Tokyo Stock Exchange.
0.97%
0.78%
1,725
11,739
2.27
1.80
2.06
0.74%
9,017 $ 9,473 $
1,158
1,269
0.64%
0.71%
1,114
0.60%
1,218
0.65%
Net charge-off rate
Net charge-offs
8,390 $
$
7,967
$
1.89
9,706 $ 10,380 $ 11,041 $
1,328
1,346
1,403
0.73%
4th quarter
1,254
4,842 $
Washington Mutual Litigations. Proceedings related to
Washington Mutual's failure are pending before the United
States District Court for the District of Columbia and include
a lawsuit brought by Deutsche Bank National Trust
Company, initially against the FDIC and amended to include
JPMorgan Chase Bank, N.A. as a defendant, asserting an
estimated $6 billion to $10 billion in damages based upon
alleged breach of various mortgage securitization
agreements and alleged violation of certain representations
and warranties given by certain Washington Mutual
affiliates in connection with those securitization
agreements. The case includes assertions that JPMorgan
Chase Bank, N.A. may have assumed liabilities for the
alleged breaches of representations and warranties in the
mortgage securitization agreements. The Firm and the FDIC
have filed opposing motions, each seeking a ruling that the
liabilities at issue are borne by the other.
Certain holders of Washington Mutual Bank debt filed an
action against JPMorgan Chase which alleged that by
JPMorgan Chase & Co./2014 Annual Report
acquiring substantially all of the assets of Washington
Mutual Bank from the FDIC, JPMorgan Chase Bank, N.A.
caused Washington Mutual Bank to default on its bond
obligations. JPMorgan Chase and the FDIC moved to dismiss
this action and the District Court dismissed the case except
as to the plaintiffs' claim that JPMorgan Chase tortiously
interfered with the plaintiffs' bond contracts with
Washington Mutual Bank prior to its closure. Discovery is
ongoing.
JPMorgan Chase has also filed a complaint in the United
States District Court for the District of Columbia against the
FDIC in its capacity as receiver for Washington Mutual Bank
and in its corporate capacity asserting multiple claims for
indemnification under the terms of the Purchase &
Assumption Agreement between JPMorgan Chase and the
FDIC relating to JPMorgan Chase's purchase of most of the
assets and certain liabilities of Washington Mutual Bank.
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or impact
related to those matters. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel
and after taking into account its current litigation reserves,
that the legal proceedings currently pending against it
should not have a material adverse effect on the Firm's
consolidated financial condition. The Firm notes, however,
that in light of the uncertainties involved in such
proceedings, there is no assurance the ultimate resolution
of these matters will not significantly exceed the reserves it
has currently accrued; as a result, the outcome of a
particular matter may be material to JPMorgan Chase's
operating results for a particular period, depending on,
among other factors, the size of the loss or liability imposed
and the level of JPMorgan Chase's income for that period.
*
*
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously in all such matters. Additional legal
proceedings may be initiated from time to time in the
future.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management's best judgment after consultation with
counsel. During the years ended December 31, 2014, 2013
and 2012, the Firm incurred $2.9 billion, $11.1 billion and
$5.0 billion, respectively, of legal expense. There is no
assurance that the Firm's litigation reserves will not need to
be adjusted in the future.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
JPMorgan Chase & Co./2014 Annual Report
301
Notes to consolidated financial statements
Note 32 - International operations
The following table presents income statement-related and
balance sheet-related information for JPMorgan Chase by
major international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
or the location of the trading desk. However, many of the
Firm's U.S. operations serve international businesses.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 33.
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As of or for the year ended December 31, (in millions)
2014
Revenue (b)
Expense (c)
Separately, the Consumer Financial Protection Bureau and
multiple state Attorneys General are conducting
investigations into the Firm's collection and sale of
consumer credit card debt. The California and Mississippi
Attorneys General have filed separate civil actions against
JPMorgan Chase & Co., Chase Bank USA, N.A. and Chase
BankCard Services, Inc. alleging violations of law relating to
debt collection practices.
Sworn Documents, Debt Sales and Collection Litigation
Practices. The Firm has been responding to formal and
informal inquiries from various state and federal regulators
regarding practices involving credit card collections
litigation (including with respect to sworn documents), the
sale of consumer credit card debt and securities backed by
credit card receivables.
Referral Hiring Practices Investigations. Various regulators
are investigating, among other things, the Firm's
compliance with the Foreign Corrupt Practices Act and other
laws with respect to the Firm's hiring practices related to
candidates referred by clients, potential clients and
government officials, and its engagement of consultants in
the Asia Pacific region. The Firm is responding to and
continuing to cooperate with these investigations.
Power Matters. The United States Attorney's Office for the
Southern District of New York is investigating matters
relating to the bidding activities that were the subject of the
July 2013 settlement between J.P. Morgan Ventures Energy
Corp. and the Federal Energy Regulatory Commission. The
Firm is responding to and cooperating with the
investigation.
various stages of litigation. One such class action has been
settled, subject to final approval by the court.
Repurchase Litigation. The Firm is defending a number of
actions brought by trustees, securities administrators or
master servicers of various MBS trusts and others on behalf
of purchasers of securities issued by those trusts. These
cases generally allege breaches of various representations
and warranties regarding securitized loans and seek
repurchase of those loans or equivalent monetary relief, as
well as indemnification of attorneys' fees and costs and
other remedies. Deutsche Bank National Trust Company,
acting as trustee for various MBS trusts, has filed such a suit
against JPMorgan Chase Bank, N.A. and the Federal Deposit
Insurance Corporation (the "FDIC") in connection with a
significant number of MBS issued by Washington Mutual;
that case is described in the Washington Mutual Litigations
section below. Other repurchase actions, each specific to
one or more MBS transactions issued by JPMC and/or Bear
Stearns, are in various stages of litigation.
In addition, the Firm and a group of 21 institutional MBS
investors made a binding offer to the trustees of MBS issued
by JPMC and Bear Stearns providing for the payment of
$4.5 billion and the implementation of certain servicing
changes by JPMC, to resolve all repurchase and servicing
claims that have been asserted or could have been asserted
with respect to the 330 MBS trusts issued between 2005
and 2008. The offer does not resolve claims relating to
Washington Mutual MBS. The seven trustees (or separate
and successor trustees) for this group of 330 trusts has
accepted the settlement for 319 trusts in whole or in part
and excluded from the settlement 16 trusts in whole or in
part. The trustees' acceptance is subject to a judicial
approval proceeding initiated by the trustees and pending
in New York state court. Certain investors in some of the
trusts for which the settlement has been accepted have
intervened in the judicial approval proceeding, challenging
the trustees' acceptance of the settlement.
Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts that the Firm sponsored.
Derivative Actions. Shareholder derivative actions relating
to the Firm's MBS activities have been filed against the Firm,
as nominal defendant, and certain of its current and former
officers and members of its Board of Directors, in New York
state court and California federal court. Two of the New
York actions have been dismissed and one is on appeal. A
consolidated action in California federal court has been
dismissed without prejudice for lack of personal jurisdiction
and plaintiffs are pursuing discovery.
Government Enforcement Investigations and Litigation. The
Firm is responding to an ongoing investigation being
conducted by the Criminal Division of the United States
Attorney's Office for the Eastern District of California
relating to MBS offerings securitized and sold by the Firm
and its subsidiaries. The Firm has also received subpoenas
and informal requests for information from state authorities
concerning the issuance and underwriting of MBS-related
JPMorgan Chase & Co./2014 Annual Report
matters. The Firm continues to respond to these MBS-
related regulatory inquiries.
In addition, the Firm continues to cooperate with
investigations by DOJ, including the U.S. Attorney's Office
for the District of Connecticut, the SEC Division of
Enforcement and the Office of the Special Inspector General
for the Troubled Asset Relief Program, all of which relate to,
among other matters, communications with counterparties
in connection with certain secondary market trading in
residential and commercial MBS.
The Firm has entered into agreements with a number of
entities that purchased MBS that toll applicable limitations
periods with respect to their claims, and has settled, and in
the future may settle, tolled claims. There is no assurance
that the Firm will not be named as a defendant in additional
MBS-related litigation.
Mortgage-Related Investigations and Litigation. The Attorney
General of Massachusetts filed an action against the Firm,
other servicers and a mortgage recording company,
asserting claims for various alleged wrongdoings relating to
mortgage assignments and use of the industry's electronic
mortgage registry. In January 2015, the Firm entered into a
settlement resolving this action.
Income before
income tax
expense
The Firm entered into a settlement resolving a putative
class action lawsuit relating to its filing of affidavits or other
documents in connection with mortgage foreclosure
proceedings, and the court granted final approval of the
settlement in January 2015.
The Civil Division of the United States Attorney's Office for
the Southern District of New York is conducting an
investigation concerning the Firm's compliance with the Fair
Housing Act ("FHA") and Equal Credit Opportunity Act
("ECOA") in connection with its mortgage lending
practices. In addition, three municipalities and a school
district have commenced litigation against the Firm alleging
violations of an unfair competition law and of the FHA and
ECOA and seeking statutory damages for the unfair
competition claim, and, for the FHA and ECOA claims,
damages in the form of lost tax revenue and increased
municipal costs associated with foreclosed properties. The
court denied a motion to dismiss in one of the municipal
actions, the school district action was dismissed with
prejudice, another municipal action was recently served,
and motions to dismiss are pending in the remaining
actions.
JPMorgan Chase Bank, N.A. is responding to inquiries by the
Executive Office of the U.S. Bankruptcy Trustee and various
regional U.S. Bankruptcy Trustees relating to mortgage
payment change notices and escrow statements in
bankruptcy proceedings.
299
Notes to consolidated financial statements
Municipal Derivatives Litigation. Several civil actions were
commenced in New York and Alabama courts against the
Firm relating to certain Jefferson County, Alabama (the
"County") warrant underwritings and swap transactions.
The claims in the civil actions generally alleged that the
Firm made payments to certain third parties in exchange for
being chosen to underwrite more than $3 billion in
warrants issued by the County and to act as the
counterparty for certain swaps executed by the County. The
County filed for bankruptcy in November 2011. In June
2013, the County filed a Chapter 9 Plan of Adjustment, as
amended (the "Plan of Adjustment"), which provided that
all the above-described actions against the Firm would be
released and dismissed with prejudice. In November 2013,
the Bankruptcy Court confirmed the Plan of Adjustment,
and in December 2013, certain sewer rate payers filed an
appeal challenging the confirmation of the Plan of
Adjustment. All conditions to the Plan of Adjustment's
effectiveness, including the dismissal of the actions against
the Firm, were satisfied or waived and the transactions
contemplated by the Plan of Adjustment occurred in
December 2013. Accordingly, all the above-described
actions against the Firm have been dismissed pursuant to
the terms of the Plan of Adjustment. The appeal of the
Bankruptcy Court's order confirming the Plan of Adjustment
remains pending.
Parmalat. In 2003, following the bankruptcy of the
Parmalat group of companies ("Parmalat”), criminal
prosecutors in Italy investigated the activities of Parmalat,
its directors and the financial institutions that had dealings
with them following the collapse of the company. In March
2012, the criminal prosecutor served a notice indicating an
intention to pursue criminal proceedings against four
former employees of the Firm (but not against the Firm) on
charges of conspiracy to cause Parmalat's insolvency by
underwriting bonds and continuing derivatives trading when
Parmalat's balance sheet was false. A preliminary hearing,
in which the judge will determine whether to recommend
that the matter go to a full trial, is ongoing. The final
hearings have been scheduled for March 2015.
In addition, the administrator of Parmalat commenced five
civil actions against JPMorgan Chase entities including: two
claw-back actions; a claim relating to bonds issued by
Parmalat in which it is alleged that JPMorgan Chase kept
Parmalat "artificially" afloat and delayed the declaration of
insolvency; and similar allegations in two claims relating to
derivatives transactions.
Petters Bankruptcy and Related Matters. JPMorgan Chase
and certain of its affiliates, including One Equity Partners
("OEP"), have been named as defendants in several actions
filed in connection with the receivership and bankruptcy
proceedings pertaining to Thomas J. Petters and certain
affiliated entities (collectively, "Petters”) and the Polaroid
Corporation. The principal actions against JPMorgan Chase
and its affiliates have been brought by a court-appointed
receiver for Petters and the trustees in bankruptcy
proceedings for three Petters entities. These actions
generally seek to avoid certain putative transfers in
300
connection with (i) the 2005 acquisition by Petters of
Polaroid, which at the time was majority-owned by OEP; (ii)
two credit facilities that JPMorgan Chase and other financial
institutions entered into with Polaroid; and (iii) a credit line
and investment accounts held by Petters. The actions
collectively seek recovery of approximately $450 million.
Defendants have moved to dismiss the complaints in the
actions filed by the Petters bankruptcy trustees.
One shareholder derivative action has been filed in New
York Supreme Court against the Firm's Board of Directors
alleging that the Board failed to exercise adequate
oversight as to wrongful conduct by the Firm regarding
mortgage servicing. In December 2014, the court granted
defendants' motion to dismiss the complaint.
Net income
Total assets
Europe/Middle East and Africa
48,186
21,876
5,255
16,507
673,252
1,899,874
94,205 $
64,413
29,792
$
21,762 $
70,062
2,573,126
$
15,585 $
9,069 $
Asia and Pacific
6,168
4,248
Latin America and the Caribbean
2,251
1,626
6,516 $
1,920
625
Europe/Middle East and Africa
514,747 (d)
7,916
24,143
Asia and Pacific
Latin America and the Caribbean
Total international
North America (a)
Total
2013
16,013
$
10,123
5,890
16,227
3,935
6,083
4,478
1,605
1,051
41
2,047
1,626
421
269
44,567
$
2nd quarter 1st quarter
481,328 (d)
147,357
2013
0.87
0.89
0.99
0.90
0.78
Return on assets ("ROA")
17
17
(2)
14
13
13%
13%
(1)%
10%
10%
11%
146
14
13
11
(0.06)
1.09
1.14
Overhead ratio
$
572
600 $
$
High quality liquid assets ("HQLA") (in billions) (c)
Common equity tier 1 ("CET1") capital ratio(d)
61
60
57
57
57
Return on tangible common equity ("ROTCE") (b)
57
56
Loans-to-deposits ratio
61
63
102
67
64
63
65
68
56
10%
9%
Return on common equity ("ROE")
57.07
Book value per share
47.46
52.79
51.69
58.48
60.71
57.62
60.24
62.58
56.50
Close
46.05
50.06
50.25
54.20
52.97
54.96
54.26
Low
$ 55.90 $ 51.00
4th quarter 3rd quarter
44.20
576
55.53
53.25
Selected ratios and metrics
0.30
0.38
0.38
0.38
0.38
0.40
0.40
0.40
Cash dividends declared per share
54.05
39.54
39.51
40.81
41.73
43.17
44.13
44.69
Tangible book value per share ("TBVPS")(b)
52.02
52.48
52.01
39.97
$
85
$
197,128
197,781
195,512
200,020
204,572
208,851
211,214
212,002
Common stockholders' equity
268,361
Total stockholders' equity
266,212
$ 430,991
$ 401,470
354,725
725,586
728,886
2,439,494 2,389,349
1,202,950 1,202,507
$ 374,664 $ 383,348
354,003 356,556
738,418 728,679
2,415,689 2,463,309
1,287,765 1,281,102
267,889 263,372
$ 375,204
351,850
730,971
2,476,986
1,282,705
274,512
746,983
2,520,336
1,319,751
269,929
268,721
276,836
Long-term debt(f)
1,334,534
1,363,427
365,744
Deposits
232,065
227,314
538
2014
Credit quality metrics
(in millions, except ratio data)
As of or for the period ended
(Table continued from previous page)
Supplementary information
307
JPMorgan Chase & Co./2014 Annual Report
255,898
231,277
254,063
251,196
246,994
245,192
242,388
241,359
Headcount
209,239
206,670
211,178
219,655
255,041
743,257
2,527,005
207,086
Total assets
11.6
11.6
11.7
11.9
12.1
11.1
11.5
11.6
Tier 1 capital ratio (d)
10.2%
Total capital ratio (d)
10.4%
10.9%
9.8%
10.2%
10.2%
413
454 $
$
2,573,126
522 $
538
10.5 %
13.1
10.7%
12.5
361,918
12.8
366,358
$ 398,988 $ 410,657 $ 392,543
348,004
Securities(e)
Selected balance sheet data (period-end)
Tier 1 leverage ratio
7.3
7.0
6.9
Trading assets
7.4
14.5
14.3
7.1
14.3
14.1
757,336
Loans
14.1
7.6
7.6
7.6
David Mayhew
Peter Scher
North America
Canada
David E. Rawlings
315
Former Prime Minister of Great Britain
J.P. Morgan International Council
As of March 31, 2015
Chairman of the Council
Quartet Representative and
Mel R. Martinez
Rt. Hon. Tony Blair
Korea
Todd Maclin
Switzerland
and Northern Ireland
Niklaus Bossart
India
Kalpana Morparia
Japan
JPMorgan Chase & Co./2014 Annual Report
Steve Teru Rinoie
JPMorgan Chase Vice Chairmen
Melissa Bean
Walter A. Gubert
Phyllis J. Campbell
James B. Lee, Jr.
Jacob A. Frenkel
Steve Lim
London, United Kingdom
Washington, District of Columbia
President and Chief Executive Officer
Enrique Casanueva Nardiz
Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International
Consultants
Former Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
William B. Harrison, Jr.
Georgsmarienhütte Holding GmbH
Hamburg, Germany
Jürgen Grossmann
Owner
Moscow, Russia
and Chief Executive Officer
Sberbank
Chairman of the Board
Herman Gref
RiceHadleyGates LLC
Hon. Robert M. Gates
Partner
Cambridge, Massachusetts
Martin Feldstein
Professor of Economics
Harvard University
New York, New York
JPMorgan Chase & Co.
Chairman and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia
Alberto Baillères
Presidente del Consejo de Administración
Grupo Bal
México D.F., Mexico
Khalid A. Al-Falih
Paul Bulcke
Nestlé S.A.
Vevey, Switzerland
Fernando Henrique Cardoso
Former President of Brazil
São Paulo, Brazil
Jamie Dimon¹
Chief Executive Officer
Spain/Portugal
Africa
Russia/Central Asia
Tosin T. Adewuyi
Nigeria
Ali Moosa
Bahrain/Egypt/Lebanon
Sjoerd Leenart
Middle East/Africa/Turkey
Middle East/Africa/Turkey
Ireland
Martin Wiesmann
Germany
Kyril Courboin
Washington, District of Columbia
France/Francophone North
Central & Eastern Europe
Walter Schuster
Saudi Arabia
Benelux/Nordics
Jake Donavan
Austria
Europe
Edmund Y. Lee
Singapore
Roberto L. Panlilio
Philippines
Steve R. Clayton
Malaysia
Haryanto T. Budiman
Indonesia
Robert C. Priestley
Southeast Asia
Australia/New Zealand/
ASEAN
Anton Ulmer
Rayan Fayez
Sub-Saharan Africa
Marc Hussey & Brian Smith
Francesco Rossi Ferrini
Carl K. Chien
Taiwan
Andrew Butcher
Hong Kong
David Li
China
GREATER CHINA
Italy
Roy Navon
Israel
Carin Bryans
Van Bich Phan
Vietnam
M.L. Chayotid Kridakon
Thailand
Eduardo F. Cepeda
Turkey/Azerbaijan
Mustafa Bagriacik
Latin America
Andean/Central America/
Caribbean
Moises Mainster
Yan Tavrovsky
Argentina/Uruguay/Bolivia/
Facundo D. Gomez Minujin
Brazil
Jose Berenguer
Chile
Alfonso Eyzaguirre
Mexico
Paraguay
Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
New York, NY 10017-2070
Telephone: 212-270-6000
jpmorganchase.com
President and Chief Executive Officer
As of the beginning of 2009, JPMorgan Chase & Co.
has distributed shareholder information under the
U.S. Securities and Exchange Commission "Notice and
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Tata Trusts
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Chairman of the Board
A.P. Møller-Maersk Group
Copenhagen, Denmark
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African Rainbow Minerals Limited
Chislehurston, Sandton, South Africa
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Annual Report on Form 10-K
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Principal subsidiaries
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Amsterdam, The Netherlands
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Former Chairman of the Board
JPMorgan Chase & Co.
New York, New York
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316
Munich, Germany
JPMorgan Chase & Co./2014 Annual Report
JPMorgan Chase & Co.
Corporate headquarters
270 Park Avenue
1 Ex-officio
"JPMorgan Chase," "J.P. Morgan," "Chase,"
the Octagon symbol and other words
or symbols in this report that identify
JPMorgan Chase services are service marks
of JPMorgan Chase & Co. Other words or
symbols in this report that identify other
parties' goods or services may be
trademarks or service marks of those
other parties.
Glossary of Terms
JPMorgan Chase & Co./2014 Annual Report
William C. Weldon 2,3
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Health care products)
Lee R. Raymond 2,3
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)
(Industrial and financial services)
Retired Vice Chairman
General Electric Company
and Retired Chairman
and Chief Executive Officer
GE Capital
Michael A. Neal 5
(Real estate development)
Clear Creek Properties, Inc.
Chairman and Chief Executive Officer
Laban P. Jackson, Jr. 1
(Professional services)
Timothy P. Flynn 4,5
Retired Chairman and
Chief Executive Officer
KPMG
Chief Executive Officer
JPMorgan Chase & Co.
Chairman and
Jamie Dimon
Henry Crown and Company
(Diversified investments)
5
James S. Crown
President
(Television and entertainment)
NBCUniversal, LLC
Chief Executive Officer
Stephen B. Burke 2,3
The Springs Company
(Diversified investments)
Chairman
Crandall C. Bowles ¹,4
The Boeing Company
(Aerospace)
Member of:
1 Audit Committee
2 Compensation &
Management Development
Committee
3 Corporate Governance &
Nominating Committee
Corporate Responsibility
Peter Scher
Anthony J. Horan
Secretary
James R. Vallone
General Auditor
Mark W. O'Donovan
Controller
Joseph M. Evangelisti
Corporate Communications
Other Corporate Officers
Chief Operating Officer
Matthew E. Zames
CEO, Consumer & Community Banking
Gordon A. Smith
CEO, Corporate & Investment Bank
and CEO, EMEA
Retired Executive Vice President
Daniel E. Pinto
Douglas B. Petno
Marianne Lake
Chief Financial Officer
Mary Callahan Erdoes
CEO, Asset Management
John L. Donnelly
Head of Human Resources
Stephen M. Cutler
General Counsel
Ashley Bacon
Chief Risk Officer
Chief Executive Officer
Chairman and
Jamie Dimon
Operating Committee
5 Risk Policy Committee
4 Public Responsibility
Committee
CEO, Commercial Banking
James A. Bell 1
(Financial services)
JPMorgan Chase & Co.
312
Purchased credit-impaired ("PCI") loans: Represents loans
that were acquired in the Washington Mutual transaction
and deemed to be credit-impaired on the acquisition date in
accordance with the guidance of the Financial Accounting
Standards Board ("FASB"). The guidance allows purchasers
to aggregate credit-impaired loans acquired in the same
fiscal quarter into one or more pools, provided that the
loans have common risk characteristics (e.g., product type,
LTV ratios, FICO scores, past due status, geographic
location). A pool is then accounted for as a single asset with
Principal transactions revenue: Principal transactions
revenue includes realized and unrealized gains and losses
recorded on derivatives, other financial instruments, private
equity investments, and physical commodities used in
market making and client-driven activities. In addition,
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk management activities including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specified risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AM against the
performance of their respective competitors.
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Portfolio activity: Describes changes to the risk profile of
existing lending-related exposures and their impact on the
allowance for credit losses from changes in customer
profiles and inputs used to estimate the allowances.
recommending and selling appropriate banking products
and services.
Personal bankers: Retail branch office personnel who
acquire, retain and expand new and existing customer
relationships by assessing customer needs and
stock-based compensation programs, which entitle the
recipients to receive nonforfeitable dividends during the
vesting period on a basis equivalent to the dividends paid to
holders of common stock. These unvested awards meet the
definition of participating securities. Under the two-class
method, all earnings (distributed and undistributed) are
allocated to each class of common stock and participating
securities, based on their respective rights to receive
dividends.
Glossary of Terms
311
JPMorgan Chase & Co./2014 Annual Report
a single composite interest rate and an aggregate
expectation of cash flows.
Participating securities: Represents unvested stock-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, "dividends"),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants
restricted stock and RSUs to certain employees under its
Over-the-counter cleared ("OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected
or when principal and interest has been in default for a
period of 90 days or more unless the loan is both well-
secured and in the process of collection. Collateral-
dependent loans are typically maintained on nonaccrual
status.
NM: Not meaningful.
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
Risk management represents the components of
Mortgage Servicing's MSR asset that are subject to
ongoing risk management activities, together with
derivatives and other instruments used in those risk
management activities.
- The change in the fair value of the MSR asset due to
the collection or realization of expected cash flows.
- Actual gross income earned from servicing third-party
mortgage loans, such as contractually specified
servicing fees and ancillary income; and
Operating revenue predominantly represents the return on
Mortgage Servicing's MSR asset and includes:
Net mortgage servicing revenue includes the following
components:
Net production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other production-
related fees and losses related to the repurchase of
previously-sold loans.
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Sarah M. Youngwood
Real assets: Real assets include investments in productive
assets such as agriculture, energy rights, mining and timber
properties and exclude raw land to be developed for real
estate purposes.
Receivables from customers: Primarily represents margin
loans to prime and retail brokerage customers which are
included in accrued interest and accounts receivable on the
Consolidated balance sheets.
Linda B. Bammann 4.5
Retired Deputy Head of Risk
Management
Board of Directors
313
JPMorgan Chase & Co./2014 Annual Report
Washington Mutual transaction: On September 25, 2008,
JPMorgan Chase acquired certain of the assets of the
banking operations of Washington Mutual Bank
("Washington Mutual") from the FDIC.
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as trading assets.
Value-at-risk ("VaR"): A measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
U.S. Treasury: U.S. Department of the Treasury.
U.S.government-sponsored enterprise obligations:
Obligations of agencies originally established or chartered
by the U.S. government to serve public purposes as
specified by the U.S. Congress; these obligations are not
explicitly guaranteed as to the timely payment of principal
and interest by the full faith and credit of the U.S.
government.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
Unaudited: Financial statements and information that have
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
Troubled debt restructuring (“TDR”): A TDR is deemed to
occur when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
Real estate investment trust ("REIT"): A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITS can be publicly-
or privately-held and they also qualify for certain favorable
tax considerations.
Trade-date and settlement-date: For financial instruments,
the trade-date is the date that an order to purchase, sell or
otherwise acquire an instrument is executed in the market.
The trade-date may differ from the settlement-date, which
is the date on which the actual transfer of a financial
instrument between two parties is executed. The amount of
time that passes between the trade-date and the
settlement-date differs depending on the financial
instrument. For repurchases under the common equity
repurchase program, except where the trade-date is
specified, the amounts disclosed are presented on a
settlement-date basis. In the Capital Management section
on pages 146-155, and where otherwise specified,
repurchases under the common equity repurchase program
are presented on a trade-date basis because the trade-date
is used to calculate the Firm's regulatory capital.
Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.
Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.
Where present, the embedded derivative is the primary
driver of risk.
Short sale: A short sale is a sale of real estate in which
proceeds from selling the underlying property are less than
the amount owed the Firm under the terms of the related
mortgage and the related lien is released upon receipt of
such proceeds.
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
banking products (i.e., business loans, letters of credit,
deposit accounts, Chase Paymentech, etc.) and mortgage
products to existing and new clients.
Glossary of Terms
JPMorgan Chase & Co./2014 Annual Report
Sales specialists: Retail branch office and field personnel,
including relationship managers and loan officers, who
specialize in marketing and sales of various business
Risk-weighted assets ("RWA"): Risk-weighted assets consist
of on- and off-balance sheet assets that are assigned to one
of several broad risk categories and weighted by factors
representing their risk and potential for default. On-balance
sheet assets are risk-weighted based on the perceived credit
risk associated with the obligor or counterparty, the nature
of any collateral, and the guarantor, if any. Off-balance
sheet assets such as lending-related commitments,
guarantees, derivatives and other applicable off-balance
sheet positions are risk-weighted by multiplying the
contractual amount by the appropriate credit conversion
factor to determine the on-balance sheet credit equivalent
amount, which is then risk-weighted based on the same
factors used for on-balance sheet assets. Risk-weighted
assets also incorporate a measure for market risk related to
applicable trading assets-debt and equity instruments, and
foreign exchange and commodity derivatives. The resulting
risk-weighted values for each of the risk categories are then
aggregated to determine total risk-weighted assets.
Revenue wallet: Proportion of fee revenues based on
estimates of investment banking fees generated across the
industry (i.e. the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.
Retained loans: Loans that are held-for-investment (i.e.
excludes loans held-for-sale and loans at fair value).
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
Taxable-equivalent basis: In presenting managed results,
the total net revenue for each of the business segments and
the Firm is presented on a tax-equivalent basis. Accordingly,
revenue from investments that receive tax credits and tax-
exempt securities is presented in the managed results on a
basis comparable to taxable investments and securities; the
corresponding income tax impact related to tax-exempt
items is recorded within income tax expense.
Investor Relations
314
JPMorgan Chase & Co./2014 Annual Report
All wholesale nonaccrual loans
Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. Impaired loans include the following:
Home equity - junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Home equity-senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Group of Seven (“G7”) nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate”)
to determine the forward exchange rate.
Glossary of Terms
•
•
309
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
Exchange-traded derivatives: Derivative contracts that are
executed on an exchange and settled via a central clearing
house.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
CUSIP number: A CUSIP (i.e., Committee on Uniform
Securities Identification Procedures) number consists of
nine characters (including letters and numbers) that
uniquely identify a company or issuer and the type of
security and is assigned by the American Bankers
Association and operated by Standard & Poor's. This system
facilitates the clearing and settlement process of securities.
A similar system is used to identify non-U.S. securities
(CUSIP International Numbering System).
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to the
protection seller for the difference between the face value
of the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as to
whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Active online customers: Users of all internet browsers and
mobile platforms who have logged in within the past 90
days.
Active mobile customers: Users of all mobile platforms,
which include: SMS, mobile smartphone and tablet, who
have logged in within the past 90 days.
Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retained
loans.
Alternative assets - The following types of assets constitute
alternative investments - hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.
Assets under management: Represent assets actively
managed by AM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called," on which AM earns fees.
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
All TDRS (both wholesale and consumer), including ones
that have returned to accrual status
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
Central counterparty ("CCP"): A CCP is a clearing house
that interposes itself between counterparties to contracts
traded in one or more financial markets, becoming the
buyer to every seller and the seller to every buyer and
thereby ensuring the future performance of open contracts.
A CCP becomes counterparty to trades with market
participants through novation, an open offer system, or
another legally binding arrangement.
Client advisors: Investment product specialists, including
private client advisors, financial advisors, financial advisor
associates, senior financial advisors, independent financial
advisors and financial advisor associate trainees, who
advise clients on investment options, including annuities,
mutual funds, stock trading services, etc., sold by the Firm
or by third-party vendors through retail branches, Chase
Private Client locations and other channels.
N/A: Data is not applicable or available for the period
presented.
Client deposits and other third party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
Client investment managed accounts: Assets actively
managed by Chase Wealth Management on behalf of clients.
The percentage of managed accounts is calculated by
dividing managed account assets by total client investment
assets.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
Chase LiquidSM cards: Refers to a prepaid, reloadable card
product.
Interchange income: A fee paid to a credit card issuer in
the clearing and settlement of a sales or cash advance
transaction.
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment system.
"Investment grade" generally represents a risk profile
similar to a rating of a "BBB-"/"Baa3" or better, as defined
by independent rating agencies.
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Prime
Prime mortgage loans are made to borrowers with good
credit records and a monthly income at least three to four
times greater than their monthly housing expense
(mortgage payments plus taxes and other debt payments).
These borrowers provide full documentation and generally
have reliable payment histories.
Subprime
Subprime loans are loans to customers with one or more
high risk characteristics, including but not limited to: (i)
unreliable or poor payment histories; (ii) a high LTV ratio of
greater than 80% (without borrower-paid mortgage
insurance); (iii) a high debt-to-income ratio; (iv) an
occupancy type for the loan is other than the borrower's
primary residence; or (v) a history of delinquencies or late
payments on the loan.
Senior Country Officers
Emilio Saracho, Deputy CEO
Martin G. Marron
Daniel E. Pinto
Nicolas Aguzin
Latin America/Canada
Europe/Middle East/Africa
Asia Pacific
Regional Chief Executive Officers
Asia Pacific
Option ARMS
Glossary of Terms
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
310
LLC: Limited Liability Company.
JPMorgan Chase & Co./2014 Annual Report
Loan-to-value ("LTV") ratio: For residential real estate
loans, the relationship, expressed as a percentage, between
the principal amount of a loan and the appraised value of
the collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
date.
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices comprise
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.
Combined LTV ratio
Current estimated LTV ratio
Master netting agreement: An agreement between two
counterparties who have multiple contracts with each other
that provides for the net settlement of all contracts, as well
as cash collateral, through a single payment, in a single
currency, in the event of default on or termination of any
one contract.
Mortgage origination channels:
Retail - Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high combined
loan-to-value (“CLTV”) ratio; (iii) loans secured by non-
owner occupied properties; or (iv) a debt-to-income ratio
above normal limits. A substantial proportion of the Firm's
Alt-A loans are those where a borrower does not provide
complete documentation of his or her assets or the amount
or source of his or her income.
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial
results that includes reclassifications to present revenue on
a fully taxable-equivalent basis. Management uses this non-
GAAP financial measure at the segment level, because it
believes this provides information to enable investors to
understand the underlying operational performance and
trends of the particular business segment and facilitates a
comparison of the business segment with the performance
of competitors.
31
The entire Operating Committee gets involved
in compensation - it is not done in a back room.
One way we make sure we are fair and
just with compensation is that the entire
Operating Committee spends a substantial
amount of time reviewing the compensation
of our top 500 people – this way, we have
We still believe deeply in share ownership. We
would like all our senior managers to have
a large portion of their net worth in the
company. We believe this fosters partner-
ship. While some make the argument that it
causes excessive risk taking – we disagree.
The first people to lose all of their money if
a company fails are the shareholders and the
management team. We want your manage-
ment team to be good stewards of your
capital and to treat it as they would their
own. It is formulaic compensation plans,
where people are paid solely on financial
performance, that can cause undue risky and
bad behavior.
We need to operate like a partnership. If, for
example, a company's largest, and perhaps
most important, business unit is under
enormous stress and strain, unlikely to earn
money regardless of who is in charge, a
manager might ask his or her best leader to
take on the job of running that business. This
may be the toughest job in the company,
one that will take years to work through
before the ship has been righted. When the
manager asks a leader to take on the respon-
sibility, she quite appropriately will want to
know whether she will be supported in the
toughest of times: "Will you make sure the
organization doesn't desert me?" "Will you
stop the politics of people using my unit's
poor performance against me?" "Will you
compensate me fairly?" My answer to these
questions would be yes. And as long as I
thought she was doing the job well, I would
want to pay her like our best leaders, profits
aside. Conversely, we all know that a rising
tide lifts all boats. When that's the case,
paying that leader too much possibly is the
worst thing one can do - because it teaches
people the wrong lesson.
• We always have looked at financial perfor-
mance as a critical factor, but not the only
factor, in pay-for-performance. We have
formulas (which always have been prop-
erly charged for capital usage) for how we
accrue compensation, but we do not pay it
out in a formulaic way to anyone. Finan-
cial performance alone is not a compre-
hensive picture of performance. Broader
contributions are important, like qualita-
tive skills such as leadership attributes,
character and integrity, and management
ability. This also includes recruiting,
coaching and training, building better
systems and fostering innovation, just to
name a few.
Compensation alone is not enough, and one
should not confuse good compensation with good
morale. Getting compensation right is crit-
ical - everyone wants to feel they are being
paid fairly, and most people have other
alternatives. But proper compensation alone
is not enough. I have seen many companies
try to make up for politics, bureaucracy and
low morale with high compensation – it
does not work. When a company has been
doing poorly, or treats its customers badly,
the company should expect low morale.
What employees want to see is that the
company faces its issues, reduces politics
and bureaucracy, and improves customer
service and satisfaction. Maintaining a
corporate culture where the right people
are promoted and everyone is treated with
respect is as important as compensation.
Then morale will improve, and employees
will be proud of where they work every day.
We also have invoked comprehensive
clawbacks of previously granted awards
and/or repayment of previously vested
awards when we thought it was appro-
priate. In 2014 alone, more than 200
employees had compensation reduced for
risk- and control-related events. Impor-
tantly, many more than that were termi-
nated for poor performance or ethical
lapses during the course of the year.
37
-
V. A STRONG CORPORATE CULTURE
We treat all of our people fairly. While we
generally talk about compensation for the
most senior managers, the compensation
levels of our entire employee population
are fairly similar to that of the U.S. popula-
tion's household income distribution. We
invest a significant amount of time and
money to ensure that all of our employees
are properly compensated. We still have
a defined benefit pension plan for most
of our employees that provides a fixed
income upon retirement to supplement
Social Security and any other savings they
have. We also provide a 401(k) plan with
matching dollars. In addition, we have excel-
lent healthcare plans that incentivize people
to take care of themselves. For example,
premiums are lower if an employee gets
an annual physical examination or stops
smoking. We also subsidize these health-
care plans more for lower paid employees
(at 90%) versus our higher paid employees
(who are at 50%). And each year, we are
recognized as a great place to work by
various groups, including Working Mother
100 Best Companies, Top 100 Military
Friendly Employers by G.I. Jobs magazine
and Best Employers for Healthy Lifestyles
by the National Business Group on Health,
among many others.
tion
-
not just up.
We want to have the best people, and competi-
tive compensation is critical. We must
continue to pay our people properly,
competitively and well for doing a good job.
It is imperative at JPMorgan Chase that we
continue to attract and retain the best.
• We virtually have no private “deals" or
multi-year contracts for senior management.
As we centralize all risk functions, we also
must be certain that line of business CEOS
remain empowered to manage their business
end to end
We always have tried to be very thoughtful
about which functions are centralized or
decentralized at the company. We always
have centralized functions that can create
huge economies of scale like data centers or
utilities that are used by the entire company
(like general ledgers and payroll) or critical
control functions (like Corporate Legal,
firmwide accounting policies, etc.). We try
to decentralize where we can and when it
makes sense to do so. For example, while a
lot of finance functions reside at Corpo-
rate (like accounting policy), some finance
people are devoted to only one line of
business, so we keep them within that line
of business. We do this to provide direct
accountability, speed up decision making
and minimize bureaucracy.
In the new world, in order to improve the
consistency of controls, regulators have
demanded that most risk and control func-
tions be centralized, including Risk, Compli-
ance, Finance, Oversight & Control, Audit
and Legal. In doing this, we have given huge
amounts of additional authority to functions
at our corporate headquarters. Corporate
headquarters can sometimes forget that it
exists only because there is a banker in front
of a client somewhere. The Home Depot, one
of America's great companies, does not call its
corporate headquarters the corporate head-
quarters - it's called Store Support Center to
remind employees every day why they are
there: to support the stores and the clients.
This still remains true at JPMorgan Chase
- we at Corporate would not be here if we
didn't have our bankers in front of clients.
We need to work hard to get the best of both
centralization and decentralization. And we
need to manage Corporate so the line of busi-
ness CEOs and management teams are fully
responsible and empowered to manage their
businesses. Centralization should not mean
demoralizing bureaucracy or slowing down
services as multiple committees and layers
38
internal justice, we can review someone's
total performance across all measures,
and we can understand how a manager
manages up, down and across the organiza-
V. A STRONG CORPORATE CULTURE
• We also developed a pilot program within
our Corporate & Investment Bank in
Europe, the Middle East and Africa on
How We Do Business, which includes
focus groups and other efforts to analyze
cultural themes and address any concerns
around conduct and behavior. This year,
we have taken the learnings from that pilot
and will be rolling them out in a global,
firmwide Culture and Conduct Program.
• We do not pay bonuses for completing a
merger, which we regard as part of the job.
(When a merger has proved successful,
compensation might go up.)
CULTURE
We want to be a standard-bearer in the
industry when it comes to meeting the
heightened standards demanded by our regu-
lators and not just because it's required
but because we think it's the right thing to
do for our shareholders, clients, employees
and communities. And we want to do this
across all measures - from our controls
to board governance, the cultivating of a
strong culture and how we are fighting cyber
attacks to how we treat our clients. It starts
at the top - with the Board of Directors.
Your Board is fully engaged in all critical
matters
The entire Board is fully engaged in the affairs of
the company. Board members are fully engaged
in the company, from setting the agenda of
the Board meetings to reviewing strategy and
demanding strong controls to determining
CEO compensation and succession planning.
Board members also are increasingly engaged
in regulatory and shareholder affairs. Several
of the Board members meet regularly with
our key regulators and major shareholders.
Management succession planning is a priority of
the Board. Regarding succession planning,
the Board always must be prepared for the
"hit-by-the-bus" scenario (which, of course,
is not my preference), but ongoing succes-
sion planning for the medium and long term
is the highest priority of the Board. Impor-
tantly, our Board members have complete
access to and relationships with the key
senior people and continually interact with
them, both formally and informally. Both the
Board members and I believe that, under all
scenarios, this company has several capable
potential successors.
The full Board meets without the CEO at every
Board meeting. Going way back to Bank One's
Board more than a decade ago and before
it was mandated, the Board would meet
without the CEO (that's me) because we all
thought it was best for Board members to
have an open conversation about the CEO
and the company without feeling any pres-
sure. The Board continues that practice
today. New rules mandate that directors meet
at least once a year without the CEO – yet
our Board does so at every Board meeting;
i.e., eight times a year. And usually at the
end of the session, the Lead Director comes
to see me to give feedback and guidance
about what the Board is thinking and what
it wants.
We have a strong corporate culture - but we
must continuously strengthen it
JPMorgan Chase has served its shareholders,
customers and communities with distinc-
tion for more than 200 years. Since we were
founded, our company has been guided by a
simple principle that perhaps was best artic-
ulated by J.P. Morgan, Jr., in 1933, when he
said: "I should state that at all times, the idea
of doing only first-class business, and that in
a first-class way, has been before our minds."
We continue to strive to meet that principle.
Acknowledging mistakes - and learning from
them - is part of the fabric of this company. We
also recognize that we have made a number
of mistakes some of them quite painful
and costly over the last several years. One
of the things we learned was that we needed
to redouble our efforts around culture - not
reinvent our culture but recommit to it and
ensure that it is an enduring strength of this
institution. While we have done an extensive
amount of work over the past year and a half
to make sure we get this right, we know that
it can't be a one-time effort. It's like keeping
physically fit - you can't get in shape and
expect to stay that way if you stop exercising.
35
36
V. A STRONG CORPORATE CULTURE
We will continuously reinforce our business
principles. Back in July 2004 at the close of
the JPMorgan Chase and Bank One merger,
we sent a small blue book to all employees
outlining the capabilities of the combined
firm, as well as our mission and business
principles. While much has changed over
the past decade, our commitment to these
principles remains the same. In July 2014, we
marked the 10-year anniversary of JPMorgan
Chase and Bank One coming together to
form this exceptional company. It was fitting
that on this special occasion, we rededicated
ourselves to those same business principles
by distributing the rearticulated business
principles on How We Do Business to every
person in the company. These core princi-
ples (which are written in plain English and
include lots of specific examples) describe
how we want to conduct business, and they
will continue to guide us as we move forward.
What we are doing differently today is that
we are taking substantial actions to continu-
ously inculcate our employees and our leader-
ship on these principles:
• We want to make the How We Do Busi-
ness principles part of every major conver-
sation at the company – from the hiring,
onboarding and training of new recruits to
town halls and management meetings.
• We conduct a substantial amount of
ongoing training and certification, from
the Code of Conduct for all employees
to the Code of Ethics for Finance Profes-
sionals that applies to the CEO, Chief
Financial Officer, Controller and all profes-
sionals of the firm worldwide serving in a
finance, accounting, corporate treasury, tax
or investor relations role.
• We have enhanced our leadership
training. We have thousands of educa-
tional programs, and we have consistently
trained the top several hundred people on
leadership. But we did not train people
when they became first-time managers
or, importantly, managers of managers.
This will be another opportunity to drive
home our How We Do Business principles.
The heart of this training provides the
chance to teach our leadership how to do
the right thing - not the easy thing – and
to continually reinforce the principle of
treating others in the way you would like
to be treated.
These initiatives will make us a better
bad
company. We hope they will reduce any
behavior. No human endeavor can ever be
perfect, but we are hopeful that as incidences
of bad behavior decline and as management's
responses to bad behavior are vigorous,
governments and regulators will appreciate
the intensity of our efforts.
Compensation has been consistent and
fair and is awarded with proper pay-for-
performance
Our long-term success depends on the talents
of our employees. And our firm's compensa-
tion system plays a significant role in our
ability to attract, retain and motivate the
highest quality workforce. We design our
compensation program to encompass best
practices, support our business objectives
and enhance shareholder value. For example:
• We do not have change-of-control agree-
ments, special executive retirement plans,
golden parachutes or things like special
severance packages for senior executives.
Our efforts around culture and conduct are
substantial and include the following:
-
V. WE HAVE A FULLY ENGAGED BOARD, AN EXCEPTIONAL
MANAGEMENT TEAM AND A STRONG CORPORATE
Non-bank competitors are increasingly
beginning to do basic lending in consumer,
small business and middle market. In middle
market syndicated lending, their share
recently has increased from 3% a few years
ago to 5% today, and many people esti-
mate that it will continue to increase over
the years to come. There is nothing wrong
with having competitors, including non-
bank competitors. However, they will act
differently from banks in the next stressed
environment. I will write about this later in
this section when we go through a thought
exercise of the next crisis.
4. Investing directly at the Fed for a
3. Buying repos, which are collateralized
by Treasuries.
2. Buying money market funds, which
own Treasuries.
1. Buying Treasuries directly.
30
• Boards and regulators are far more
engaged.
Transparency to investors is far higher.
•
Many standardized derivatives are moving
to clearinghouses.
Many exotic and complex products are
gone.
Highly liquid assets held by banks prob-
ably are much higher than ever before.
Capital levels are far higher today than
before the crisis and, by some measures,
higher than they have ever been. For
example, a very basic measure of capital,
going back around 100 years, was a simple
ratio of equity to assets. In the last six
years, it's back to high numbers not seen
since the late 1930s.
•
•
•
•
Each individual bank is safer than before,
and the banking sector overall is stronger
and sounder because, among other things:
limited set of investors (government-
sponsored enterprises, money funds).
5. Purchasing credit instruments like
commercial paper.
Most important, we will enter the next crisis
with a banking system that is stronger than it
has ever been
Buyers of credit (loans, secured loans,
underwriting and investments) will be more
reluctant to extend credit
• In a crisis, clients also draw down revolvers
(for JPMorgan Chase alone, this peaked
at approximately $20 billion at one point
in 2009) - sometimes because they want
to be conservative and have cash on hand
and sometimes because they need the
money. As clients draw down revolvers,
risk-weighted assets go up, as will the
capital needed to support the revolver. In
addition, under the advanced Basel rules,
we calculate that capital requirements can
go up more than 15% because, in a crisis,
assets are calculated to be even riskier. This
certainly is very procyclical and would
force banks to hoard capital.
-
34
བ་
Fundamentally, as long as the economy is not
collapsing, financial markets generally recover.
Whatever the turn of events, JPMorgan Chase
will have the capability to play its role in
supporting clients and communities in the
countries in which we operate.
In addition, regulators can improve the
liquidity rules to allow banks to provide
liquidity on a more "graduated" basis against
more types of assets and give more flexibility
on the "margin" than is required. That is, they
can give themselves both gas and brakes; i.e.,
change liquidity rules to fit the environment.
In addition, we should try to eliminate procy-
clical rules, which can exacerbate a crisis.
Banks may be less able to act positively in
the next crisis, but they also are far stronger
and unlikely, in our opinion, to create the
next crisis. Many other actors in the financial
system, from hedge funds to long-term inves-
tors, including corporations and large money
managers, will, at some point, step in and buy
assets. The government, of course, always is
able to step in and play an important role.
But the American financial markets and, more
important, the American economy generally have
been extraordinarily resilient
The items mentioned above (low inventory,
reluctance to extend credit, etc.) make it more
likely that a crisis will cause more volatile
market movements with a rapid decline
in valuations even in what are very liquid
markets. It will be harder for banks either as
lenders or market-makers to "stand against
the tide."
The markets in general could be more volatile
- this could lead to a more rapid reduction of
valuations
our long-term relationship with them.
• It is my belief that in a crisis environ-
ment, non-bank lenders will not continue
rolling over loans or extending new
credit except at exorbitant prices that
take advantage of the crisis situation.
On the other hand, banks continued to
lend at fair prices in the last crisis because
of the long-term and total relationship
involved. Banks knew they had to lend
freely because effectively they are the
"lender of last resort" to their clients as the
Federal Reserve is to the banks. This is a
critical point: JPMorgan Chase and most
other banks understood their vital role in
actively lending to clients. In 2008 and
2009, JPMorgan Chase rolled over more
than $260 billion of loans and credit facili-
ties to small businesses, middle market
companies and large companies, in addition
to $18 billion for states and municipalities,
hospitals and nonprofits. We rolled over
these capital and lending commitments to
support our clients and always maintained
fair (and not rapacious) pricing, reflecting
In the last crisis, banks underwrote (for
other banks) $110 billion of stock issu-
ance through rights offerings. Banks
might be reluctant to do this again
because it utilizes precious capital and
requires more liquidity.
•
IV. SOLID STRATEGY AND FUTURE OUTLOOK
33
• In the last crisis, some healthy banks used
their investment portfolios to buy and
hold securities or loans. In the next crisis,
banks will not be able to do that because
buying most types of securities or loans
would increase their RWA and reduce
their liquidity.
• In addition, banks may have a decrease
in capital because new regulatory capital
rules require losses on investment secu-
rities to reduce regulatory capital. This
would be particularly true if interest rates
were rising in the next crisis, which cannot
be ruled out. (Typically, Treasury yields
drop dramatically in a crisis, and that
possibly could happen in this case, too,
especially as they would be in short supply.
But, again, one cannot rely on this.)
• In the crisis, many banks lent against
various forms of good collateral (but not
necessarily the highest quality collateral)
to help clients create liquidity and navi-
gate through the crisis. The collateral often
came with significant haircuts and was of
the type that banks thought they easily
could risk-manage, and, for the most part,
they did. In the last crisis, JPMorgan Chase
did tens of billions of this type of lending.
In the next crisis, banks will have a hard
time increasing this type of credit because
it will require capital and more liquidity.
In the rest of this section, we will look at how
the table is set - what is going on that is the
same or different than in the past. Later in
this section, we will speculate on what might
happen differently if we enter a new crisis.
• Both consumer and commercial loans are
underwritten to better standards than
before the crisis.
There are many new rules, and, in conjunc-
tion with current monetary policy, they
already are having a large effect on money
markets and liquidity in the marketplace.
One famous scientist once said, “A Rule of
Three (ART): A statistical specification with
more than three explanatory variables is
meaningless." Simply put, it is impossible to
figure out the cumulative effect of all these
It sometimes is productive to conduct a
thought exercise – in effect trying to re-enact a
"run on the market" but, in this case, applying
the new rules to see what effect they might
have. Even though we must necessarily be
prepared for a crisis at all times, we hope a
real crisis is many years down the road. And
in the United States, we would be entering
the crisis with a banking system that is far
stronger than in the past, which, on its own,
could reduce the probability and severity of
the next crisis. We are not going to guess at
the potential cause of the crisis, but we will
assume that, as usual, we will have the normal
"run-on-the-market" type of behavior by inves-
tors. So let's now turn to look at how a crisis
might affect the markets in the new world.
-
And now, a thought exercise of what might be
different in the next crisis
While crises look different, the anatomy
of how they play out does have common
threads. When a crisis starts, investors try to
protect themselves. First, they sell the assets
they believe are at the root of the problem.
Second, they generally look to put more of
their money in safe havens, commonly selling
riskier assets like credit and equities and
buying safer assets by putting deposits in
strong banks, buying Treasuries or purchasing
very safe money market funds. Often at
one point in a crisis, investors can sell only
less risky assets if they need to raise cash
because, virtually, there may be no market
for the riskier ones. These investors include
individuals, corporations, mutual funds,
pension plans, hedge funds – pretty much
everyone - each individually doing the right
thing for themselves but, collectively, creating
the market disruption that we've witnessed
before. This is the “run-on-the-market"
phenomenon that you saw in the last crisis.
The trigger to the next crisis will not be
the same as the trigger to the last one - but
there will be another crisis. Triggering events
could be geopolitical (the 1973 Middle East
crisis), a recession where the Fed rapidly
increases interest rates (the 1980-1982 reces-
sion), a commodities price collapse (oil in the
late 1980s), the commercial real estate crisis
(in the early 1990s), the Asian crisis (in 1997),
so-called "bubbles" (the 2000 Internet bubble
and the 2008 mortgage/housing bubble),
etc. While the past crises had different roots
(you could spend a lot of time arguing the
degree to which geopolitical, economic or
purely financial factors caused each crisis),
they generally had a strong effect across the
financial markets.
Some things never change - there will be
another crisis, and its impact will be felt by
the financial markets
The good news is that almost no one was
significantly hurt by this, which does show
good resilience in the system. But this
happened in what we still would consider
a fairly benign environment. If it were to
happen in a stressed environment, it could
have far worse consequences.
IV. SOLID STRATEGY AND FUTURE OUTLOOK
changes even in a benign environment.
But what is far more important is what the
effect of these changes might be if we enter a
stressed environment. As a risk policy matter,
we need to make the assumption that there
will be unpredictable and unintended conse-
quences sometimes these are to good effect,
but what we need to worry about are those
that have a potentially bad effect.
course,
Recent activity in the Treasury markets and the
currency markets is a warning shot across the bow
Treasury markets were quite turbulent in
the spring and summer of 2013, when the
Fed hinted that it soon would slow its asset
purchases. Then on one day, October 15,
2014, Treasury securities moved 40 basis
points, statistically 7 to 8 standard deviations
- an unprecedented move - an event that
is supposed to happen only once in every 3
billion years or so (the Treasury market has
only been around for 200 years or so - of
this should make
you question statis-
tics to begin with). Some currencies recently
have had similar large moves. Importantly,
Treasuries and major country currencies are
considered the most standardized and liquid
financial instruments in the world.
Inventories are lower - not because of one
new rule but because of the multiple new
rules that affect market-making, including far
higher capital and liquidity requirements and
the pending implementation of the Volcker
Rule. There are other potential rules, which
also may be adding to this phenomenon. For
example, post-trade transparency makes it
harder to do sizable trades since the whole
world will know one's position, in short order.
Some investors take comfort in the fact that
spreads (i.e., the price between bid and ask)
have remained rather low and healthy. But
market depth is far lower than it was, and we
believe that is a precursor of liquidity. For
example, the market depth of 10-year Trea-
suries (defined as the average size of the best
three bids and offers) today is $125 million,
down from $500 million at its peak in 2007.
The likely explanation for the lower depth in
almost all bond markets is that inventories
of market-makers' positions are dramati-
cally lower than in the past. For instance, the
total inventory of Treasuries readily avail-
able to market-makers today is $1.7 trillion,
down from $2.7 trillion at its peak in 2007.
Meanwhile, the Treasury market is $12.5 tril-
lion; it was $4.4 trillion in 2007. The trend
in dealer positions of corporate bonds is
similar. Dealer positions in corporate securi-
ties are down by about 75% from their 2007
peak, while the amount of corporate bonds
outstanding has grown by 50% since then.
Liquidity in the marketplace is of value to
both issuers of securities and investors in
securities. For issuers, it reduces their cost of
issuance, and for investors, it reduces their
cost when they buy or sell. Liquidity can
be even more important in a stressed time
because investors need to sell quickly, and
without liquidity, prices can gap, fear can
grow and illiquidity can quickly spread -
even in supposedly the most liquid markets.
There already is far less liquidity in the general
marketplace: why this is important to issuers and
investors
IV. SOLID STRATEGY AND FUTURE OUTLOOK
But many things will be different - for example,
there will be far more risk residing in the central
clearinghouses, and non-bank competitors will
have become bigger lenders in the marketplace
Clearinghouses will be the repository of far
more risk than they were in the last crisis
because more derivatives will be cleared
in central clearinghouses. It is important
to remember that clearinghouses consoli-
date - but don't necessarily eliminate – risk.
That risk, however, is mitigated by proper
margining and collateral. We have long main-
tained that it is important to stress test central
clearinghouses in a similar way that banks are
stress tested to make sure the central clear-
inghouses' capital and resources are sufficient
for a highly stressed environment. Clearing-
houses are a good thing but not if they are a
point of failure in the next crisis.
The money markets (deposits, repos, short-term
Treasuries) will behave differently in the next crisis
• Banks are required to hold liquid assets
against 100% of potential cash outflows
in a crisis. Liquid assets essentially are
cash held at central banks, Treasuries
and agency mortgage-backed securities.
Outflows are an estimate of how much
cash would leave the bank in the first
30 days of a crisis. This would include
things like deposit outflows, depending
on the type of deposit, and revolver take-
downs, depending primarily on the type
of borrower. In my opinion, banks and
their board of directors will be very reluc-
tant to allow a liquidity coverage ratio
below 100% - even if the regulators say
it is okay. And, in particular, no bank will
want to be the first institution to report a
liquidity coverage ratio below 100% for
fear of looking weak.
• In a crisis, weak banks lose deposits, while
strong banks usually gain them. In 2008,
JPMorgan Chase's deposits went up more
than $100 billion. It is unlikely that we
would want to accept new deposits the
next time around because they would be
considered non-operating deposits (short
term in nature) and would require valu-
able capital under both the supplementary
leverage ratio and G-SIB.
31
IV. SOLID STRATEGY AND FUTURE OUTLOOK
The banking system is far safer than it has
been in the past, but we need to be mindful
of the consequences of the myriad new
regulations and current monetary policy
on the money markets and liquidity in the
marketplace - particularly if we enter a
highly stressed environment
32
It is critical that government and business
and regulators collaborate effectively and
in real time. Cybersecurity is an area where
government and business have been working
well together, but there is much more to be
done. And if it is not done in a concerted
way, we all will pay a terrible price.
Matt Zames describes on page 40 some of
the efforts we are making on cyber. What
I want to emphasize to our shareholders is
the absolute, critical and immediate need to
combat cybersecurity threats and the related
issues of fighting fraud and protecting
privacy. In these areas, we will do whatever it
takes to protect the company and its clients.
Regarding privacy, I do not believe that most
people fully understand what no longer is
private and how their information is being
bought, sold and used. As a bank, we are
appropriately restricted in how we can use
our data, but we have found many exam-
ples of our data being misused by a third
party. We are going to be very aggressive in
limiting and controlling how third parties
can use JPMorgan Chase data.
Cybersecurity, fraud and privacy need
intensive investment on the part of your
entire company, and we must do it in
collaboration with the government and
regulators
29
Rest assured, we analyze all of our competi-
tors in excruciating detail - so we can learn
what they are doing and develop our own
strategies accordingly.
free riding is the only thing that makes
their competition possible. Having said that,
we need to acknowledge our own flaws. We
need to build a real-time system that prop-
erly charges participants for usage, allows for
good customer service, and minimizes fraud
and bad behavior.
Some payments systems, particularly the
ACH system controlled by NACHA, cannot
function in real time and, worse, are continu-
ously misused by free riders on the system.
There is a true cost to allowing people to
move money. For example, it costs retailers
50-70 basis points to use cash (due to
preventing fraud and providing security,
etc.). And retailers often will pay 1% to an
intermediary to guarantee that a check is
good. A guaranteed check essentially is the
same as a debit card transaction for which
they want to pay 0%. For some competi-
tors,
IV. SOLID STRATEGY AND FUTURE OUTLOOK
Competitors are coming in the payments area.
You all have read about Bitcoin, merchants
building their own networks, PayPal and
PayPal look-alikes. Payments are a critical
business for us and we are quite good at it.
But there is much for us to learn in terms of
real-time systems, better encryption tech-
niques, and reduction of costs and “pain
points" for customers.
-
Silicon Valley is coming. There are hundreds
of startups with a lot of brains and money
working on various alternatives to tradi-
tional banking. The ones you read about
most are in the lending business, whereby
the firms can lend to individuals and small
businesses very quickly and - these enti-
ties believe - effectively by using Big Data
to enhance credit underwriting. They are
very good at reducing the “pain points” in
that they can make loans in minutes, which
might take banks weeks. We are going to
work hard to make our services as seam-
less and competitive as theirs. And we also
are completely comfortable with partnering
where it makes sense.
Large banks outside the United States are
coming. In terms of profitability, the top two
Chinese banks are almost twice our size.
Thirty years ago, Industrial and Commercial
Bank of China operated in only a handful
of countries, but it now has branches or
subsidiaries in more than 50 countries. It has
a huge home market and a strategic reason
to follow the large, rapidly growing global
Chinese multinationals overseas. It may take
10 years, but we'd be foolish to discount their
ambition and resources. We're also seeing
world-class banks emerge and grow in places
like India and Brazil, and Japanese and Cana-
dian banks are coming on strong, too. Many
of these banks are supported in their expan-
sionary efforts by their government and will
not need to live by some of the same rules
that we in the United States must adhere to,
including capital requirements. We welcome
the competition, but we are worried that an
uneven playing field may hamper us many
years from now.
There always will be new emerging
competitors that we need to keep an eye on
New competitors always will be emerging -
and that is even truer today because of new
technologies and large changes in regula-
tions. The combination of these factors will
have a lot of people looking to compete
with banks because they have fewer capital
and regulatory constraints and fewer legacy
systems. We also have a healthy fear of the
potential effects of an uneven playing field,
which may be developing. Below are some
areas that we are keeping an eye on.
Big, fast data. We continue to leverage the
data generated across JPMorgan Chase, as
well as data that we purchase to create intel-
ligent solutions that support our internal
activities and allow us to provide value and
insights to our clients. For example, we are
monitoring our credit card and treasury
services transactions to catch fraudulent
activities before they impact our clients, we
are helping our clients mitigate costs by opti-
mizing the collateral they post in support of
derivatives contracts, and we are highlighting
insights to our merchant acquiring and
co-brand partners.
• In a crisis, everyone rushes into Trea-
suries to protect themselves. In the last
crisis, many investors sold risky assets
and added more than $2 trillion to their
ownership of Treasuries (by buying
Treasuries or government money market
funds). This will be even more true in the
next crisis. But it seems to us that there
is a greatly reduced supply of Treasuries
to go around – in effect, there may be a
shortage of all forms of good collateral.
Currently, $13 trillion of Treasuries are
outstanding, but, according to our esti-
mates, less than half of this amount is
effectively free to be sold. Approximately
$6 trillion is accounted for by foreign
exchange reserve holdings for foreign
countries that have a strong desire to
hold Treasuries in order to manage their
currencies. The Federal Reserve owns $2.5
trillion in Treasuries, which it has said it
will not sell for now; and banks hold $0.5
trillion, which, for the most part, they are
required to hold due to liquidity require-
ments. Many people point out that the
banks now hold $2.7 trillion in "excess"
reserves at the Federal Reserve (JPMorgan
Chase alone has more than $450 billion
at the Fed). But in the new world, these
reserves are not "excess" sources of
liquidity at all, as they are required to
maintain a bank's liquidity coverage ratio.
In a crisis, if banks turn away deposits,
most investors will have other options,
which include:
IV. SOLID STRATEGY AND FUTURE OUTLOOK
One of the lessons we learned from
the industry crisis in Mortgage is
that complexity kills. We have
reduced the number of mortgage
products from 37 to 18, and by the
end of 2015, it will be down to 15.
Yet those 15 products still will meet
97% of customers' needs. I'm sure
the 22 products we are exiting were
developed with good intentions to
help customers, but they created
unnecessary complexity for employ-
ees and more expense and execution
risk than we needed.
The 2014 mortgage market was one
of the most challenging we have
faced. We have been very focused on
transforming our Mortgage franchise
to a simpler, higher quality and less
volatile business. In 2014, Mortgage
originations were down 53% from
2013 due to the challenging rate
environment. But we didn't forget
the industry lessons learned over
the past several years and remained
disciplined. We ceded some market
share to focus on our strategy of
acquiring high-quality loans. And
we actively reduced our foreclosure
inventory from roughly 170,000 in
2013 to 90,000 in 2014.
Mortgage
Consumer & Business Banking
Consumer & Business Banking depos-
its were up 8% to nearly half a trillion
dollars by the end of the year. We
talked about customer attrition reach-
ing historic lows - it is down 4%
since 2010. To put this in perspective,
that equates to 1 million Consumer
Banking households and an incre-
mental $15 billion in deposits.
Chase Private Client (CPC) continues
to be a notable success. We have
grown to more than 325,000 CPC
clients, up 51% from 2013. Client
investment assets were up 13%. Since
2012, we've tripled our net new CPC
deposits and investments, with 60%
of new investments coming from
customers who are investing with
Chase for the first time. With 55%
of affluent households living within
two miles of a Chase branch or ATM,
we feel well-positioned to continue
that growth.
CCB demonstrated significant
growth in nearly every business
in 2014.
Here are some highlights from
our businesses:
Mortgage Banking also has made
tremendous
in reducing
progress
expenses. Mortgage expenses were
down 30% over 2013.
Business Banking loan originations
were up 28% in 2014. Loans were
up 6%, and deposits were up 12%.
And we are extremely proud that
we were the #1 Small Business
Administration lender for women
and minorities in the United States
for the third year in a row.
Credit Card and Payments
Card Services sales volume of $465.6
billion was up 11% year-over-year,
outperforming the industry for the
28th consecutive quarter. Credit
trends continue to improve, and
credit card net charge-offs were
down 12% from 2013. Our Merchant
Services business processes nearly
half of the total e-commerce pay-
ment volume in the United States.
Our processing volume was $847.9
billion, up 13% year-over-year.
Today's customers expect to be able
to transact with us whenever and
wherever they choose, whether that's
through a superior digital experi-
ence, a convenient ATM or a neigh-
borhood branch. Every experience
needs to be personal, easy and fast.
With advances in technology, cus-
tomers will be able to complete 90%
of teller transactions at our smart
ATMs by the end of 2016. We have
made things easier by increasing
withdrawal limits and allowing cus-
tomers to receive their cash in
bill denomination they choose.
Mobile also is changing quickly.
Customers now can securely view
their balances without having to log
in and print statements directly
from their phone.
One of the most exciting develop-
ments of the year was Apple Pay™.
Chase participated as both a consumer
issuer and a merchant acquirer.
Chase cardholders can register their
cards in Apple Pay™ and make digi-
tal payments simply by hitting a fin-
gerprint button on their iPhone® 6.
Our merchant customers will be able
to use our software development kit
to enable payments online, in-app
and in-store. Tokenization will make
those payments safe and secure.
Auto
In Auto, we continue to grow while
maintaining our credit discipline. Our
originations volume of $27.5 billion
was up 5%, with our average loans up
4%. Here, too, we have stayed disci-
plined by retaining high credit stan-
dards. Our average FICO score on
loan originations was 32 points
higher than the industry average.
Digital
Digital is transforming our industry.
We've seen tremendous growth rates
in customer adoption of our digital
services. The number of customers
who are active on Chase mobile
went from 8.2 million in 2011 to
19.1 million in 2014. On average,
we added about 18,000 new mobile
users per day throughout 2014.
45
Quite simply, we plan to be the bank
of choice for digitally savvy custom-
ers. Digital is core to our commit-
ment to an outstanding customer
experience. We're bringing digital
service to everything from routine
deposits to credit card applications,
rewards redemptions and mortgage
application tracking.
any
Customers aren't choosing between
digital and branches - they are using
both. When our customers use digi-
tal, we see lower attrition, and we're
more likely to be their primary bank.
We know that our customers still
want to come into the branch when
they need advice or support, but for
a basic transaction, they increasingly
prefer to do it themselves.
$3.2 billion of expense out of CCB,
and we are on track to reduce
expenses by an additional $2 billion
by the end of 2016. Staying disci-
plined and being as efficient as pos-
sible allow us to invest back into our
businesses and create strong returns
for all of you who have chosen to
invest in our company.
Payments is one of the most inter-
esting areas in our business as con-
sumers are adapting to new ways to
pay. We like our strategic position
as both a bank that issues cards for
consumers and a payment processor
for merchants. Through ChaseNet,
we also have our own network and
can complete every aspect of the
payment transaction.
44
We distributed the principles to
our employees and regulators and
followed up with a more extensive
"How We Do Business - The
Report," which is available on our
public website.
Across CCB, our businesses delivered
strong underlying results throughout
2014 despite market and industry
headwinds. Our net income was $9.2
billion, down from $11.1 billion in
2013. Our revenue of $44.4 billion
was down 5% from $46.5 billion in
2013, primarily due to the smaller
mortgage originations market during
2014. In 2014, we also experienced
lower reserve releases across the
Mortgage and Credit Card businesses
and felt the continued impact of
lower deposit margins. While credit
performance still is very strong, the
rate of improvement compared with
last year has slowed. Overall, we
ended the year with a strong return
on equity (ROE) of 18%, just under
our long-term target of 20% ROE.
Chief Operating Officer
Matt Zames
Matt
we make decisions each step of the
way. We are indebted to our prede-
cessors for the solid foundation we
inherited and will be vigilant in our
commitment to maintaining the
world-class reputation we have
worked so hard to build. The com-
pany is well-positioned to help our
clients and customers to the fullest,
with integrity, and that is what we
intend to do. To achieve our objec-
tives, we must execute strategically
and with urgency.
We continue to strengthen our
client- and customer-centered
culture and set high standards for
performance as we invest in targeted
growth opportunities and first-rate
systems and operations, simplify our
businesses and redouble expense
management efforts. Our Business
Principles will be our guidepost as
We understand the importance of
operational excellence, effective risk
management across all risk catego-
ries, a fortress infrastructure, and a
culture that is rooted in integrity,
fairness and responsibility. We have
addressed new challenges by apply-
ing lessons learned more effectively,
and we are able to respond more
quickly owing to the talent of our
people and our investments in
infrastructure and controls.
Conclusion
This year, Compliance will focus on
enhancing standards for market con-
duct risk, fiduciary responsibilities,
employee compliance and regula-
tory reporting. Ongoing strategic
technology investments and process
improvements will position us to
continue delivering in a heightened
regulatory environment.
trade and e-communications surveil-
lance programs. Building a world-
class Anti-Money Laundering (AML)
program remains a top priority, and
a significant amount of work has
been completed on the Bank Secrecy
Act/AML and Sanctions programs,
including a new, global set of Know
Your Customer standards.
42
Our firm's compliance capabilities
have improved significantly over the
past year. 2014 was focused on execu-
tion across the foundational compo-
nents of the compliance program.
We enhanced standards and protocols
across core practices, strengthened
our employee compliance program,
and continue to evolve and develop
The compliance agenda is
continuously evolving
Over the past few years, Oversight
& Control has significantly enhanced
the quality of, and standard re-
quirements for, our business self-
assessment process, designed to
identify and assess key operating
risks in each area. We introduced
common control reporting on a
range of metrics and, in 2015, will
further develop capabilities to
analyze trends and conduct impact
analysis across businesses. Of
the original 24 enterprise-wide
programs established in 2013 to
tackle top control issues, many now
are complete, and the work has
transitioned from projects to
business-as-usual operations. We
anticipate closing the lion's share
of the programs in 2015.
has successfully integrated into
each business and function to make
the control agenda a core strategy
and priority.
We have made substantial invest-
ments and transformative changes
to strengthen our control environ-
ment. Since the creation of Oversight
& Control in 2012 to embed greater
focus and discipline on controls
within each business, the group
Our focus on the control agenda has
become "business as usual"
In addition, we will continue to
innovate in 2015 by improving
branch automation and efficiency,
extending our electronic trading
platforms, launching an advisor
workstation platform for Asset
Management and implementing a
new commercial real estate loan
originations system.
improved technology coverage. We
will strengthen our partnerships
with government agencies to under-
stand the full spectrum of cyber
risks in the environment and
increase our response capabilities.
Technology is critical to our
competitive advantage and to
the protection of our clients and
customers
Over the past six years, the firm has
invested 8%-9% of its annual reve-
nue to fund our global technology
capabilities, one of the largest invest-
ments we make at JPMorgan Chase.
Even as we are committed to expense
management, we will not compro-
mise our investment opportunities
for the future, especially as they
relate to innovative and efficient
delivery to our clients and customers
and protection of their security.
Demand for technology continues to
grow. IT supports 318,000 desktops,
66,000 servers in 32 strategic data
centers, 25,000 databases and 7,100
business applications. Our global
telecommunications network con-
nects our presence in 60 countries
along with our 5,600 Chase
branches and 18,000 ATMs. We have
more than 35 million active online,
and over 19 million active mobile,
clients and customers. We process
approximately $6 trillion of pay-
ments daily on behalf of the firm
and its clients and customers.
In 2015, approximately 50% of our
technology investment spend will be
in support of our strategic business
priorities, including:
• Digital: End-to-end digital com-
merce across web, mobile and
future channels and across our
businesses.
2014 HIGHLIGHTS AND ACCOMPLISHMENTS
•
•
Data & Analytics: Leveraging of
our firmwide data assets for opera-
tional stability, customer value,
revenue generation, and risk and
security.
Mobile, Unified Communications:
Communications channel integra-
tion into business applications to
enrich interaction among employ-
ees, clients and customers.
Next Generation Cloud Infrastruc-
ture: Increased cloud footprint to
enhance cost efficiency and flexibil-
ity using highly elastic, on-demand,
self-service infrastructure.
Next Generation Development:
Increased developer productivity,
quality and pace of application
delivery.
Security & Controls: Framework to
address the increasing volume,
pace and sophistication of security
threats.
•
Evaluated business activities in
light of G-SIB; committed to oper-
ating at or below the 4.5% G-SIB
capital surcharge bucket
Targeted a $100 billion reduction
in non-operating wholesale
deposits
Launched a firmwide Culture and
Conduct Program to reinforce our
Business Principles across all
businesses and functions globally
from cyber attacks and will
increase cyber spend by nearly
80% over the next two years
43
Consumer & Community Banking
I'm proud to say that Consumer &
Community Banking (CCB) has
grown stronger in 2014, adding more
customers, building market share
and improving the customer experi-
ence across all of our channels.
Today, we've earned relationships
with nearly half of all U.S. households
and 3.9 million small businesses.
In 2014, we added approximately
600,000 new CCB households, bring-
ing our total to almost 58 million.
As important, we've deepened the
relationships with our existing
customers. More people consider
Chase their primary bank than any
other bank in our footprint, and
customer attrition has reached
historic lows. More customers are
doing business with Chase, and they
are staying with us for the long term.
Leading the industry
in 2014 to protect the firm
Our core strategy for CCB for the
past four years has been to build life-
time, engaged relationships with our
customers. That begins and ends
with a consistent and outstanding
customer experience across Chase. I
have yet to see any business that can
grow over time without happy cus-
tomers. And in our business, where
customers have extensive choices
across all of our products, that's
acutely true.
We're pleased with our progress. I
don't think anyone can ever declare
victory on the customer experience,
but we can celebrate the success we've
had. One key measure that we track is
our Net Promoter Score (NPS), which
simply is how many customers say
they would refer a friend to Chase.
Since mid-2011, our NPS has roughly
doubled in Consumer Banking and
Card and tripled in Business Banking.
In fact, nearly all CCB businesses are
at or close to all-time highs.
We also received validation from
respected outside groups. The Ameri-
can Customer Satisfaction Index
named Chase #1 in customer satis-
faction among large banks in 2014.
J.D. Power ranked us #3 in Highest
Customer Satisfaction in Mortgage
Originations (up from #12 in 2010)
and #2 in Mortgage Servicing (up
from #13 in 2010). In Business Bank-
ing, we are #1 or #2 in every region
(up from #22 in 2010).
Building stronger relationships with
customers has led to measurable
improvement in our leadership posi-
tions. This year, the Federal Deposit
Insurance Corporation (FDIC) named
us #1 in deposit growth among the
largest 50 U.S. banks. We are the #1
credit card issuer, #1 in total U.S.
credit and debit payments volume,
the #2 mortgage originator and
servicer, and the #3 non-captive auto
lender. Chase is #1 in ATMs and #2
in branches, and chase.com is the #1
online banking portal. Forrester
Research named us #1 in mobile
banking functionality for the third
consecutive year.
With our combination of scale,
leading products and outstanding
service, we wouldn't trade our
franchise for anyone's.
2014 financial results
Gordon Smith
We particularly are pleased that we
achieved this positive momentum
while hitting our aggressive expense
target. Since 2012, we have taken
•
For the sixth consecutive year,
invested 8%-9% of the firm's
annual revenue in global
technology capabilities and
digital innovation
.
.
Met liquidity regulatory require-
ments; advanced our own internal
framework, including technology
capabilities and independent risk
oversight
Maintained AA+ average rating
in our investment securities port-
folio; improved the average yield
of investment securities from
2.32 in 2013 to 2.77 in 2014
despite low rate environment
Spun off One Equity Partners
as part of ongoing business
simplification efforts
Processed an average of
approximately $6 trillion in
payments daily
•
Managed expenses tightly
through, among other things,
creating economies of scale
through consolidation of jobs
in strategic locations and estab-
lishment of preferred vendors
Matured our efforts to further
strengthen controls, including
transitioning many enterprise-wide
programs to business-as-usual
•
•
Spent more than $250 million
Conclusion
•
risk. In 2014, we further increased
the proportion of investment securi-
ties that we intend to hold to matu-
rity to nearly $50 billion, which will
help to mitigate Basel III capital vol-
atility in a rising rate environment.
The
average yield of our investment
securities portfolio increased by 45
basis points from a yield of 2.32 in
2013 to 2.77 in 2014 despite gener-
ally lower interest rates, and we
maintained an average portfolio
rating of AA+.
Cybersecurity remains a top priority
In 2014, we experienced cyber
threats of an unprecedented scale.
This included a data breach we
incurred last summer, which we
voluntarily disclosed. We continue
to discover and block new and
unique malware, viruses and phish-
ing attempts to obtain access to our
data. Importantly, cyber attacks to
date have not resulted in material
harm to our clients or customers
and have not had a material adverse
impact on our results or operations.
To defend against these threats, we
spent more than $250 million in
2014 on our cyber capabilities. We
established three global Security
Operations Centers to monitor,
detect and defend the firm. We
organized cyber defense exercises
to test our capabilities and con-
ducted an independent assessment
of our cybersecurity program to
identify actions for continual
improvement. We doubled the
number of cybersecurity personnel
over the past two years and hired
top-notch security experts.
48
The Corporate & Investment Bank's
broad range of products and services
has the positive effect of smoothing
out business fluctuations in different
market and economic environments.
For example, since 2010, the CIB
For the year, the CIB reported net
income of $6.9 billion on net revenue
of $34.6 billion with a reported return
on equity (ROE) of 10%. Excluding
legal expense, the CIB earned $8.7 bil-
lion with an ROE of 13%. Investment
Banking fees of $6.6 billion were up
4% from the year before. And since
2010, the CIB's Global Investment
Banking fees have risen by 25%
compared with 17% for the rest of
the industry, according to Dealogic.
Combined revenue in Treasury
Services and Securities Services rose
by 15% during the past five years, far
outpacing the rest of the top players'
2% gain.
Earnings
With an improving global economy
in 2015, I am confident that many of
the headwinds we encountered last
year will turn into tailwinds. As the
recovery spreads throughout regions,
countries and industry sectors, we
foresee CEOs gaining confidence to
pursue more opportunities. We
remain one of the few truly global
banks that can provide the complete
array of products and services to fuel
corporate growth, which, in turn,
underpins economic expansion.
the
-
In a year marked by uneven eco-
nomic recovery in Europe, low mar-
ket volatility and the implementation
of additional capital standards, the
ability to embrace change and adapt
enabled the CIB to maintain its lead-
ing market share across all business
lines and generate strong returns on
$34.6 billion in net revenue
highest among our corporate and
investment bank peers.
But we are not complacent. Nor do we
take our top rankings for granted. In
an evolving industry, we must be will-
ing to anticipate and embrace change,
operate efficiently and be vigilant in
ensuring that our conduct doesn't just
meet high standards - it sets them.
We continue to actively manage our
investment securities portfolio of
over $340 billion, the primary vehi-
cle used to offset the firm's loan and
deposit mismatch and moderate
firmwide structural interest rate
It is a franchise that would be
extremely difficult to replicate, espe-
cially in the regulatory and economic
environment we encounter today.
our top-tier rankings across the CIB's
spectrum of products and services.
Daniel Pinto
With a global roster of 7,200 clients,
counting more than 80% among the
Fortune 500,
the CIB offers an inven-
tory of integrated financial products
and services. To serve that client
base, the CIB has more than 51,000
employees and a presence in 60
countries. Our expertise runs the
gamut across investment banking,
market-making, investor services,
treasury services and research. The
work we accomplished in 2014 on
behalf of our clients is reflected in
- even as we
By any measure, the J.P. Morgan CIB
is an outstanding franchise. No other
firm places so consistently among the
top ranks of products across Invest-
ment Banking, Markets and Investor
Services. Our 2014 performance
stands as an example of our ability to
adapt to new capital and regulatory
rules while optimizing our business,
capturing efficiencies and targeting
expense reductions
continued to invest for the future.
In 2014, the Corporate & Investment
Bank (CIB) continued to deliver for
clients on the strength of its unique
scale, its complete range of offerings
and its global reach.
Corporate & Investment Bank
47
(1) PPT
In our branches, state-of-the-art smart ATMs allow
customers to self-serve for transactions. Today, 50%
of all transactions can be made at an ATM. By the end
of 2016, that number will be 90%.
The Branch of the Future is here today
3 Includes households that close all Chase accounts; average of annualized
monthly attrition rates over 12 months for 2010 and 2014
PPT = Percentage points
Source: Internal data
SO YOU CAN
Last year, J.P. Morgan helped clients
raise $1.6 trillion in capital, a 7%
increase over the previous year. Of
that amount, $61 billion was raised
on behalf of states, local govern-
ments, hospitals, universities, school
districts and nonprofits. Those funds
were earmarked to build research
facilities, construct children's hospi-
tals, finance clean water projects
through green bonds and extend
new rail lines in cities to alleviate
traffic congestion, among other pub-
lic service projects. The CIB also was
the #1 firm in U.S. dollar clearing for
clients with a 19% share on Fedwire
and the Clearing House Interbank
Payments System (CHIPS).
independent assessment, measure-
ment, monitoring and control of
liquidity risk. We established a firm-
wide program to set up a best-in-class
intraday liquidity management proc-
ess and infrastructure in preparation
for a changing market environment
and emerging regulatory expectations.
We progressed our technology build-
out to enable more flexible and
timely liquidity stress testing for the
enterprise and major legal entities.
We further evolved the Liquidity
Risk Oversight group, which provides
2014 featured final versions of impor-
tant regulatory liquidity rules, nota-
bly the liquidity coverage ratio by
U.S. banking regulators and Basel's
final rule on the net stable funding
ratio, with which we are compliant.
We devoted significant resources to
understanding the potential liquidity
impact of changing Fed monetary
policy and rising rates, particularly
the impact on our wholesale deposit
base. As a direct result of this effort,
we further refined and improved our
internal stress framework. We con-
tinue to be in compliance with our
internal measures.
Last year, we published Business
Principles, key themes around which
we want to drive the firm. These prin-
ciples are fundamental to our success
and provide guidance for our identity
as a company while informing our
firmwide strategic priorities.
manage to the needs of our critical
stakeholders-shareholders, clients,
customers and employees - given our
significance to worldwide markets
and the global economy. We continue
to respond to the changing regulatory
landscape, including requirements
for G-SIBS, and we are evaluating
the businesses we manage and the
products and services we offer in the
context of these new requirements.
As an example, we announced the
firm is targeting up to a $100 billion
reduction in non-operating wholesale
deposits. At a minimum, we are
committed to ensuring we remain
safely within the 4.5% G-SIB capital
surcharge bucket and are looking
at additional actions to potentially
reduce our surcharge by an incre-
mental 50 basis points.
Matt Zames
The Chief Operating Office is central
to delivering operational excellence.
It is responsible for many of the
firm's corporate utilities, including
Treasury, the Chief Investment
Office, Global Technology, Operations,
Oversight & Control, Compliance,
Corporate Strategy, Global Real
Estate, Global Security & Military
Affairs and Regulatory Affairs,
among others. In 2014, we focused a
great deal on what it means to be a
Global Systemically Important Bank
(G-SIB) and how best to ensure we
Our firm has a rich, 200-year history
of serving its clients and customers
with integrity and establishing
relationships based on trust. It is
our responsibility to preserve and
build upon the solid values on
which this firm was founded. The
tone we set as stewards of the firm
is critical, and managing a culture
of excellence, as well as integrity,
requires us to have a sophisticated
and comprehensive infrastructure.
A GREAT TEAM AND WINNING CULTURE
A COMMITMENT TO INTEGRITY, FAIRNESS
AND RESPONSIBILITY
OPERATIONAL EXCELLENCE
EXCEPTIONAL CLIENT SERVICE
A Culture of Excellence
39
April 8, 2015
Chairman and Chief Executive Officer
Jamie Dimon
Jane Love
I wish you all could see our employees and your management team at
work, particularly in these challenging times. If you did, I know that
you, like me, would be bursting with appreciation and pride and have
great comfort in knowing that our wonderful legacy will continue.
I feel enormously fortunate to be part of the remarkable 200-year
journey of this exceptional company.
Liquidity and interest rate risk
management are fundamental to how
we manage the firm and take on
increasing importance for the firm as
a G-SIB. As we advance our thinking
in response to an evolving set of reg-
ulatory requirements, we are driving
a coordinated approach to manage-
ment of the firm's balance sheet.
risk management continue to
be important
Liquidity and interest rate
We will not compromise on the con-
trol environment and, to that end,
continue to tighten data controls for
ourselves, as well as for our third
parties. This involves fortifying our
defenses to ensure all of our manag-
ers, employees and vendors are fol-
lowing the appropriate security and
hygiene practices with regard to work
email, password protection, data
encryption, system entitlements and
social media. We continue to carefully
monitor third-party systems and to
increase our oversight of all the ven-
dors with whom we work to make
sure their protections are adequate.
We continue to look for additional
opportunities to do business in
smarter ways. For example, over
the last few years, the firm made a
significant investment in telecom-
munications and collaboration tools
to facilitate alternatives to air
travel. We have rationalized the
population of vendors, in large part
through the establishment of pre-
ferred vendors in categories such as
information technology (IT), real
estate services, printing, and mar-
keting and advertising. In addition,
we are in the process of rationaliz-
ing our population of law firms and
physical security vendors.
unit, which was completed in early
January 2015. We realized signifi-
cant savings through the reshaping
of our workforce and consolidation
of jobs in the right locations, creat-
ing efficiencies in labor and real
estate costs and promoting consis-
tency in our control culture. We are
committed to managing expenses
tightly, eliminating waste, and
running the firm in a nimble and
flexible manner.
1 Note: Net Promoter Score (NPS) = % promoters minus % detractors
2 Auto NPS score tracked beginning in January 2012
40
and the impact of those decisions on
our clients, our reputation and the
integrity of the markets. Our objec-
tive is to instill in our employees a
strong sense of personal accountabil-
ity through broad, deep integration of
common standards across businesses
and geographies. In 2015, we will
develop a suite of metrics to enable
management to keep a pulse on how
we are doing in regard to our com-
pany culture and with respect to spe-
cific conduct risks. We have commit-
ted, in 2015, that each line of business
and function will implement a
Culture and Conduct Program aligned
to the firmwide framework.
V. A STRONG CORPORATE CULTURE
sign off on every decision and stifle innova-
tion. We have been managing through this
process with our eyes wide open.
The Oper-
ating Committee members of the company
spend a considerable amount of time to
make sure we get this right.
We need to develop the right culture and avoid
creating a culture of finger-pointing. We need
to analyze our mistakes because that is
the only way we can fix them and consis-
tently improve. But we cannot allow this to
devolve into crippling bureaucratic activity
or create a culture of backstabbing and
blame. We need to develop a safe environ-
ment where people can raise issues and
admit and analyze mistakes without fear of
retribution. We must treat people properly
and respectfully - even if we have to make
tough decisions.
I believe this company currently has the best
management team with whom I have ever
been associated - and I mean their character,
culture and capabilities. I now ask questions
that I did not ask when I was a younger
manager: "Would I want to work for these
managers?" "Would I want my children to
work for these managers?” My answer would
not always have been yes, but now it is. These
leaders have navigated the last several years
with fortitude and a smile, driving results,
making tough decisions and treating each
other as complete partners. They are the
reason why both performance and morale
remain strong in this environment.
CLOSING COMMENTS
Execution against our principles
requires us to be ever mindful of
new opportunities to reduce com-
plexity and improve efficiency. As
part of our business simplification
strategy, we spun off One Equity
Partners, the firm's private equity
Source: Internal data
Card
Consumer Banking
•
#1 most visited banking portal in
the United States - chase.com;
#1 mobile banking functionality
#1 in deposit share in three of the
largest deposit markets
Outpaced the industry in deposit
growth for the third consecutive
year
#1 in deposit growth among the
largest 50 U.S. banks by the FDIC
•
.
• #1 primary banking relationship
share in our footprint
#1 among large banks in the 2014
American Customer Satisfaction
Index survey for the third year in
a row
Consumer relationships with
almost half of U.S. households
.
2014 HIGHLIGHTS AND ACCOMPLISHMENTS
46
CEO, Consumer & Community Banking
your invest-
Gordon Smith
Pardon
19 million mobile app users, up 20%
⚫ 45 million Mobile QuickDepositSM
transactions, up 25%
•
30 million Mobile Chase QuickPayS
transactions, up 80%
• 60 million in Mobile Bill Pay, up 30%
• 200 million deposits made in a
Chase ATM, up 10%
#1 Small Business Administration
lender for women and minorities
in the United States for the third
year in a row
Providing a best-in-class digital
experience also is more efficient for
the bank. It costs us 3 cents to accept
a deposit made from a smartphone
and 8 cents for one at an ATM. With
our new technologies, we have low-
ered our costs per deposit by ~50%
in 2014 versus 2007.
Controls: Strengthen and simplify our
business
Over the past two years, we have
made significant investments in
improving our controls. We hired
dedicated teams to focus on de-risking
the business and invested in technol-
ogy to automate more processes and
reduce manual errors. As one exam-
ple, we have strengthened our Anti-
Money Laundering (AML) procedures
with a technology fix. Employees must
fill out every data field before complet-
ing a new customer application.
Throughout 2014, we made excellent
progress on our control agenda.
We exited 5,000 Politically Exposed
Person relationships and 4,000
rela-
tionships with small businesses in
high-risk geographies and industries.
And we closed more than 100,000
accounts through AML screening
and monitoring processes. We hope
that by the end of 2015, we will have
closed most of our legacy issues and
invested in a stronger, simpler and
safer business for the long term.
As we move forward into 2015, our
core strategy is focused on three key
areas: customers, controls and profit-
ability. We will continue to focus on
a great customer experience while
investing in the best mobile and digi-
tal capabilities in the industry. We
will continue to further simplify our
business by reducing the number of
non-core products we have and
investing in automation. And to
deliver shareholder value, we will
meet our expense targets and drive
out unnecessary costs while continu-
ing to invest in our business.
We recently launched a firmwide
Culture and Conduct Program to
further reinforce the behavioral
standards implicit in these Business
Principles. The program is not about
reinventing our culture but recom-
mitting to it. It considers our culture,
business models, tone from senior
executives, governance and incen-
tive structures; how they influence
daily decision making at all levels;
Across CCB, we feel very well-
positioned for the future. The CCB
Leadership Team and I are so proud
to serve our customers and share-
holders and to lead this exceptional
business. Thank you for
ment in our company.
Our 5,600 branch network is one of
our most important assets for acquir-
ing and deepening relationships. Last
year, our branches helped nearly
20,000 first-time homebuyers and
400,000 new small businesses and
approved more than 1 million credit
cards for customers. We've built a
footprint that covers the highest
growth markets in the United States.
But now that our buildout is com-
plete, we won't open as many new
branches over the next few years. As
all effective retailers do, we continu-
ally review locations to determine
where we can consolidate and still
remain convenient for customers. As
a result, our overall branch count will
be down slightly from prior years.
Here are some of the indicators of
the rapid growth in digital in just
one year:
⚫ #1 credit card issuer in the United
States based on loans outstanding
•
Business Banking
Nov-14
Nov-12 May-13 Nov-13 May-14
May-11 Nov-11 May-12
■Consumer Banking Business Banking Card ■Mortgage Banking Auto²
(4) PPT
2014
2010
(6) PPT
Chase Household Attrition Rates³
35
un
37
43
60
61
63
#1 U.S. co-brand credit card issuer
#1 in total U.S. credit and debit
payments volume
•
#1 wholly-owned merchant
acquirer in the United States
#2 mortgage originator;
•
#2 mortgage servicer
53
32
12
15
12
Net Promoter Score¹
# 3 non-captive auto lender
41
Over the next two years, we will
increase our cybersecurity spend by
nearly 80% and enhance our cyber
defense capabilities with robust
testing, advanced analytics and
Sustainable growth
2 All years have been revised for preferred dividends
1 Net revenue, net income, ROE and overhead (O/H) ratio, exclude FVA (effective 2013) and DVA, non-GAAP financial measures, for 2013 and prior years. These measures are
used by management for assessment of the underlying performance of the business and for comparability with peers
2014
2013
2012
2011
2010
$47.5
$47.0
3 All years exclude the impact of legal expense
$46.5
$56.5
$61.0
13%
2011. We accomplished this by advis-
ing 75 clients on strategic transactions
and executing more than 1,200 capital
markets financings. As we expand our
coverage, we believe we can do even
more for our clients. We have set a
new, long-term goal of $3 billion in
investment banking revenue, and we
are confident our partnership with the
CIB will enable us to deliver over time.
While our platform and capabilities
differentiate us, our success ultimately
hinges on our people. We have 7,300
employees, including 1,400 bankers
in 118 U.S. cities and 14 international
locations. These employees average
20 years of experience, have deep
industry expertise and are firmly
rooted in their local communities.
I'm incredibly proud of the quality
and integrity of our people. Their
continuous focus on our clients and
positive impact in their communities
never cease to impress.
Head of Corporate Responsibility
Peter Scher
We are very proud of our work over
this past year and are committed to
making our communities and our
firm even stronger.
-
To that end, we recently formed a
five-year partnership with the Urban
Institute, one of the most well-
respected nonprofit research organi-
zations in the United States, to assess
our major philanthropic initiatives -
to analyze our efforts, produce inde-
pendent research and strengthen our
programs further advancing our
commitment to maximum impact
for our communities and account-
ability to our shareholders.
+$13.5
(up 28%)
DVA = debit valuation adjustment; FVA = funding valuation adjustment; GAAP = generally accepted accounting principles in the U.S.; LCR = liquidity coverage ratio;
NSFR = net stable funding ratio; SLR = supplementary leverage ratio
49
12%. In recent years,
2012
2013
$10.4
$9.3
$8.5
$8.7
$7.5
2010
2011
2012
2013
2014
ROE¹³ (%) and Capital
($ in billions)
5-year average: 17%
19%
18%
18%
15%
clients collectively have accounted
for half of our revenue. They are
progressively seeking a broader
range of our services and using more
of J.P. Morgan's product lineup. As of
2014, about half of our international
clients use five or more products,
while single-product client relation-
ships have declined by 30%. Interna-
tionally, loans grew by 24%, assets
under custody are up 36% and cross-
border revenue with corporate cli-
ents has grown by 13% since 2010.
international
Underpinning all of these efforts is
the belief that achieving meaningful
impact requires us to apply the
same standard to our philanthropic
investments as we do to our business
investments: a genuine commit-
ment to accountability, transparency
and impact.
2011
sent a dozen of our top managers
from around the world to Detroit
to work with local nonprofits. It's
a model we plan to replicate and
expand in the coming years.
Finally, we are helping cities create
thriving small business sectors
centered around high-growth indus-
tries through our Small Business
Forward initiative.
#1 Equity and Fixed Income
•
Equity Manager of the Year,
Institutional Investor
#1 U.S. Large Cap Core
•
Excellence Awards
Manager, Euromoney Global
Best Global Wealth
2014 HIGHLIGHTS AND ACCOMPLISHMENTS
Private Bank Portfolio Management,
Euromoney
Mary Callahan Erdoes
CEO, Asset Management
before, and our commitment to first-
class business in a first-class way has
created a franchise that would be
hard to replicate. It is a great privi-
lege to be entrusted with so many cli-
ent assets from around the world. In
return, we are committed to working
hard every day to continue to gener-
ate value for clients, shareholders
and employees.
A strong position with room to grow
We are incredibly proud of how our
business has evolved over the past
years, decades and centuries. We are
doing more for clients than ever
and absolute return-focused strategies
to complement their portfolios.
GIM's multi-asset solutions business
is designed to help clients in this
regard. The business has seen tremen-
dous growth over the past five years,
with a CAGR of 31%. That places us
firmly in front of the industry aver-
age
of 13%. Our momentum includes
having our SmartRetirement offering
named 2014 U.S. Allocation Fund
Manager of the Year by Morningstar,
with seven of its nine vintages in the
top decile over the past five years.
1 Fund and index performance as of 12/31/14. Fund performance is net of fees. SmartRetirement performance is reflective of U.S.
select shares. S&P Target Date 2035 total return USD represents Total Return Index. Past performance is not indicative of future
performance, which may vary. Industry average source: Morningstar, Strategic Insight and evestment
5 Year
10.5%
11.4%
+0.9%
3 Year
Hlavy
#1 Institutional Money Market Fund
Manager Worldwide, iMoneyNet
#1 Global Active Long-Term Mutual
Fund Flows, Strategic Insight
Second, we are helping cities around
the world address one of their biggest
challenges: the need for a better
trained workforce to fill the millions
of jobs left open due to a shortage
of applicants with the right skills.
Through our New Skills at Work
program, we are developing strate-
gies that align workforce training
with the skills employers seek and
are providing much-needed data to
strengthen workforce systems.
First, we are helping metropolitan
regions compete more effectively in
the global economy. Through our
Global Cities Initiative with the Brook-
ings Institution, we have expanded
our work to help cities in the United
States, Europe, Asia and Latin America
develop strategies for increasing inter-
national trade and investment ties.
In 2014, we developed and expanded
our programs with a focus on three
distinct challenges:
the long-term economic vitality of the
world's cities.
Peter Scher
58
Our corporate responsibility work
has the same objective – to use the
skills, resources and expertise of our
firm to support the economic growth
and progress of our communities.
In recent years, we have sharpened
that focus. With millions of people
around the world migrating to urban
areas, cities are fast becoming the key
drivers of global economic growth -
and essential linchpins in expanding
access to opportunity. So we have
refocused many of our efforts on
helping develop strategies to bolster
At the core of our business, JPMorgan
Chase is in a unique position to help
our clients navigate an ever more
complex global economy and spur
the growth that fuels their progress.
We not only understand the chal-
lenges clients are facing, we have
the skills, resources and expertise
to make a meaningful difference in
helping solve them.
A common challenge facing commu-
nities around the world is the need
for greater economic growth and
more widely shared prosperity. Creat-
ing more jobs, starting and expand-
ing businesses, and removing barriers
to opportunity will not only benefit
society but, by extension, our firm.
Corporate Responsibility
57
#1 Large Fund of Hedge
Funds Manager of the Year,
Institutional Investor
High-Net-Worth, The Asset
Best Private Bank for Asia
Best Asset Management
Company for Asia, The Asset
•
•
Top European Buyside Firm,
Thomson Reuters Extel
•
Manager of the Year, Morningstar
2014 U.S. Allocation Fund
All of these challenges come together
in Detroit. In 2014, we made a $100
million, five-year commitment to the
city's economic recovery that brings
together both business and philan-
thropic resources to support and
accelerate some of the most innova-
tive efforts underway to revitalize
an iconic American city. But we're
putting more than just our money
to work; our people have significant
expertise to offer, and, in 2014, we
15.7%
2010
$33.4
made great strides to improve the
end-to-end client experience. We
want to make doing business with
us as easy as possible – from sales
to onboarding to operations and
technology to client service.
From a capital perspective, the CIB
will continue to be affected by rules
based on risk-weighted assets. We will
adjust our mix of capital-intensive
businesses accordingly and fine-tune
the platform as needed. We are intent
on reducing our capital-footprint and
on keeping ourselves nimble while
remaining true to our reputation of
providing liquidity and capital in any
market environment.
Looking ahead, the signals are posi-
tive for a global economy that is
gaining momentum. Increasing con-
fidence among consumers and CEOs
is expected to continue. That would
underpin strong corporate earnings
and healthy markets and sustain the
active level of merger and acquisi-
tion (M&A) activity that marked
2014. Our M&A practice particularly
was strong
with improved
2014,
wallet share on global industry-wide
volume that was up by 26% for the
year.
We believe 2015 will be another
active period in which clients will
in
look to us for global advisory capa-
bilities and cross-border expertise.
Our proven track record includes
advising on the largest, most com-
plex deals, which, in many cases,
involved acquisition financing and
strategies to address shareholder
views and other marketplace forces.
Emerging markets economies are
becoming increasingly important in
global commerce. Both as consumers
and as sources of new products and
services, multinational companies
are expanding their operations in
those economies and will require
the breadth of services J.P. Morgan
uniquely is able to provide.
In 2015, we will execute our strategy
in a way that optimizes capital, sup-
ports our clients and aids economic
growth. Global institutions turn to
J.P. Morgan because it has the talent,
expertise and portfolio of services
needed to conduct their business.
We look forward to continuing that
tradition in 2015 and beyond.
Janel
Daniel Pinto
CEO, Corporate & Investment Bank
investors and broker-dealers, has
2014 HIGHLIGHTS AND ACCOMPLISHMENTS
The Corporate & Investment Bank
delivered market-leading performance
in 2014; $34.6 billion in net revenue
was the largest in the industry.
⚫ J.P. Morgan helped clients raise $1.6
trillion in capital - 7% more than in
the previous year. Of that amount,
$61 billion was raised on behalf of
states, local governments and public
institutions to finance educational
facilities, healthcare, environmental
projects and other similar purposes.
Clients entrusted J.P. Morgan with
$20.5 trillion in assets under cus-
tody, up from $16.1 trillion in 2010.
• Treasury Services and Securities
Services revenue rose by 15%
during the past five years, far
outpacing the rest of the top
players' 2% gain.
•
•
The CIB has more than 51,000
employees with a presence in
60 countries, serving 7,200
of the world's most significant
corporates and financial
institutions, governments and
nonprofit organizations.
No other firm in 2014 placed
so consistently among the top
ranks of products across
Investment Banking, Markets
and Investor Services.
•
•
Our Investor Services business, which
contains some of our most important
businesses on behalf of institutional
Our Treasury Services business will
focus on the needs of global multi-
nationals to capture the cross-border
payments and foreign exchange
business associated with increasing
global trade flows. With our invest-
ments in electronic commerce, we
actively will pursue opportunities to
migrate clients to electronic solu-
tions and look for more efficiencies
across our technology platforms.
As an active market-maker, we can
foresee the increasing complexity
that will define the Markets business.
Our strategy recognizes that change
is inevitable, even if its exact nature
cannot be foretold. But in whatever
form our clients need us, the CIB will
be prepared to capture client flow in
all its various forms. Whether it's by
voice, electronic or direct market
access; whether we are acting on a
principal basis or on an agency basis,
we will be there for our clients with
the products they want.
We continue to execute our disci-
plined, long-term growth plan, which
is designed to add new, high-quality
clients and deepen those relation-
ships over time. We are growing our
customer base by selectively expand-
ing our geographic footprint and
focusing on key growth industries.
In Investor Services, clients entrusted
J.P. Morgan with $20.5 trillion in
assets under custody, up from $16.1
trillion in 2010, driven by asset appre-
ciation, as well as client inflows.
Treasury Services operating deposits
have nearly doubled since 2010.
In Markets, we now have an 11.5%
market share in equities due to a 7%
gain in revenue since 2010 compared
with revenue for the rest of the top
10 banks, which is down collectively
by 7%. And in fixed income markets,
our share has consistently ranked #1
during the last five years.
Achieving completeness while
simplifying
Having a complete set of core prod-
ucts, accessible to clients across a
global network, does not mean we
intend to be all things to all people.
As a result of shifts in the regulatory
and market environments, we shed
ancillary businesses in 2014, includ-
ing the Global Special Opportunities
Group investment portfolio, as well
as our physical commodities activi-
ties - though we kept our core
financial commodities business.
No industry operates in a static envi-
ronment, least of all ours, so we recog-
nize the necessity of being adaptable
and nimble. The CIB has established a
successful track record of optimizing
its business model while adjusting to
multiple regulatory and other con-
straints, among them leverage, liquid-
ity, Comprehensive Capital Analysis
and Review stress testing, G-SIB and
Basel rules. We push down to a very
granular level in the organization the
achievement of strong risk-adjusted
returns in order to maximize long-
term shareholder value. For our new-
est constraint, G-SIB, the CIB will
be optimizing capital usage across
clients, products and G-SIB factors.
In implementing those efforts, along
with others, we have simplified our
structure, improved our overall risk
profile, and focused our attention
on the business lines most valuable
to clients and the CIB. By selectively
narrowing our business, we also
improved our ability to invest in the
technologies and services our clients
will require and demand in the
future while making us stronger for
the long term.
"How We Do Business - The Report"
During the course of last year, one
of our most important projects was
a self-examination leading to an
in-depth report called "How We Do
Business - The Report." J.P. Morgan's
culture and conduct must be based
Drawing from the report, we have
rededicated ourselves to the principles
espoused by J.P. Morgan, Jr., in 1933
when he said: "I should state that at
all times, the idea of doing only first-
class business, and that in a first-class
way,
has been before our minds."
Our strategies
We are continually looking for ways
to improve, be more efficient and
serve our clients better. Efficiency is
not a code word for eliminating
worthwhile and beneficial products
and services. To us, it means cultivat-
ing and mining our business to find
ways we can provide our services
faster, better and more effectively.
Efficiency means making incremen-
tal investments to enhance and
expand what we offer, closing gaps
to increase our longer term profit-
ability and embracing the raft of
change that is sure to define our
industry going forward. We also will
be looking to leverage a best-in-class
infrastructure across the CIB, retiring
duplicative platforms and participat-
ing in industry utilities to perform
non-proprietary functions across our
lines of business.
In our Global Investment Banking
business, we will build on our
leadership positions across advisory,
on integrity, respect for our colleagues investing in sectors and geographies
and, above all, a commitment to
always act in our clients' best inter-
ests. In putting the lessons we've
learned into practice, we are escalat-
ing issues promptly. We also have
developed enhanced training pro-
grams and are working with our
regulators around the world to
improve our communication and
transparency. When every one of our
employees comes to work in the
morning, the guiding principle should
be, and I believe it is, to do the right
thing for our clients at all times.
where we see areas of opportunity
and continued growth.
At the same time, we are making the
necessary investments across our
Markets businesses and are imple-
menting trading technologies to
ensure we are operationally prepared
to capture client flows in whichever
form our clients want to trade.
Already, we have seen gains through
our efforts to date. Equity e-commerce
volume is up by 22% in the United
States and by 57% in EMEA, just
in the last year. Recently, we have
50
consistently captured share gains in
foreign exchange e-commerce, and
we hold top-tier rankings on most of
the major multi-dealer platforms.
•
$33.0
The CIB is targeting $2.8
billion in expense reductions
by 2017, including capturing
cost savings from divestitures
and simplification efforts
already undertaken in 2014.
51
Optimizing the Businesses under
Multiple Constraints
CCAR
stress
test
Profitability
constraints
Portfolio
optimization
Balance
sheet
Liquidity
(e.g., LCR,
NSFR)
Capital
(e.g., SLR,
G-SIB)
Net Revenue and Overhead Ratio¹,2
($ in billions)
Net Income ¹,2,3
($ in billions)
In 2014, our client demographic
continued its shift toward interna-
tional business. Since 2010, the CIB's
combined revenue from Europe, the
Middle East and Africa (EMEA), Asia
Pacific and Latin America grew by
O/H ratio¹³
66%
61%
58%
62%
5-year average: $34.7
5-year average: $8.9
$36.7
$35.7
$34.6
64%
18% compared with the year before.
The
power of our partnership with
Commercial Banking has been
an important factor in bolstering
J.P. Morgan's market share, even as
the overall industry wallet has
declined in recent years.
Also impressive is our ability to work
collaboratively across business lines,
making it easier for clients to realize
their strategic growth plans. For
instance, by collaborating across the
firm, the CIB once again was able to
facilitate client strategies through its
partnerships, notably with Asset
Management and Commercial
Banking. In fact, more Commercial
Banking business flowed to the
CIB during 2014 than ever before,
generating a record $2 billion in
Investment Banking revenue, up by
J.P. Morgan gained share and contin-
ued to hold top-tier positions across
our lines of business, a testament to
the firm's client focus and resiliency.
In a difficult year, the CIB share of
Investment Banking fee revenue led
the industry at 8.1%, maintaining its
#1 ranking for the sixth year in a
row, according to Dealogic.
Commercial Banking
Our commitment is to be the best
commercial bank by helping our
clients succeed and by making a
positive difference in our communi-
ties. In 2014, this meant investing in
our business and controls, remaining
focused on our clients, and continu-
ing to execute our proven strategy
with discipline and patience.
For the year, Commercial Banking
(CB) delivered strong results, earning
$2.6 billion of net income on revenue
of $6.9 billion. Our continued expense
discipline and exceptional credit
performance helped us achieve a
return on equity of 18%. We are quite
proud of these results as our business
continues to navigate changes in the
regulatory landscape and adapt to
shifting market
pressures.
The drivers of our success remain
consistent over time: We have an
outstanding client franchise, real
competitive advantages and a sus-
tainable growth plan. I'm proud to
convey our progress for and
share our exciting plans for 2015.
2014
Douglas Petno
Everything starts with our clients
Selecting the best clients is absolutely
critical to the value of our franchise
and is deeply embedded in our cul-
ture. We seek clients that are highly
reputable, share our risk philosophy,
have strong management teams and
work in preferred industries we truly
understand. We believe that we are
judged by the company we keep,
and, as such, our fantastic client
franchise is the foundation for our
entire business.
With our global reach and broad-
based capabilities, we empower our
bankers to be there for our clients
with advice, capital and industry
insights. By knowing their business,
supporting their ambitions and
understanding their challenges, we
are able to best serve our clients and
build strong relationships.
Trust and relationships are often rein-
forced in times of trouble. That was
the case for one of our clients, a large
beverage distributor based in the
Seattle area. A few years ago, an unex-
pected industry sales tax increase
caused the company to lose a signifi-
cant portion of revenue within a short
time period. The family-run business
needed patience to execute a long-
term recovery plan and avoid dra-
matic job reductions. During this
stressful and challenging period, our
beverage industry bankers consis-
tently met with senior managers at
the company to provide advice and
guidance while they developed their
plan. In 2014, the company success-
fully completed its turnaround. Stay-
ing with our clients through times
like this, and earning their trust and
gratitude, is the reason we come to
work each day. We pride ourselves on
our relationship focus and the loyal
support we provide our clients.
Real competitive advantages
Our clients rely on our industry-
leading capabilities and comprehen-
sive services that no other commer-
cial bank can provide. As part of
JPMorgan Chase, CB is uniquely
positioned with access to the #1
investment bank, a leading asset
management business, comprehen-
sive payments and treasury services,
and an extensive branch footprint.
Today, our typical client uses nine
of our products and services, and it
is common to see our longer-term
relationships use more than 20.
When our clients seek to make more
efficient payments, generate better
reporting, and securely process trans-
actions from their own customers,
we leverage our market-leading com-
mercial payments platforms. In 2014,
less than 30% of our clients utilized
our commercial card and merchant
services capabilities. We believe we
can double the usage rates of both
of these products over time.
Collaborating with the Corporate &
Investment Bank (CIB) enables us to
bring differentiated advice and market
access to our clients. In 2014, CB rela-
tionships generated a record $2 billion
in investment banking revenue, repre-
senting 35% of the CIB's North Ameri-
can investment banking revenue and
reaching the revenue target we set in
52
experienced overall volatility in
annual revenue of just 4% compared
with 6% for its top competitors. That
stability, across fixed income and
equity markets, is rooted in our tradi-
tion of strong risk management.
What's more, this year's ROE is
calculated on $61 billion of allocated
capital, which is $13.5 billion, or 28%,
greater today than it was in 2012.
But strong results going forward
depend upon our maintaining a
disciplined approach to expenses.
Since 2010, we have reduced front
office costs by more than $2 billion.
Although much of that reduction
has been offset by cost increases in
controls, litigation and regulatory fees,
we believe those areas are reaching a
peak and will normalize over time.
Over the next three years, we have
targeted expense reductions of $2.8
billion, partly coming from more
end-to-end efficiencies in technology
and operations and a better allocation
of resources according to the depth of
client relationships. We also expect to
capture cost savings from divestitures
and simplification efforts already
undertaken in 2014.
Serving clients = gaining share
The firm's business mix
is increasingly becoming
international; since 2010, the
CIB's combined revenue from
EMEA, Asia Pacific and Latin
America has grown by 12%.
+2.4%
2014
1 Year
3 Through-the-cycle (TTC), 2008-2014 average
2 Peer averages include CB-equivalent segments or wholesale portfolios at BAC, CMA, FITB, KEY, PNC, USB, WFC
1 Based on end-of-period loans
2014
2012 2013
0.3% 0.1% 0.1%
0.4% 1.0% 0.9% 0.2% 0.0% 0.0% 0.0%
CB
Peers 2.1% 4.2% 3.1% 2.0% 1.1% 0.6% 0.4%
CB 0.9% 2.9% 2.0% 0.9% 0.5% 0.4% 0.2%
2013 2014
2012
2008 20094 20104 2011
CB target: <0.50%
CB: 0.36%
Peers: 0.98%
TTC average³
■Peer average²
■Commercial Banking
Net Charge-offs
Peer average²
Commercial Banking
Non-performing Loans¹
7 Denotes overseas revenue from U.S.
multinational clients
6 Compound annual growth rate
5 Calculated based on gross domestic
investment banking revenue for syndi-
cated and leveraged finance, M&A, equity
underwriting and bond underwriting
4 Investment banking and Card Services
revenue represents gross revenue gener-
ated by CB clients. Investment banking
includes Banking and Markets revenue.
Card Services includes Commercial Card
and Paymentech revenue
3 Greenwich Associates 2014 Online Services
Benchmarking Study
4 Excluding pre-acquisition Washington Mutual (WaMu) originations, Chase represented 1.67% in 2009 and 1.02% in 2010
² Federal Deposit Insurance Corporation
data as of 3Q 2014
5 Excluding pre-acquisition WaMu originations, Chase represented 0.93% in 2009 and 0.74% in 2010
6Commercial Banking net charge-offs for 2012 and 2013 were 0.03%
92%
85%
86%
Alternatives/
Absolute Return²
Multi-Asset
Solutions¹
85%
66%
50%
Fixed Income¹
83%
87%
77%
Equity¹
10-Year
5-Year
3-Year
% of 2014 Assets Under Management Over Peer Median¹/Benchmark²
(net of fees)
Clients around the globe vote with
their feet, and they continue to
entrust us with more of their assets
every year. In 2014, our client assets
grew to $2.4 trillion as we received
an additional $100 billion in net
long-term client asset flows. In fact,
since 2010, we have averaged $100
billion per year in net long-term
client asset flows.
Our research-based approach has led
to 84% of our 10-year long-term
mutual fund assets under manage-
ment (AUM) placing in the top two
performance quartiles and 228 of our
mutual funds being 4- or 5-star rated.
It is worth noting that our perfor-
mance is not the result of strength in
one particular asset class or region. It
represents top-tier performance span-
ning asset classes around the world.
Client flows
clients. Our investment management
platform, for example, has a global
network of more than 600 portfolio
managers, 250 research analysts and
30 market strategists.
Mary Callahan Erdoes
Consistently reporting strong
investment performance for clients
Success, both for our clients and our
business, begins with our continuous
investment in research for our
At J.P. Morgan Asset Management, we
take great pride in the fact that so
many institutions and individuals
around the world entrust us to man-
age their money. Clients rely on our
advice, ideas and solutions for some of
their most meaningful life events,
from saving for college or retirement
to securing their family's future to sup-
porting philanthropic and charitable
endeavors. With a heritage dating back
nearly 200 years, we know how impor-
tant it is to earn clients' trust, and we
recognize that it is our responsibility
to re-earn that trust every day.
Our strong fiduciary culture enables
us to stay focused first and foremost
on our top priority: long-term invest-
ment performance. This core princi-
ple of our business, combined with
advice-driven client coverage teams,
has enabled us to build a leading
global client franchise that delivers
superior investment strategies to our
clients and strong financial perfor-
mance to our shareholders.
Asset Management
54
$1.2
Thomson Reuters as of year-end 2014.
Traditional middle market is defined as
credit facilities of <$100 million from
clients with <$500 million in revenue
International Banking - Record
revenue of $304 million; 13%
CAGR6 since 2012
Investment Banking - Record
gross revenue of $2 billion;
12% CAGR since 2012
Performance highlights
Revenue of $6.9 billion
• Grew end-of-period loans 8%;
18 consecutive quarters of
•
•
•
•
loan growth
Generated return on equity of
18% on $14 billion of allocated
capital
Continued superior credit quality
- net charge-off ratio of 0%
Leadership positions
Top 3 traditional middle
market syndicated lender¹
#1 U.S. multifamily lender²
J.P. Morgan ACCESS Online
ranked the #1 cash manage-
ment portal in North America
by Greenwich Associates³
•
Business segment highlights
Middle Market Banking -
Fifth consecutive year of loan
growth; added more than 550
new clients
Corporate Client Banking
Record gross investment
banking revenue4
Commercial Term Lending -
Record quarterly originations;
full-year originations of nearly
$13 billion
• Real Estate Banking - Eighth
consecutive quarter of loan
growth with a record $10 billion
in originations
Community Development
Banking Originated more than
$1 billion in new construction
loans, building 9,000 units of
affordable housing in nearly 90
cities within our footprint
Firmwide contribution
13.4%
• Commercial Banking clients
accounted for 35% of total
North American investment
banking fees 5
•
2014 HIGHLIGHTS AND ACCOMPLISHMENTS
53
CAGR = Compound annual growth rate
Progress in key growth areas
Middle Market expansion -
Record revenue of $327 million;
19% CAGR since 2012
$490 million in Card Services
revenue 4
• Almost $120 billion in assets
under management from
Commercial Banking clients,
generating close to $500
million in investment manage-
ment revenue
$2.4 billion in treasury
services revenue
$1.3
$1.4
$1.0
$1.0
2008
2009
2010
2011
87%
2012
2014
New long-term
target
In our real estate businesses, we con-
tinue to see an excellent opportunity
to grow our loan portfolio. We believe
we can add high-quality assets
through the current market environ-
ment, as well as benefit from the
$1 trillion of industry maturities that
are due over the next three years.
In addition, our lending platform is
unique in the market and has allowed
us to support new clients throughout
the life of their loans. We are well-
positioned to take advantage of this
tremendous opportunity and be a
stable source of capital for clients.
Clear priorities
Our priorities for 2015 reflect our
mission. To help our clients succeed
and make a difference in our com-
munities, we will continue to invest
in our business and hire the best
people in our markets. We will focus
on delivering individual customer
solutions to build deeper, stronger
relationships. We will continue to
safeguard our clients and our busi-
ness by maintaining our fortress con-
trols. This means understanding all
risks in our business and investing
in process improvements as needed.
I am incredibly proud of the entire
Commercial Banking team. Because
of its leadership and fortitude, we've
been able to successfully adapt to
the evolving regulatory environment
and remain disciplined in a competi-
tive market. 2014 showed the real
power of our franchise, and I am
excited about what we will achieve
this year and beyond for our share-
holders, clients and employees.
Dinne
Douglas Petno
CEO, Commercial Banking
CIB partnership has resulted in differentiated client coverage
1 Represents the total revenue related to investment banking products sold to CB clients
2 Commercial Banking clients and prospects jointly covered by the CIB
2013
95%
2008 20095 20105 2011
Peers 1.4% 2.2% 2.0% 0.8%
1 Represents the proportion of retail open-ended mutual fund assets that are ranked above peer category median
29%
29%
2009
$8.0
29%
31%
$9.0
$9.6
$10.0
$11.4
Pre-tax income
28%
$12.0
Global Wealth Management (GWM)
Global Investment Management (GIM)
Pre-tax Income
($ in billions)
56
($ in billions)
Revenue
We continue to invest in bringing on
world-class talent. Over the last five
years, we hired and trained hundreds
of new advisors. Expanding our cli-
ent coverage teams enables us to help
more clients around the world who
need investment expertise and long-
Our success would not be possible
without continued reinvestment in
the business both to expand our
offering and to maintain a strong con-
trol and risk environment. Our long-
term commitment to building the best
possible franchise means that we
always are focused on ways to improve
our business across all market cycles.
Adding top advisors to cover more
clients
Continuously reinvesting for the
future
ment to GWM, more than 50% of
our assets come from clients with at
least $100 million entrusted with
the firm. All of our clients, no matter
the size of their relationship with
us, choose to work with J.P. Morgan
because we take the time to get to
know their personal needs, and we
can help them across both sides of
their balance sheet.
It is an equally powerful story in
GWM, where revenue and pre-tax
income have increased at a CAGR of
8% and 7%, respectively, since 2009.
We continue to differentiate our-
selves in the marketplace as the firm
that can offer unparalleled insights
to help clients fulfill their vision. As
an example of our clients' commit-
GWM
Pre-tax margin
26%
$3.3
$3.5
7.6%
+2.0%
5.7%
Industry average
J.P. Morgan
SmartRetirement 2035 (S&P Target Date 2035)¹
In 2015, we are faced with global cen-
tral bank policy divergence, regula-
tory changes, complex geopolitical
issues and increasing market volatil-
ity. Given this landscape, investors are
looking for solutions providers who
can act quickly and offer go-anywhere
High-growth multi-asset solutions
platform
We are one of the leading alternatives
providers, with $214 billion in alterna-
tives/absolute return client assets
across our client franchises. That
places us ahead of nearly all of the
largest players in this space. Much of
our growth is due to our focus on
innovating to meet client needs. In
2014, we introduced more than 30
new strategies focusing on timely
themes that include private technol-
ogy late-stage equity, emerging
markets growth equity, specialty
insurance and credit, liquid alterna-
tives and infrastructure.
Leader in Alternatives
term solutions. We have nearly
20,000 people serving clients in more
than 130 countries across the globe,
including 60% of the world's largest
pension funds, sovereign wealth
funds and central banks; more than
3,000 global financial intermediaries;
and many of the world's wealthiest
individuals and families.
2014
2013
2012
2011
2010
2009
2014
2013
2012
2011
100%
$2.5
$2.4
$2.8
$2.8
Since 2009, GIM has a compound
annual growth rate (CAGR) of 9% for
revenue and 7% for pre-tax earnings.
That success is due, in large part, to
our core strengths of being insight
driven, taking a long-term approach
and leveraging our global talent. Our
retail funds business has had impres-
sive asset gains, with five-year growth
of 120%. Our institutional business is
growing faster than the market in all
client channels - insurance, defined
contribution, U.S. endowments and
foundations, sovereign wealth funds
and defined benefit.
GIM
2010
To enhance our long-standing indus-
try leadership positions, we are adding
specialized bankers and underwriters
in many key industries such as tech-
nology, healthcare, and food and agri-
culture. Industry specialization allows
us to better deliver client-specific solu-
tions, manage industry risks and dem-
onstrate continuity across the industry
life cycle. We see real opportunities to
expand our relationships in these key
industries and have positioned our
teams to best serve these markets.
We also have achieved 23 consecu-
tive quarters of positive long-term
AUM flows, a milestone that few, if
any, of our competitors can match.
Our active equity mutual fund flows
ranked #2 in the industry in 2014,
marking our third consecutive year
ranking in the top three. In fixed
income, we ranked #4 in long-term
active mutual fund AUM flows, and,
importantly, we are the only firm
that ranked in the top four in each
of the past five years.
Creating strong financial
performance for shareholders
We are proud of being able to deliver
such impactful results to our clients
while, at the same time, delivering
first-rate financial performance to our
shareholders. In 2014, we achieved
revenue growth of 5%, pre-tax income
growth of 5%, pre-tax margin of 29%
and return on equity of 23%.
Within the business, each of our
client franchises - Global Investment
Management (GIM) and Global
Wealth Management (GWM) - con-
tinues to deliver impressive growth.
In 2014, both businesses achieved
record annual revenue and strong
$1.7
In 2014, we continued to pursue our
market expansion strategy in the
United States, increasing our foot-
print to 34 new markets, where we
served nearly 1,700 clients and gener-
ated $327 million in revenue. We are
on our way to reaching our long-term
revenue target of $1 billion from
these expansion markets.
pre-tax earnings growth. Given
the long-term approach we take to
running our business, we are even
prouder of our sustained perfor-
mance over the past five years.
$1.6
More and more of our Middle Market
Banking clients expect their interna-
tional activity to increase and be a
meaningful percentage of total sales
in the next few years. Our Interna-
tional Banking team is well-positioned
to help these clients grow and operate
in overseas markets. We've added
dedicated resources in 14 key interna-
tional locations and have access to
JPMorgan Chase's international foot-
print in 60 countries.
$2.0
$2.0
2 Represents the proportion of GIM assets in mutual funds, commingled funds and segregated portfolios that are exceeding
(net of management fees) their respective official benchmark. Excludes private equity, real assets and other longer-dated
or closed-end investment strategies
For footnoted information, refer to slides 23 and 24 in the 2015 Asset Management Investor Day presentation, which is
available on JPMorgan Chase & Co.'s website at http://investor.shareholder.com/jpmorganchase/presentations.cfm, under the
heading JPMorgan Chase 2015 Investor Day, Asset Management, and on Form 8-K as furnished to the SEC on February 24,
2015, which is available on the SEC's website at www.sec.gov.
~3,700
Joint CB-CIB client coverage² CAGR: 7%
~2,500
$3.0
Commercial Banking Gross Investment Banking Revenue¹
($ in billions)
IB revenue CAGR: 13%
55
0.94
$
3,809.4
3,822.2
3,782.4
3,814.9
3,763.5
3,797.5
3.96
3.98
$
17,370
4.50
4.48
5.22
5.20
$
4.39
4.35
5.29
$
5.34
$
18,976 $
7,489
3,900.4
26,139
32,931
61,196
62,911
64,729
$ 94,205 $ 96,606 $ 97,031 $ 97,234 $ 102,694
61,274
70,467
2010
2011
2012
2013
2014
Tier 1 capital ratio (d)
Common equity tier 1 ("CET1") capital ratio(d)
High quality liquid assets ("HQLA") (in billions) (c)
32,302
21,284 $
34,323
3,139
7,773
7,633
7,991
17,923 $
21,762 $
$
8,030
24,859
26,749
28,917
25,914
29,792
16,639
7,574
3,385
225
41,498
3,956.3
3,910.3
3,976.9
44.69
40.81
38.75
Loans-to-deposits ratio
33.69
30.18
1.58
1.44
1.20
1.00
0.20
10%
9%
11%
11%
10%
13
11
15
15
15
0.89
65
0.85
0.86
46.59
3,920.3
51.27
57.07
$ 232,472 $ 219,657 $
3,714.8
3,756.1
167,260 $ 125,442 $
3,804.0
165,875
3,772.7
0.75
$
63.49 $
58.55
$
46.49 $
48.36
$
48.20
52.97
44.20
30.83
27.85
35.16
62.58
58.48
43.97
33.25
42.42
53.25
Overhead ratio
105
Return on common equity ("ROE")
Launched the Financial Solutions
Lab, a $30 million, five-year
initiative to identify, test and
expand promising innovations to
help Americans increase savings,
improve credit and build assets.
The first Lab competition focuses
on supporting solutions to help
consumers manage their house-
hold finances.
Strengthening financial
capability
Awarded $3 million to support
small businesses making a posi-
tive impact in communities across
the United States through our Mis-
sion Main Street Grants® program.
Launched Small Business Forward,
a $30 million, five-year commit-
ment to support small business
clusters that provide comprehen-
sive support services to entrepre-
neurs (see previous page).
Provided $19 billion in new credit
to small businesses across the
United States and was recognized
as the #1 lender by units to
women- and minority-owned busi-
nesses for the third consecutive
year by the U.S. Small Business
Administration.
Supporting small business
development
.
•
Committed $35 million over two
years to support and expand
proven financial capability pro-
grams with nonprofits globally,
investing in the development of
technology-driven products and
services designed to meet con-
sumer needs, the infrastructure
to expand the availability of these
products and services, and the
research to evaluate and share
best practices with the field.
•
Awarded more than 750 newly
renovated, mortgage-free
homes worth over $125 million
to veterans and their families
since 2010.
73
Exceeded the first-year goal of
the firm's $20 million, five-year
commitment by deploying $8
million to help U.S. military vet-
erans and their families develop
in-demand job skills, retain qual-
ity employment, increase college
graduation rates and connect to
stable housing opportunities.
by RAND Corporation to capture
the lessons and experiences
from 100,000 Jobs Mission com-
panies on integrating veterans
into the private sector workforce.
Supported research conducted
Continued our leadership of
the 100,000 Jobs Mission, a
coalition of employers formed
in 2011 that collectively hired
more than 217,000 U.S. veter-
ans and military spouses by
the end of 2014 and raised its
hiring goal to 300,000 hires.
From 2011 through March
2015, JPMorgan Chase has
hired nearly 8,700 veterans.
Honoring U.S. military and
veterans
volunteer service by JPMorgan
Chase employees globally and
provided $3.3 million of technical
assistance to nonprofits through
Technology for Social Good, an
initiative utilizing our employees'
skills to develop technology
solutions for the social sector.
•
Exceeded 560,000 hours of
•
•
170
Management's discussion and analysis:
63 Five-Year Stock Performance
Five-Year Summary of Consolidated Financial Highlights Audited financial statements:
62
Financial:
Table of contents
engage a group of external
stakeholders in a dialogue
focused on sharing perspectives
and priorities to help us enhance
our approach to human rights.
•
Collaborated with Ceres to
Convened senior business lead-
ers and leading national policy
groups to foster open conversa-
tions about Chase products,
policies and public policy mat-
ters that impact, in particular,
low- and moderate-income com-
munities, communities of color
and people with disabilities.
Increasing transparency with
stakeholders
Invested $5 million through a
new joint investment with the
U.K. government in Novastar
Ventures to develop early-stage
businesses that provide essential
basic services to underserved
communities in East Africa.
Announced the first investments
through the Global Health
Investment Fund, an innovative
financing vehicle structured by
JPMorgan Chase and the Bill &
Melinda Gates Foundation, to
support the final development
and distribution of a new treat-
ment for cholera and a powerful
diagnostic for tuberculosis.
Provided founding sponsorship
of NatureVest, an initiative of
The Nature Conservancy to
attract investment capital to
conservation.
billion in green bonds - debt
issuances where proceeds are
directed toward environmentally
beneficial or climate-friendly
purposes in 2014.
Underwrote more than $2.2
investment
Promoting sustainable
Released an Environmental and
Social Policy Framework, after
extensive engagement with exter-
nal stakeholders, to communicate
our approach to environmental
and social risks in our business.
of cities (see previous page).
Expanded the impact of the
Global Cities Initiative beyond the
United States and assessed the
global competitiveness of Euro-
pean and Asian cities, convened
leaders from around the world
and broadened the reach of the
Global Cities Exchange network
•
with employers to articulate demand in growing
sectors and training workers in those high-
demand areas. Here are some examples:
the world that demonstrate success working
In December 2013, we launched New Skills at
Work, a $250 million, five-year workforce readi-
ness initiative to close skills gaps in sectors
where employers struggle to fill vacancies and
to help job seekers access the education and
training required for these positions. A key
component of the program is focused on
research that provides actionable data to better
understand the dynamics of labor markets.
Based on those findings, we directed grants to
support innovative nonprofit programs around
New Skills at Work
Detroit's recovery will take time, but we are
excited by the progress we have seen so far.
We're in the city for the long term, and we will
continue to learn and adapt as we work with our
partners to help tackle Detroit's challenges.
with local nonprofits to help Detroit's vibrant
small businesses access the resources and
expertise needed to get their businesses off
the ground.
Small Business Growth: We are partnering
Workforce Readiness: We are helping the city
strengthen its workforce system, build part-
nerships between employers and training
programs, and give residents access to train-
ing in the skills employers are seeking.
•
Stronger Neighborhoods: Our support of the
Detroit Land Bank Authority and our innova-
tive partnership with a local community bank
to provide rehabilitation loan financing are
accelerating the city's ambitious efforts to
reduce blight and stabilize neighborhoods.
Community Development: We provided $40
•
•
.
•
In 2014, JPMorgan Chase launched a $100 million,
five-year commitment to support and accelerate
the dynamic recovery that is underway in Detroit:
JPMorgan Chase has roots in Detroit going back
to the 1930s, supporting our clients and the com-
munity through the investments, loans and other
services that are core to our business. And while
we recognize that the city's challenges remain
significant, JPMorgan Chase believes that Detroit
has the ingredients and intrinsic strengths to
rebuild a vibrant, modern economy.
Invested in Detroit
million in responsive, long-term investment
capital to two leading community develop-
ment financial institutions to finance vital
projects that often lack access to traditional
sources of capital.
In Houston, we co-chaired a task force com-
posed of businesses, training programs and
educational institutions that developed
UpSkill Houston, a five-year plan to raise
awareness of middle-skill job opportunities,
increase access to technical education and
training, and improve the alignment between
employers and education/training providers.
In Europe, we provided data-driven, country-
specific analyses that map the latest employ-
ment trends and identify barriers to full and
inclusive employment in the United Kingdom,
Germany, Spain and France. In conjunction
with U.K.-based Institute for Public Policy
Research, we released a comprehensive
review of European jobs and skills.
In New York City, we published a report that
identified high-growth employment sectors
for middle-skill jobs and outlined recommen-
dations to address the skills gaps impeding
employment in these industries. We sup-
ported an innovative partnership among a
large employer, a social service organization
and a community college that helps young
adults in a low-income community acquire the
credentials needed to secure a job in the
expanding healthcare sector.
•
•
60
Expanded The Fellowship Initia-
tive, a JPMorgan Chase college-
access program for young men of
color that provides academic,
leadership and experiential learn-
ing opportunities for 120 student
Fellows in New York, Chicago and
Los Angeles to develop the knowl-
edge, skills and networks needed
to complete high school and
succeed in college and beyond.
Committed $5 million over two
years to help underserved youth
across the United States obtain
the skills necessary to build last-
ing careers and partnered with
other organizations to create
almost 50,000 summer jobs for
teens and learning opportunities
for more than 54,000 young
people in 14 cities. In 2014, we
released a report highlighting
best practices from our network
of nonprofit partners and identi-
fying opportunities to advance
summer youth programs.
Implemented year one of the
firm's New Skills at Work pro-
gram, a $250 million, five-year
initiative to strengthen local
workforce systems by providing
real-time data and supporting
partners to align training with
employer and job seeker needs
(see previous page).
Provided $2.6 billion to low- and
moderate-income communities
through our community devel-
opment lending and equity
investments to build or preserve
35,100 units of affordable hous-
ing, serve 5,000 students, create
nearly 2,200 manufacturing jobs
and serve 380,000 patients at
healthcare facilities.
Developing local economies
and communities
2014 HIGHLIGHTS AND ACCOMPLISHMENTS
59
Small Business Forward supports nonprofits
around the world that provide small business clus-
ters with the critical resources they need to suc-
ceed. By helping regional economies build on their
core assets to develop thriving enterprises, we are
strengthening communities across the globe.
We know that having a good business idea is
only part of what it takes for entrepreneurs to
succeed. They also need access to investors,
training, facilities, customers and export oppor-
tunities. Research has shown that these sup-
ports become even more effective when they
target clusters of small businesses working in
the same sector and geography. According to a
study conducted by the Initiative for a Competi-
tive Inner City and supported by JPMorgan
Chase, businesses in well-established clusters
outpaced overall regional growth by more than
300% between 2003 and 2011.
Small businesses act as vital engines driving job
creation and economic development, but many
entrepreneurs lack access to the resources
needed for growth. In 2014, JPMorgan Chase
launched Small Business Forward, a $30 million,
five-year initiative to catalyze small business
development in cities around the world.
Small Business Forward
To transform knowledge about global trade and
investment into local action, GCI launched the
Global Cities Exchange (GCX) - an academy for
cities seeking to develop and implement action-
able global strategies. By the end of 2014, GCX
had enrolled 28 cities, of which 12 had com-
pleted export strategies, and six were working
on FDI strategies.
Supporting this new research, GCI held high-
profile convenings around the world that
brought together leaders from business, govern-
ment and nonprofits to explore best practices
and catalyze local action. GCI held meetings in
Hong Kong, London, Louisville-Lexington,
Munich, Phoenix and Seattle - each of which
attracted hundreds of participants interested in
understanding how their metropolitan area was
developing trade and investment strategies.
In 2014, GCI introduced innovative research,
including an analysis of the role foreign direct
investment (FDI) plays in rebuilding metro econ-
omies, a report on the economic contributions
of foreign students to U.S. cities, an analysis of
the changing patterns of London's exports, and
research on the global competitiveness of
Munich, Hong Kong and Mumbai.
The Global Cities Initiative (GCI), a joint project
launched by the Brookings Institution and
JPMorgan Chase in 2012, equips metropolitan
leaders with the data, policy ideas and networks
needed to support the economic growth of met-
ropolitan regions through trade and investment.
Global Cities Initiative
Management's Report on Internal Control Over
Financial Reporting
171
Report of Independent Registered Public Accounting
Firm
172
Total net revenue
Selected income statement data
(in millions, except per share, ratio, headcount data and where otherwise noted)
As of or for the year ended December 31,
(unaudited)
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS
Financial
52
Total noninterest expense
61
Forward-Looking Statements
Nonexchange-Traded Commodity Derivative Contracts
at Fair Value
169
168
166 Accounting and Reporting Developments
Critical Accounting Estimates Used by the Firm
161
156 Liquidity Risk Management
JPMorgan Chase & Co./2014 Annual Report
Pre-provision profit
Provision for credit losses
Income before income tax expense
Selected ratios and metrics
Cash dividends declared per share
Tangible book value per share (“TBVPS")(b)
Book value per share
Close
Low
Share price(a)
Common shares at period-end
Market capitalization
Market and per common share data
Diluted
Basic
Average shares:
Diluted
Basic
Net income:
Earnings per share data
Net income
Income tax expense
Capital Management
Return on tangible common equity ("ROTCE")(b)
Return on assets ("ROA").
146
145
67
77
Off-Balance Sheet Arrangements and Contractual Cash
Obligations
74
72 Consolidated Balance Sheets Analysis
68 Consolidated Results of Operations
Executive Overview
65
76
Introduction
Glossary of Terms
309
Selected Quarterly Financial Data
307
Supplementary information:
Notes to Consolidated Financial Statements
177
Consolidated Financial Statements
64
Consolidated Cash Flows Analysis
Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures
Fiduciary Risk Management
145
Legal Risk Management & Compliance Risk
Management
144
Operational Risk Management
141
Principal Risk Management
140
Model Risk Management
139
Country Risk Management
137
Market Risk Management
131
Credit Risk Management
110
Enterprise-wide Risk Management
Business Segment Results
79
Reputation Risk Management
67
High
60
(2)%
Financial performance of JPMorgan Chase
This executive overview of the MD&A highlights selected
information and may not contain all of the information that is
important to readers of this Annual Report. For a complete
description of events, trends and uncertainties, as well as the
enterprise risks and critical accounting estimates affecting
the Firm and its various lines of business, this Annual Report
should be read in its entirety.
EXECUTIVE OVERVIEW
JPMorgan Chase & Co./2014 Annual Report
64
JPMorgan Chase's activities are organized, for management
reporting purposes, into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Corporate & Investment Bank (“CIB”),
Commercial Banking (“CB"), and Asset Management ("AM")
segments comprise the Firm's wholesale businesses. For a
description of the Firm's business segments, and the
products and services they provide to their respective client
bases refer to Business Segment Results on pages 79-104,
and Note 33.
representative offices and subsidiary foreign banks. One of
the Firm's principal operating subsidiaries in the U.K. is J.P.
Morgan Securities plc, a subsidiary of JPMorgan Chase
Bank, N.A.
JPMorgan Chase's principal bank subsidiaries are JPMorgan
Chase Bank, National Association (“JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
23 states, and Chase Bank USA, National Association
("Chase Bank USA, N.A."), a national banking association
that is the Firm's credit card-issuing bank. JPMorgan
Chase's principal nonbank subsidiary is J.P. Morgan
Securities LLC ("JPMorgan Securities"), the Firm's U.S.
investment banking firm. The bank and nonbank
subsidiaries of JPMorgan Chase operate nationally as well
as through overseas branches and subsidiaries,
JPMorgan Chase & Co., a financial holding company
incorporated under Delaware law in 1968, is a leading
global financial services firm and one of the largest banking
institutions in the U.S., with operations worldwide; the Firm
had $2.6 trillion in assets and $232.1 billion in
stockholders' equity as of December 31, 2014. The Firm is
a leader in investment banking, financial services for
consumers and small businesses, commercial banking,
financial transaction processing and asset management.
Under the J.P. Morgan and Chase brands, the Firm serves
millions of customers in the U.S. and many of the world's
most prominent corporate, institutional and government
clients.
INTRODUCTION
Year ended December 31,
This section of JPMorgan Chase's Annual Report for the year ended December 31, 2014 ("Annual Report"), provides Management's
discussion and analysis ("MD&A”) of the financial condition and results of operations of JPMorgan Chase. See the Glossary of Terms
on pages 309-313 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual Report contains
statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause the Firm's actual results to differ materially from those set forth in such
forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements on page
169) and in JPMorgan Chase's Annual Report on Form 10-K for the year ended December 31, 2014 ("2014 Form 10-K"), in Part I,
Item 1A: Risk factors; reference is hereby made to both.
63
63
JPMorgan Chase & Co./2014 Annual Report
2014
2013
2012
2011
2010
2009
S&P 500
S&P Financial
Management's discussion and analysis
(in millions, except per share
data and ratios)
2014
Return on common equity
22
4.35
5.29
Diluted earnings per share
21
17,923
21,762
Net income
NM
225
3,139
Provision for credit losses
(13)
26
26,139
32,931
Pre-provision profit
70,467
$ 96,606
$ 94,205
61,274
Total noninterest expense
Total net revenue
Selected income statement data
Change
2013
KBW Bank
205.07
180.39
136.27
S&P Financial Index
KBW Bank Index
JPMorgan Chase
December 31,
(in dollars)
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced U.S. equity benchmark consisting of leading companies from different economic
sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are publicly traded in the U.S. and is
composed of 24 leading national money center and regional banks and thrifts. The S&P Financial Index is an index of 85
financial companies, all of which are components of the S&P 500. The Firm is a component of all three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2009, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
FIVE-YEAR STOCK PERFORMANCE
JPMorgan Chase & Co./2014 Annual Report
65
62
62
(c) HQLA represents the Firm's estimate of the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule ("U.S. LCR") as of December 31, 2014, and under
the Basel III liquidity coverage ratio ("Basel III LCR") for prior periods. The Firm did not begin estimating HQLA until December 31, 2012. For additional information, see HQLA on page 157.
(d) Basel III Transitional rules became effective on January 1, 2014; prior period data is based on Basel I rules. As of December 31, 2014 the ratios presented are calculated under the Basel III
Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital
under Basel I was a non-GAAP financial measure. See Regulatory capital on pages 146-153 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
(e) Included held-to-maturity securities of $49.3 billion and $24.0 billion at December 31, 2014 and 2013, respectively. Held-to-maturity balances for the other periods were not material.
(f) Included unsecured long-term debt of $207.5 billion, $199.4 billion, $200.6 billion, $231.3 billion and $238.2 billion respectively, as of December 31, of each year presented.
(g) Excludes the impact of residential real estate purchased credit-impaired ("PCI") loans. For further discussion, see Allowance for credit losses on pages 128-130.
(b) TBVPS and ROTCE are non-GAAP financial measures. TBVPS represents the Firm's tangible common equity divided by common shares at period-end. ROTCE measures the Firm's annualized
earnings as a percentage of tangible common equity. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages
77-78.
(a) Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange. JPMorgan Chase's common stock is also listed and traded on the London Stock Exchange and
the Tokyo Stock Exchange.
23,673
3.39%
1.78%
1.26%
16,682
4.46
3.35
11,315 $
12,237
4.71%
32,983
28,282 $
3.84%
3.02%
2.43
11,906 $
9,063
$
22,604
S&P 500 Index
10%
250
150
117.48
115.06
100.00
186.98
162.34
119.73
$ 167.48
189.69
173.45
$ 152.42
$ 111.49
125.91
94.75
93.00
112.13
100.00
2014
2013
2012
2011
$ 81.87
2010
$ 102.30
123.36
100.00
2009
$ 100.00
December 31,
(in dollars)
JPMorgan Chase
0
50
50
100
200
$
9%
Tier 1 capital
5,205
3,563
income
Mortgage fees and related
2,110
667
77
Securities gains
13,868
15,106
15,931
Card income
commissions
Asset management,
6,196
5,945
5,801
Lending- and deposit-related
fees
5,808
5,536
10,141
10,531
Principal transactions (a)
$
6,354
administration and
6,020
6,022
Other income (b)
JPMorgan Chase & Co./2014 Annual Report
88
68
Card income remained relatively flat but included higher net
interchange income on credit and debit cards due to growth
in sales volume, offset by higher amortization of new
account origination costs. For additional information on
credit card income, see CCB segment results on
pages 81-91.
Mortgage fees and related income decreased compared
with the prior year. The decrease was predominantly due to
lower net production revenue driven by lower volumes due
to higher levels of mortgage interest rates, and tighter
margins. The decline in net production revenue was
partially offset by a lower loss on the risk management of
mortgage servicing rights ("MSRS"). For additional
information, see the segment discussion of CCB on pages
85-87 and Note 17.
Securities gains decreased compared with the prior year,
reflecting lower repositioning activity related to the Firm's
investment securities portfolio. For additional information,
see the Corporate segment discussion on pages 103-104
and Note 12.
Asset management, administration and commissions
revenue increased compared with the prior year, reflecting
higher asset management fees driven by net client inflows
and the effect of higher market levels in AM and CCB. The
increase was offset partially by lower commissions and
other fee revenue in CCB as a result of the exit of a non-core
product in the second half of 2013. For additional
information on these fees and commissions, see the
segment discussions of CCB on pages 81-91, AM on pages
100-102, and Note 7.
Lending- and deposit-related fees decreased compared with
the prior year, reflecting the impact of business
simplification initiatives and lower trade finance revenue in
CIB. For additional information on lending- and deposit-
related fees, see the segment results for CCB on pages 81-
91, CIB on pages 92-96 and CB on pages 97-99.
Principal transactions revenue, which consists of revenue
primarily from the Firm's client-driven market-making and
private equity investing activities, increased compared with
the prior year as the prior year included a $1.5 billion loss
related to the implementation of the FVA framework for OTC
derivatives and structured notes. The increase was also due
to higher private equity gains as a result of higher net gains
on sales. The increase was partially offset by lower fixed
income markets revenue in CIB, primarily driven by credit-
related and rates products, as well as the impact of business
simplification initiatives. For additional information on
principal transactions revenue, see CIB and Corporate
segment results on pages 92-96 and pages 103-104,
respectively, and Note 7.
banking fees, see CIB segment results on pages 92-96, CB
segment results on pages 97-99, and Note 7.
Total net revenue for 2014 was down by $2.4 billion, or
2%, compared with the prior year, predominantly due to
lower mortgage fees and related income, and lower other
income. The decrease was partially offset by higher asset
management, administration and commissions revenue.
Investment banking fees increased compared with the prior
year, due to higher advisory and equity underwriting fees,
largely offset by lower debt underwriting fees. The increase
in advisory fees was driven by the combined impact of a
greater share of fees for completed transactions, and
growth in industry-wide fee levels. The increase in equity
underwriting fees was driven by higher industry-wide
issuance. The decrease in debt underwriting fees was
primarily related to lower bond underwriting compared with
a stronger prior year, and lower loan syndication fees on
lower industry-wide fee levels. Investment banking fee
share and industry-wide data are sourced from Dealogic, an
external vendor. For additional information on investment
2014 compared with 2013
(b) Included operating lease income of $1.7 billion, $1.5 billion and $1.3
billion for the years ended December 31, 2014, 2013 and 2012,
respectively.
(a) Included funding valuation adjustments (("FVA") effective 2013)) and
debit valuation adjustments ("DVA") on over-the-counter ("OTC")
derivatives and structured notes, measured at fair value. FVA and DVA
gains/(losses) were $468 million and $(1.9) billion for the years
ended December 31, 2014 and 2013, respectively. DVA losses were
($930) million for the year ended December 31, 2012.
Total net revenue
Net interest income
8,687
5,658
4,258
52,121
44,910
96,606 $ 97,031
$ 94,205 $
43,319
43,634
53,287
50,571
Noninterest revenue
3,847
2,106
$ 6,542 $
Investment banking fees
2013
2014
The following forward-looking statements are based on the
current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause the
Firm's actual results to differ materially from those set forth
in such forward-looking statements. See Forward-Looking
Statements on page 169 and the Risk Factors section on
pages 8-17.
Business outlook
Corporate net income was $864 million, an increase
compared with a loss in the prior year. The current year
included $821 million of legal expense, compared with
$10.2 billion of legal expense, which included reserves for
litigation and regulatory proceedings, in the prior year.
Asset Management net income was $2.2 billion, an
increase of 3% from the prior year, reflecting higher net
revenue and lower provision for credit losses,
predominantly offset by higher noninterest expense.
Noninterest revenue increased from the prior year, due to
net client inflows and the effect of higher market levels,
partially offset by lower valuations of seed capital
investments. Noninterest expense increased from the prior
year, as the business continues to invest in both
infrastructure and controls.
Corporate & Investment Bank net income was $6.9 billion,
a decrease of 22% compared with the prior year, primarily
reflecting lower revenue as well as higher noninterest
expense. Banking revenues decreased from the prior year
primarily due to lower Lending revenues, driven by mark to
market losses on securities received from restructured
loans, compared to gains in the prior year, partially offset
by higher investment banking fees. Markets & Investor
Services revenues increased slightly from the prior year as
2013 included losses from FVA/DVA, primarily driven by
FVA implementation, while the current year reflected lower
Fixed Income Markets revenue. Credit Adjustments & Other
revenue was a loss of $272 million. Noninterest expense
increased compared with the prior year driven by higher
noncompensation expense, predominantly due to higher
legal expense and investment in controls. This was partially
offset by lower performance-based compensation expense.
Commercial Banking net income was $2.6 billion, flat
compared with the prior year, reflecting lower net revenue
and higher noninterest expense, predominantly offset by a
lower provision for credit losses. Net interest income
decreased from the prior year, reflecting yield compression,
the absence of proceeds received in the prior year from a
lending-related workout, and lower purchase discounts
recognized on loan repayments, partially offset by higher
loan balances. Noninterest revenue increased, reflecting
higher investment banking revenue, largely offset by
business simplification and lower lending fees. Noninterest
expense increased from the prior year, largely reflecting
higher investments in controls.
and higher loan balances in Credit Card. Noninterest
revenue decreased, driven by lower mortgage fees and
related income. The provision for credit losses was $3.5
billion, compared with $335 million in the prior year. The
current-year provision reflected a $1.3 billion reduction in
the allowance for loan losses and total net charge-offs of
$4.8 billion. Noninterest expense decreased from the prior
year, driven by lower Mortgage Banking expense.
Management's discussion and analysis
65
The discussion that follows highlights the performance of
each business segment compared with the prior year and
presents results on a managed basis. For more information
about managed basis, as well as other non-GAAP financial
measures used by management to evaluate the
performance of each line of business, see pages 77-78.
Consumer & Community Banking net income was $9.2
billion, a decrease of 17% compared with the prior year,
due to higher provision for credit losses and lower net
revenue, partially offset by lower noninterest expense. Net
interest income decreased, driven by spread compression
and lower mortgage warehouse balances, largely offset by
higher deposit balances in Consumer & Business Banking
During 2014, the Firm continued to serve customers,
corporate clients and the communities in which it does
business. The Firm provided credit to and raised capital of
$2.1 trillion for its clients during 2014; this included $19
billion lent to U.S. small businesses and $75 billion to
nonprofit and government entities, including states,
municipalities, hospitals and universities.
The Firm's results reflected solid underlying performance
across its four major reportable business segments, with
continued strong lending and deposit growth. Consumer &
Community Banking was #1 in deposit growth for the third
consecutive year and Consumer & Business Banking within
Consumer & Community Banking was #1 in customer
satisfaction among the largest U.S. banks for the third
consecutive year as measured by The American Customer
Satisfaction Index ("ACSI"). Credit card sales volume
(excluding Commercial Card) was up 11% for the year. The
Corporate & Investment Bank maintained its #1 ranking in
Global Investment Banking Fees and moved up to a #1
ranking in Europe, Middle East and Africa (“EMEA”),
according to Dealogic. Commercial Banking loans increased
to $149 billion, an 8% increase compared with the prior
year. Commercial Banking also had record gross investment
banking revenue of $2.0 billion, up 18% compared with the
prior year. Asset Management achieved twenty-three
consecutive quarters of positive net long-term client flows
and increased average loan balances by 16% in 2014.
The Firm maintained its fortress balance sheet, ending the
year with an estimated Basel III Advanced Fully Phased-in
CET1 capital ratio of 10.2%, compared with 9.5% in the
prior year. Total deposits increased to $1.4 trillion, up 6%
from the prior year. Total stockholders' equity was $232
billion at December 31, 2014. (The Basel III Advanced Fully
Phased-in CET1 capital ratio is a non-GAAP financial
measure, which the Firm uses along with the other capital
measures, to assess and monitor its capital position. For
further discussion of the Firm's capital ratios, see
Regulatory capital on pages 146-153.)
Firmwide, net charge-offs were $4.8 billion for the year,
down $1.0 billion, or 18% from 2013. Nonperforming
assets at year-end were $8.0 billion, down $1.7 billion, or
18%.
portfolio and credit card, was 106% compared with 100%
in 2013.
JPMorgan Chase & Co./2014 Annual Report
Total firmwide allowance for credit losses was $14.8 billion
resulting in a loan loss coverage ratio of 1.55%, excluding
the purchase credit-impaired ("PCI") portfolio, compared
with 1.80% in the prior year. The Firm's allowance for loan
losses to nonperforming loans retained, excluding the PCI
The provision for credit losses increased from the prior year
as result of a lower level of benefit from reductions in the
consumer allowance for loan losses, partially offset by
lower net charge-offs. The decrease in the consumer
allowance for loan losses was predominantly the result of
continued improvement in home prices and delinquencies in
the residential real estate portfolio. The wholesale provision
reflected a continued favorable credit environment.
The increase in net income in 2014 was driven by lower
noninterest expense, largely offset by higher provision for
credit losses and lower net revenue. The decrease in
noninterest expense was driven by lower legal expense as
well as lower compensation expense.
JPMorgan Chase reported record full-year 2014 net income
of $21.8 billion, and record earnings per share of $5.29, on
net revenue of $94.2 billion. Net income increased by $3.8
billion, or 21%, compared with net income of $17.9 billion,
or $4.35 per share, in 2013. ROE for the year was 10%,
compared with 9% for the prior year.
Summary of 2014 Results
(a) Basel III Transitional rules became effective on January 1, 2014;
December 31, 2013 data is based on Basel I rules. As of December 31,
2014 the ratios presented are calculated under the Basel III Advanced
Transitional Approach. CET1 capital under Basel III replaced Tier 1
common capital under Basel I. Prior to Basel III becoming effective on
January 1, 2014, Tier 1 common capital under Basel I was a non-GAAP
financial measure. See Regulatory capital on pages 146-153 for
additional information on Basel III and non-GAAP financial measures of
regulatory capital.
11.9
11.6
10.7
10.2
CET1
Over the past few years, the Firm has been adapting to the
regulatory environment while continuing to serve its clients
and customers, invest in its businesses, and deliver strong
returns to its shareholders. The Firm's initiatives include
building a fortress control environment, de-risking and
simplification of the organization, a disciplined approach to
managing expense, evolving its capital assessment
framework as well as rigorous optimization of the Firm's
balance sheet and funding.
Capital ratios (a)
The Firm has been devoting substantial resources to
execute on its control agenda. The Oversight and Control
function, established in 2012, has been working closely and
extensively with the Firm's other control disciplines,
including Compliance, Risk Management, Legal, Internal
Audit, and other functions, to address the Firm's control-
related projects that are cross-line of business and that
have significant regulatory impact or respond to regulatory
actions. The Firm's investment in the control agenda and
investment in technology, are considered by management
to be essential to the Firm's future.
The Firm's simplification agenda, however, is more
extensive than exiting businesses, products or clients that
were non-core, not at scale or not returning the appropriate
level of return. The Firm is also focused on operational and
structural simplicity, and streamlining and centralizing
certain operational functions and processes in order to
attain more consistencies and efficiencies across the Firm.
To that end, the Firm is working on simplifying its legal
entity structure, simplifying its Global Technology function,
(in millions)
Year ended December 31,
Revenue
2012
The following section provides a comparative discussion of
JPMorgan Chase's Consolidated Results of Operations on a
reported basis for the three-year period ended December 31,
2014. Factors that relate primarily to a single business
segment are discussed in more detail within that business
segment. For a discussion of the Critical Accounting Estimates
Used by the Firm that affect the Consolidated Results of
Operations, see pages 161–165.
CONSOLIDATED RESULTS OF OPERATIONS
Management's discussion and analysis
62
67
JPMorgan Chase & Co./2014 Annual Report
Overall, the Firm expects the impact from its business
simplification initiatives will be a reduction of
approximately $1.6 billion in revenue and a corresponding
reduction of approximately $1.6 billion in expense resulting
in no meaningful impact on the Firm's 2015 anticipated net
income.
In Consumer & Business Banking within CCB, management
expects continued spread compression in the deposit
margin and a modest decline in net interest income in the
first quarter of 2015. In Mortgage Banking within CCB,
management expects quarterly servicing expense to decline
to below $500 million by the second quarter of 2015 as
default volume continues to decline. In Card Services within
CCB, management expects the revenue rate in 2015 to
remain at the low end of the target range of 12% to 12.5%.
In CIB, Markets revenue in the first quarter of 2015 will be
impacted by the Firm's business simplification initiatives
completed in 2014, resulting in a decline of approximately
$500 million, or 10%, in Markets revenue and a decline of
approximately $300 million in expense, compared to the
prior year first quarter. Based on strong performance to
date, particularly in January, management currently expects
2015 first quarter Markets revenue to be higher than the
prior year first quarter, even with the negative impact of
business simplification; however, Markets revenue actual
results will depend on performance through the remainder
of the quarter, which can be volatile.
Firmwide adjusted expense in 2015 is expected to be
approximately $57 billion, excluding Firmwide legal
expenses and foreclosure-related matters.
Management expects core loan growth of approximately
10% in 2015. The Firm continues to experience charge-offs
at levels lower than its through-the-cycle expectations; if
favorable credit trends continue, management expects the
Firm's total net charge offs could remain low, at an amount
modestly over $4 billion in 2015, and expects a reduction
in the consumer allowance for loan losses over the next two
years.
JPMorgan Chase's outlook for the full-year 2015 should be
viewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopolitical
environment, the competitive environment, client activity
levels, and regulatory and legislative developments in the
U.S. and other countries where the Firm does business. Each
of these inter-related factors will affect the performance of
the Firm and its lines of business.
2015 Business Outlook
technology programs, without increasing its expenses. As a
result, the Firm anticipates achieving a managed overhead
ratio of approximately 55% over the next several years,
including the impact of revenue growth.
The Firm expects it will continue to make appropriate
adjustments to its businesses and operations in the year
ahead in response to ongoing developments in the legal and
regulatory, as well as business and economic, environment
in which it operates. The Firm intends to take a disciplined
approach to growing revenues and controlling expenses in
light of its capital and liquidity constraints. The Firm's deep
client relationships and its investments in its businesses,
including branch optimization, new card relationships,
expansion into new markets, and hiring additional sales
staff and client advisors, are expected to generate
significant revenue growth over the next several years. At
the same time, the Firm intends to leverage its scale and
improve its operating efficiencies so that it can fund these
growth initiatives, as well as maintain its control and
Likewise, the Firm will be evolving its funding framework to
ensure it meets the current and proposed more stringent
regulatory liquidity rules, including those relating to the
availability of adequate Total Loss Absorbing Capacity
("TLAC") at G-SIB organizations. The Firm estimated that it
had, as of December 31, 2014, approximately 15%
minimum TLAC as a percentage of Basel III Advanced Fully
Phased-in RWA, excluding capital buffers currently in effect,
based on its understanding of how the Financial Stability
Board's proposal may be implemented in the U.S. While the
precise composition and calibration of TLAC, as well as the
conformance period, are yet to be defined by U.S. banking
regulators, the Firm expects the requirement will lead to
incremental debt issuance by the Firm and higher funding
costs over the next few years.
The Firm intends to balance return of capital to
shareholders with achieving higher capital ratios over time.
The Firm expects the capital ratio calculated under the
Basel III Standardized Approach to become its binding
constraint by the end of 2015, or slightly thereafter. The
Firm anticipates reaching Basel III Fully Phased-In Advanced
and Standardized CET1 ratios of approximately 11% by the
end of 2015 and is targeting a Basel III CET1 ratio of
approximately 12% by the end of 2018, assuming a 4.5%
G-SIB capital surcharge. If the Firm's G-SIB capital surcharge
is lower than 4.5%, the Firm will adjust its Basel III CET1
target accordingly.
As the Firm continues to experience an unprecedented
increase in regulation and supervision, it continues to
evolve its financial architecture to respond to this changing
landscape. In 2014, the Firm exceeded the minimum capital
levels required by the current rules and intends to continue
to build capital in response to the higher Global
Systemically Important Bank ("G-SIB") capital surcharge
proposed by U.S. banking regulators. In addition, the Firm is
adapting its capital assessment framework to review
businesses and client relationships against G-SIB and
applicable capital requirements, and imposing internal
limits on business activities to align or optimize the Firm's
balance sheet and RWA with regulatory requirements in
order to ensure that business activities generate
appropriate levels of shareholder value.
rationalizing its use of vendors, and optimizing its real
estate location strategy.
JPMorgan Chase & Co./2014 Annual Report
66
66
The Firm has substantially completed executing its business
simplification agenda. In 2013, the Firm ceased originating
student loans, exited certain high risk customers and
became more selective about on-boarding certain
customers. Following on these initiatives, in 2014, the Firm
exited several non-core credit card co-branded
relationships, sold the Retirement Plan Services business
within AM, exited certain prepaid card businesses, reduced
its offering of mortgage banking products, completed the
sale of the CIB's Global Special Opportunity Group
investment portfolio, and the sale and liquidation of a
significant part of CIB's physical commodities business. In
January 2015, the Firm completed the "spin out" of the One
Equity Partners ("OEP") private equity business (together
with a sale of a portion of the OEP portfolio to a group of
private equity firms). These actions will allow the Firm to
focus on core activities for its core clients and reduce risk to
the Firm. While it is anticipated that these exits will reduce
revenues and expenses, they are not expected to have a
meaningful impact on the Firm's profitability.
16,969
2.25%
1.80
9,706 $
5,802
0.81%
43.04
Net charge-off rate
7.6
7.1
7.1
6.8
7.0
Total capital ratio(d)
15.5
Tier 1 leverage ratio (d)
Trading assets
Securities (e)
Loans
Total assets
Deposits
1,193,593
Selected balance sheet data (period-end)
176,106
15.4
14.4
341
ΝΑ
NA
10.2%
10.7%
11.0%
15.3
10.1%
11.6
11.9
12.6
12.3
12.1
13.1
9.8%
$
Long-term debt(f)
Total stockholders' equity
211,178
232,065
168,306
175,773
195,011
200,020
204,069
212,002
256,775
249,024
267,889
276,836
930,369
1,127,806
270,653
Common stockholders' equity
183,573
1,363,427
Headcount
$
398,988
$ 374,664 $ 450,028 $ 443,963 $ 489,892
348,004
757,336
0.65%
354,003
738,418
2,415,689
371,152
733,796
2,359,141
364,793
723,720
2,265,792
316,336
692,927
2,117,605
2,573,126
522
1,287,765
$
600 $
241,359
251,196
259,940
239,515
Credit quality metrics
Allowance for credit losses
$
14,807 $
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(s)
258,753
Nonperforming assets
1.90%
1.55
74
64
57
56
61
Net charge-offs
$
7,967
$
4,759
3,425
Contractual purchases and capital expenditures
2,832
280
366
970
1,216
2,119
Equity investment commitments (f)
512
50
92
454
14,266
12,441
Obligations under affinity and co-brand programs
1,108
906
11
96
109,336
107,715
30,388
121,811 $
15,546
127,098 $
52,271
1,734,579 $
$
5,101
1,262
-
-
Total contractual cash obligations
Total off-balance sheet obligations
Other
3,283
2,303
39
-
2,402
40,993
1,722
2014 compared with 2013
Income before income tax expense $29,792
Total noninterest expense decreased by $9.2 billion, or
13%, from the prior year, driven by lower other expense (in
particular, legal expense) and lower compensation expense.
Compensation expense decreased compared with the prior
year, predominantly driven by lower headcount in CCB's
Mortgage Banking business, lower performance-based
compensation expense in CIB, and lower postretirement
benefit costs. The decrease was partially offset by
investments in the businesses, including headcount, for
controls.
Noncompensation expense decreased compared with the
prior year, due to lower other expense, predominantly
reflecting lower legal expense. Lower expense for
foreclosure-related matters and lower production and
servicing-related expense in CCB's Mortgage Banking
business, lower FDIC-related assessments, and lower
amortization expense due to the completion of the
amortization of certain intangibles, also contributed to the
decline. The decrease was offset partially by investments in
the businesses, including for controls, and costs related to
business simplification initiatives across the Firm. For a
further discussion of legal expense, see Note 31. For a
discussion of amortization of intangibles, refer to Note 17.
2013 compared with 2012
Total noninterest expense was up by $5.7 billion, or 9%,
compared with the prior year, predominantly due to higher
legal expense.
Compensation expense increased in 2013 compared with
the prior year, due to the impact of investments across the
businesses, including front office sales and support staff,
and costs related to the Firm's control agenda; these were
partially offset by lower compensation expense in CIB and
in CCB's Mortgage Banking business, reflecting the effect of
lower servicing headcount.
(b) Included FDIC-related expense of $1.0 billion, $1.5 billion and $1.7
billion for the years ended December 31, 2014, 2013 and 2012,
respectively.
10
JPMorgan Chase & Co./2014 Annual Report
Noncompensation expense increased in 2013 from the
prior year. The increase was due to higher other expense,
reflecting $11.1 billion of firmwide legal expense,
predominantly in Corporate, representing additional
reserves for several litigation and regulatory proceedings,
compared with $5.0 billion of expense in the prior year.
Investments in the businesses, higher legal-related
professional services expense, and costs related to the
Firm's control agenda also contributed to the increase. The
increase was offset partially by lower mortgage servicing
expense in CCB and lower occupancy expense for the Firm,
which predominantly reflected the absence of charges
recognized in 2012 related to vacating excess space.
Income tax expense
Year ended December 31,
(in millions, except rate)
2014
2013
70
80,818
2,622
91,423
262,888
256,739
Operating leases(e)
48,021
48,038
24,456
6,596
10,006
6,980
Contractual interest payments(d)
38,211
2,064,961 $
40,993
borrowing agreements(c)
Unsettled reverse repurchase and securities
Off-balance sheet obligations
1,853,333
7,720
8,355
1,957,246
3,216
1,962,669
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and postretirement obligations and insurance
liabilities. Prior periods were revised to conform with the current presentation.
(a) Excludes structured notes where the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return an
amount based on the performance of the structured notes.
The provision for credit losses increased by $2.9 billion
from the prior year as result of a lower benefit from
reductions in the consumer allowance for loan losses,
partially offset by lower net charge-offs. The consumer
allowance release in 2014 was primarily related to the
consumer, excluding credit card portfolio, and reflected the
continued improvement in home prices and delinquencies in
the residential real estate portfolio. The wholesale provision
reflected a continued favorable credit environment. For a
more detailed discussion of the credit portfolio and the
allowance for credit losses, see the segment discussions of
CCB on pages 81-91, CIB on pages 92-96 and CB on pages
97-99, and the Allowance for credit losses section on pages
128-130.
2013 compared with 2012
equivalent
adjustments(a)
Results
Managed Reported
basis
equivalent
adjustments (a)
2,495 $ 6,342
$
$ 3,847
2,733 $ 4,839
31,114 39,657 34,144
$61,274 $70,467 $64,729
$
Other income
Reported
Results
Managed
basis
equivalent
adjustments (a)
Reported
Results
(in millions, except ratios)
Fully taxable-
Fully taxable-
Fully taxable-
$ 2,106
Total noncompensation expense
Total noninterest expense
11,146 20,398 14,989
2,577
3,925
Wholesale
(359)
(83)
(361)
Technology, communications and
equipment
5,804
5,425
5,224
Total provision for credit losses $ 3,139 $
225 $
3,385
Professional and outside services
7,705
7,641
7,429
2014 compared with 2013
Marketing
Other(a)(b)
2,550
2,500
December 31,
Year ended
2012
2013
Effect of exchange rate
28,324
118,228
Financing activities
(150,501)
(165,636)
Investing activities
$ 36,593 $ 107,953
Operating activities
2013
Year ended December 31,
2014
Net cash provided by/(used in)
(in millions)
CONSOLIDATED CASH FLOWS ANALYSIS
Management's discussion and analysis
75
JPMorgan Chase & Co./2014 Annual Report
(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service
agreements. Excludes the benefit of noncancelable sublease rentals of $2.2 billion and $2.6 billion at December 31, 2014 and 2013, respectively.
(f) At December 31, 2014 and 2013, included unfunded commitments of $147 million and $215 million, respectively, to third-party private equity funds;
and $961 million and $1.9 billion of unfunded commitments, respectively, to other equity investments.
(d) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes where the Firm's payment obligation is
based on the performance of certain benchmarks.
(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 29.
changes on cash
9,510
81,473 $
(1,125)
Operating activities
2014
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
Management also uses certain non-GAAP financial
measures at the business-segment level, because it believes
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the particular business segment
and, therefore, facilitate a comparison of the business
segment with the performance of its competitors. Non-
GAAP financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
comparable to taxable investments and securities. This non-
GAAP financial measure allows management to assess the
comparability of revenue arising from both taxable and tax-
exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense. These adjustments have no impact on net income
as reported by the Firm as a whole or by the lines of
business.
In addition to analyzing the Firm's results on a reported
basis, management reviews the Firm's results and the
results of the lines of business on a “managed" basis, which
is a non-GAAP financial measure. The Firm's definition of
managed basis starts with the reported U.S. GAAP results
and includes certain reclassifications to present total net
revenue for the Firm (and each of the reportable business
segments) on a FTE basis. Accordingly, revenue from
investments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 172-176. That presentation, which is referred to as
"reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year to year and enables a comparison of
the Firm's performance with other companies' U.S. GAAP
financial statements.
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES
JPMorgan Chase & Co./2014 Annual Report
76
For a further discussion of the activities affecting the Firm's
cash flows, see Balance Sheet Analysis on pages 72-73.
The provision for credit losses decreased by $3.2 billion
compared with the prior year, due to a higher benefit from
reductions in the allowance for loan losses, as well as lower
net charge-offs partially due to incremental charge-offs
recorded in 2012 in accordance with regulatory guidance
on certain loans discharged under Chapter 7 bankruptcy.
The consumer allowance release in 2013 reflected the
improvement in home prices in the residential real estate
portfolio and improvement in delinquencies in the
residential real estate and credit card portfolios. The 2013
wholesale provision reflected a favorable credit
environment and stable credit quality trends.
The Firm's investing activities predominantly include loans
originated to be held for investment, the investment
securities portfolio and other short-term interest-earning
assets. Cash used in investing activities during 2014, 2013,
and 2012 resulted from increases in deposits with banks,
attributable to higher levels of excess funds; in 2014, cash
was used for growth in wholesale and consumer loans,
while in 2013 and 2012 cash used reflected growth in
wholesale loans. Partially offsetting these cash outflows in
2014 and 2013 was a net decline in securities purchased
under resale agreements due to a shift in the deployment of
the Firm's excess cash by Treasury, and a net decline in
consumer loans in 2013 and 2012 from paydowns and
portfolio runoff or liquidation of delinquent loans. In 2012,
additional cash was used for securities purchased under
resale agreements. All years reflected cash proceeds from
net maturities and sales of investment securities.
Financing activities
Investing activities
Cash provided by operating activities in 2014
predominantly resulted from net income after noncash
operating adjustments and reflected higher net proceeds
from loan securitizations and sales activities when
compared with 2013. In 2013 cash provided reflected a
decrease in trading assets from client-driven market-making
activities in CIB, resulting in lower levels of debt securities.
Cash used in 2013 for loans originated and purchased with
an initial intent to sell was slightly higher than the cash
proceeds received from sales and paydowns of loans and
reflected significantly higher levels of activities over the
prior-year period. Cash provided during 2012 resulted from
a decrease in securities borrowed reflecting a shift in the
deployment of excess cash to resale agreements as well as
lower client activity in CIB; partially offset by a decrease in
accounts payable and other liabilities predominantly due to
lower CIB client balances.
(a) Included firmwide legal expense of $2.9 billion, $11.1 billion and $5.0
billion for the years ended December 31, 2014, 2013 and 2012,
respectively.
JPMorgan Chase's operating assets and liabilities support
the Firm's capital markets and lending activities, including
the origination or purchase of loans initially designated as
held-for-sale. Operating assets and liabilities can vary
significantly in the normal course of business due to the
amount and timing of cash flows, which are affected by
client-driven and risk management activities and market
conditions. The Firm believes cash flows from operations,
available cash balances and the Firm's ability to generate
cash through short- and long-term borrowings are sufficient
to fund the Firm's operating liquidity needs.
$ (11,940) $ (13,952) $ (5,879)
1,160
$ 25,079
(119,825)
87,707
2012
272
Net decrease in cash and due
from banks
The Firm's financing activities includes cash from customer
deposits, and cash proceeds from issuing long-term debt,
and preferred and common stock. Cash provided by
financing activities in 2014 predominantly resulted from
higher consumer and wholesale deposits. The increase in
consumer deposits reflected a continuing positive growth
trend resulting from strong customer retention, maturing of
recent branch builds, and net new business. The increase in
wholesale deposits was driven by client activity and deposit
growth. Cash provided in 2013 was driven by growth in
both wholesale and consumer deposits, net proceeds from
long-term borrowings, and net issuance of preferred stock;
partially offset by a decrease in securities loaned or sold
under repurchase agreements, predominantly due to
changes in the mix of the Firm's funding sources. Cash
provided in 2012 was due to growth in both consumer and
wholesale deposits and an increase in federal funds
purchased and securities loaned or sold under repurchase
agreements due to higher secured financings of the Firm's
assets. In all periods, cash proceeds were offset by
repurchases of common stock and cash dividends on
common and preferred stock.
3,693
Occupancy
Return on common equity ("ROE")
Reported net income / Total average assets
Return on assets ("ROA")
Total noninterest expense / Total net revenue
Overhead ratio
Common stockholders' equity at period-end /
Common shares at period-end
Book value per share ("BVPS")
Calculation of certain U.S. GAAP and non-GAAP financial measures
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
(a) Predominantly recognized in CIB and CB business segments and Corporate.
65%
NM
67%
71%
NM
73%
63%
NM
65%
Overhead ratio
10,492
2,859
7,633
11,183
3,192
7,991
Net income* / Average common stockholders' equity
Return on tangible common equity ("ROTCE")
Net income* Average tangible common equity
Tangible book value per share ("TBVPS")
200,020
48,081
47,647
212,002 $
$
Dec 31,
2013
Dec 31,
2014
Year ended December 31,
Average
Period-end
Tangible book value per share
Return on tangible common equity
Tangible common equity
11,748
Add: Deferred tax liabilities(a)
Less: Goodwill
Common stockholders' equity
(in millions, except per share and ratio data)
Tangible common equity
Management's discussion and analysis
77
JPMorgan Chase & Co./2014 Annual Report
Credit Risk Management on pages 110-111, and Regulatory
capital on pages 146-153.
Additionally, certain credit and capital metrics and ratios
disclosed by the Firm are non-GAAP measures. For
additional information on these non-GAAP measures, see
Tangible common equity ("TCE”), ROTCE and TBVPS are
each non-GAAP financial measures. TCE represents the
Firm's common stockholders' equity (i.e., total stockholders'
equity less preferred stock) less goodwill and identifiable
intangible assets (other than MSRS), net of related deferred
tax liabilities. ROTCE measures the Firm's earnings as a
percentage of average TCE. TBVPS represents the Firm's TCE
at period-end divided by common shares at period-end.
TCE, ROTCE, and TBVPS are meaningful to the Firm, as well
as investors and analysts, in assessing the Firm's use of
equity.
* Represents net income applicable to common equity
Tangible common equity at period-end / Common shares at period-end
Less: Certain identifiable intangible assets
3,718
8,030
Income tax expense
45,653
743
44,910
44,016
697
43,319
44,619
985
43,634
Net interest income
54,237
2,116
Total net revenue
52,121
2,495
53,287
53,304
2,733
50,571
Total noninterest revenue
$ 6,374
2,116
$
$ 4,258
basis
Managed
55,782
2014
$ 207,400
94,205
97,923
31,776
2,859
28,917
29,106
3,192
25,914
33,510
3,718
29,792
Income before income tax expense
35,161
2,859
3,718
32,302
3,192
26,139
36,649
3,718
32,931
Pre-provision profit
99,890
2,859
97,031
99,798
3,192
96,606
29,331
3,909
2013
$ 196,409 $ 184,352
69
69
JPMorgan Chase & Co./2014 Annual Report
Net interest income decreased in 2013 compared with the
prior year, primarily reflecting the impact of the runoff of
higher yielding loans and originations of lower yielding
loans, and lower trading-related net interest income. The
decrease in net interest income was partially offset by lower
long-term debt and other funding costs. The Firm's average
interest-earning assets were $2.0 trillion in 2013, and the
net interest yield on those assets, on a FTE basis, was
2.23%, a decrease of 25 basis points from the prior year.
Other income decreased in 2013 compared with the prior
year, predominantly reflecting lower revenues from
significant items recorded in Corporate. In 2013, the Firm
recognized a $1.3 billion gain on the sale of Visa shares, a
$493 million gain from the sale of One Chase Manhattan
Plaza, and a modest loss related to the redemption of
TruPS. In 2012, the Firm recognized a $1.1 billion benefit
from the Washington Mutual bankruptcy settlement and an
$888 million extinguishment gain related to the redemption
of TruPS. The net decrease was partially offset by higher
revenue in CIB, largely from client-driven activity.
Card income increased compared with the prior year period,
driven by higher net interchange income on credit and debit
cards and higher merchant servicing revenue due to growth
in sales volume.
Mortgage fees and related income decreased in 2013
compared with 2012, reflecting lower Mortgage Banking
net production and servicing revenue. The decrease in net
production revenue was due to lower margins and volumes.
The decrease in net servicing revenue was predominantly
due to lower MSR risk management results.
Securities gains decreased compared with the prior-year
period, reflecting the results of repositioning the CIO
available-for-sale ("AFS") portfolio.
Asset management, administration and commissions
revenue increased from 2012, driven by higher investment
management fees in AM due to net client inflows, the effect
of higher market levels, and higher performance fees, and
to higher investment sales revenue in CCB.
Lending- and deposit-related fees decreased compared with
the prior year, largely due to lower deposit-related fees in
CCB, resulting from reductions in certain product and
transaction fees.
Principal transactions revenue increased compared with the
prior year, reflecting CIB's strong equity markets revenue,
partially offset by a $1.5 billion loss from implementing a
FVA framework for OTC derivatives and structured notes in
the fourth quarter of 2013, and a $452 million loss from
DVA on structured notes and derivative liabilities (compared
with a $930 million loss from DVA in the prior year). The
prior year also included a $5.8 billion loss on the synthetic
credit portfolio incurred by CIO in the six months ended
June 30, 2012; a $449 million loss on the index credit
derivative positions retained by CIO in the three months
ended September 30, 2012; and additional modest losses
incurred by CIB from the synthetic credit portfolio in the last
six months of 2012. These losses were partially offset by a
$665 million gain recognized in 2012 in Corporate,
representing the recovery on a Bear Stearns-related
subordinated loan.
Investment banking fees increased compared with the prior
year, reflecting higher equity and debt underwriting fees,
partially offset by lower advisory fees. Equity and debt
underwriting fees increased, driven by strong market
issuance and greater share of fees in equity capital markets
and loans. Advisory fees decreased, as industry-wide M&A
fee levels declined. Investment banking fee share and
industry-wide data are sourced from Dealogic, an external
vendor.
Total net revenue for 2013 was down by $425 million, or
less than 1%. The 2013 results were driven by lower
mortgage fees and related income, net interest income, and
securities gains, predominantly offset by higher principal
transactions revenue, and asset management,
administration and commissions revenue.
2013 compared with 2012
Net interest income increased slightly from the prior year,
predominantly reflecting higher yields on investment
securities, the impact of lower interest expense, and higher
average loan balances. The increase was partially offset by
lower yields on loans due to the run-off of higher-yielding
loans and new originations of lower-yielding loans, and
lower average interest-earning trading asset balances. The
Firm's average interest-earning assets were $2.0 trillion,
and the net interest yield on these assets, on a fully taxable-
equivalent ("FTE") basis, was 2.18%, a decrease of 5 basis
points from the prior year.
Other income decreased from the prior year, predominantly
as a result of the absence of two significant items recorded
in Corporate in 2013, namely: a $1.3 billion gain on the
sale of Visa shares and a $493 million gain from the sale of
One Chase Manhattan Plaza. Lower valuations of seed
capital investments in AM and losses related to the exit of
non-core portfolios in Card also contributed to the
decrease. These items were partially offset by higher auto
lease income as a result of growth in auto lease volume, and
a benefit from a tax settlement.
JPMorgan Chase & Co./2014 Annual Report
78
(c) Effective with the fourth quarter of 2014, the Firm changed the methodology it
uses to allocate preferred stock dividends to the lines of business. Prior period
amounts were revised to conform with the current allocation methodology. The
Firm's Consolidated balance sheets and consolidated results of operations were
not affected by this reporting change. For further discussion please see
Preferred stock dividend allocation reporting change on pages 79-80.
(b) For a reconciliation of net interest income on a reported and managed basis, see
reconciliation from the Firm's reported U.S. GAAP results to managed basis on
page 77.
(a) Interest includes the effect of related hedging derivatives. Taxable-equivalent
amounts are used where applicable.
Core net interest income decreased by $906 million in
2013 to $38.5 billion, and core average interest-earning
assets increased by $122.9 billion to $1.5 trillion. The
decline in net interest income in 2013 primarily reflected
the impact of the runoff of higher-yielding loans and
originations of lower-yielding loans. The decrease in net
interest income was partially offset by lower long-term debt
and other funding costs. The increase in average interest-
earning assets reflected the impact of higher deposits with
banks. The core net interest yield decreased by 31 basis
points to 2.63% in 2013, primarily reflecting the impact of
a significant increase in deposits with banks and lower loan
yields, partially offset by the impact of lower long-term debt
yields and deposit rates.
2013 compared with 2012
Core net interest income increased by $543 million in 2014
to $39.1 billion, and core average interest-earning assets
increased by $72.8 billion to $1.5 trillion. The increase in
net interest income in 2014 predominantly reflected higher
yields on investment securities, the impact of lower interest
expense, and higher average loan balances. The increase
was partially offset by lower yields on loans due to the run-
off of higher-yielding loans and new originations of lower-
yielding loans. The increase in average interest-earning
assets largely reflected the impact of higher average
balance of deposits with banks. These changes in net
interest income and interest-earning assets resulted in the
core net interest yield decreasing by 9 basis points to
2.54% for 2014.
2014 compared with 2013
Management's discussion and analysis
Provision for credit losses
Year ended December 31,
Noninterest expense
3,746
308
3,498
Total consumer
Noncompensation expense:
3,444
2,179
3,079
Credit card
2012
$30,585
$30,810
$30,160
2.94%
2013
Compensation expense
302
(1,871) $
419 $
$
Consumer, excluding credit card
(in millions)
2012
2013
2014
(in millions)
Year ended December 31,
2014
2.63%
2.54%
1.25
Core net interest income data
In addition to reviewing net interest income on a managed
basis, management also reviews core net interest income to
assess the performance of its core lending, investing
(including asset-liability management) and deposit-raising
activities. These activities exclude the impact of CIB's
market-based activities. The core data presented below are
non-GAAP financial measures due to the exclusion of CIB'S
market-based net interest income and related assets.
Management believes this exclusion provides investors and
analysts another measure by which to analyze the non-
market-related business trends of the Firm and provides a
comparable measure to other financial institutions that are
primarily focused on core lending, investing and deposit-
raising activities.
Core net interest income
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
ΝΑ
ΝΑ
ΝΑ
15%
11%
13%
ΝΑ
40.81
ΝΑ
44.69 $
2014
$
2,754
2,885
2,950
$ 160,943
2,853
2,953
166,016 $ 153,274
$
2,833
1,950
1,378
1,618
48,176
48,102
48,029
$ 149,242 $ 136,097
2012
2012
(in millions, except rates)
1.09
1.09
2.48%
2.23%
2.18%
$ 1,538,832 $1,466,013 $1,343,078
499,339
504,218
510,261
$ 2,049,093
$1,970,231 $ 1,842,417
6,223
$ 39,067 $ 38,524 $ 39,430
Year ended December 31,
interest-earning assets(c)
Core net interest yield
Net interest yield on market-based
activities (c)
Net interest yield on interest-
earning assets - managed basis
Core average interest-earning
assets
Core net interest income (a)(c)
Average interest-earning assets
Less: Average market-based
earning assets
5,492
5,552
Less: Market-based net interest
income(c)
44,619 $ 44,016 $ 45,653
$
Net interest income - managed
basis (a)(b)
2013
on core average
1,192
Income tax expense
348,004
$ 2,415,689
$2,573,126
(6)
102,950
Other assets
(26)
1,618
1,192
Other intangible assets
(23)
9,614
7,436
7
Mortgage servicing rights
48,081
47,647
Goodwill
2
14,891
15,133
Premises and equipment
8
65,160
70,079
receivable
Accrued interest and accounts
(1)
3
Total assets
Deposits
24
57,314
71,116
Derivative payables
2
80,430
81,699
instruments
Debt and equity
Trading liabilities:
8
27,994
Liabilities
30,222
15
57,848
66,344
Commercial paper
181,163
192,101
agreements
6 5
6
$ 1,363,427 $1,287,765
securities loaned or sold
under repurchase
Federal funds purchased and
Other borrowed funds
722,154
743,151
loan losses
Assets
Cash and due from banks
Deposits with banks
$ 27,831 $ 39,771
484,477
316,051
(30)%
53
Federal funds sold and
securities purchased under
resale agreements
215,803
248,116
(13)
December 31, (in millions)
Securities borrowed
111,465
(1)
Trading assets:
Debt and equity
instruments
320,013
308,905
4
Derivative receivables
78,975
65,759
$ 25,914
110,435
Change
2013
2014
Loans, net of allowance for
(16,264) (13)
(14,185)
Allowance for loan losses
20
(2)
3
738,418
757,336
Loans
354,003
Securities
8,030
7,991
Effective tax rate
27.0%
30.8%
2012
$ 28,917
7,633
26.4%
2014 compared with 2013
The decrease in the effective tax rate from the prior year
was largely attributable to the effect of the lower level of
nondeductible legal-related penalties, partially offset by
higher 2014 pretax income, in combination with changes in
the mix of income and expense subject to U.S. federal, state
and local income taxes, and lower tax benefits associated
with tax adjustments and the settlement of tax audits. For
additional information on income taxes, see Critical
Accounting Estimates Used by the Firm on pages 161-165
and Note 26.
2013 compared with 2012
The increase in the effective tax rate compared with the
prior year was predominantly due to the effect of higher
nondeductible legal-related penalties in 2013. This was
largely offset by the impact of lower pretax income, in
combination with changes in the mix of income and expense
subject to U.S. federal, state and local taxes, business tax
credits, tax benefits associated with prior year tax
adjustments and audit resolutions.
JPMorgan Chase & Co./2014 Annual Report
71
Management's discussion and analysis
CONSOLIDATED BALANCE SHEETS ANALYSIS
Selected Consolidated balance sheets data
Accounts payable and other
liabilities
110,101
194,491
71,963
3,382
50,200
47,621
Long-term debt(a)
33,982
86,620
61,468
Other(b)
3,494
1,217
1,022
6,125
Total on-balance sheet obligations
111,552
Total
After 2019
2014
2018-2019
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and other
obligations, see Note 29.
By remaining maturity at December 31,
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase's significant contractual cash
obligations at December 31, 2014. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amount
of principal at the maturity.
Contractual cash obligations
JPMorgan Chase & Co./2014 Annual Report
15,734
The Firm also acts as liquidity provider for certain municipal
bond vehicles. The Firm's obligation to perform as liquidity
provider is conditional and is limited by certain termination
events, which include bankruptcy or failure to pay by the
municipal bond issuer or credit enhancement provider, an
event of taxability on the municipal bonds or the immediate
downgrade of the municipal bond to below investment
grade. See Note 16 for additional information.
Off-balance sheet lending-related financial
instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should the
counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and
should the counterparty subsequently fail to perform
according to the terms of the contract. Most of these
commitments and guarantees expire without being drawn
or a default occurring. As a result, the total contractual
amount of these instruments is not, in the Firm's view,
representative of its actual future credit exposure or
funding requirements. For further discussion of lending-
related financial instruments, guarantees and other
commitments, and the Firm's accounting for them, see
Lending-related commitments on page 125 and Note 29.
For a discussion of liabilities associated with loan sales-and
securitization-related indemnifications, see Note 29.
1,682,308
206,954
12,860
27,833
15,734
Other borrowed funds (a)
57,848
66,344
66,344
Commercial paper
181,163
192,128
441
30
2,655
189,002
sold under repurchase agreements
Federal funds purchased and securities loaned or
1,286,587
1,361,597 $
4,160 $
3,318 $
8,200 $
1,345,919 $
Deposits (a)
On-balance sheet obligations
2016-2017
2015
(in millions)
2013
Total
Beneficial interests issued by consolidated VIES(a)
Poor's and Fitch, respectively. These liquidity commitments
support the issuance of asset-backed commercial paper by
Firm-administered consolidated SPES. In the event of a
short-term credit rating downgrade, JPMorgan Chase Bank,
N.A., absent other solutions, would be required to provide
funding to the SPE, if the commercial paper could not be
reissued as it matured. The aggregate amounts of
commercial paper outstanding held by third parties as of
December 31, 2014 and 2013, was $12.1 billion and
$15.5 billion, respectively. The aggregate amounts of
commercial paper outstanding could increase in future
periods should clients of the Firm-administered
consolidated SPES draw down on certain unfunded lending-
related commitments. These unfunded lending-related
commitments were $9.9 billion and $9.2 billion at
December 31, 2014 and 2013, respectively. The Firm could
facilitate the refinancing of some of the clients' assets in
order to reduce the funding obligation. For further
information, see the discussion of Firm-administered multi-
seller conduits in Note 16.
For certain liquidity commitments to SPES, JPMorgan Chase
Bank, N.A. could be required to provide funding if its short-
term credit rating were downgraded below specific levels,
primarily “P-1", "A-1” and “F1” for Moody's, Standard &
74
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPES be conducted at arm's length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPES
with which the Firm is involved where such investment
would violate the Firm's Code of Conduct. These rules
prohibit employees from self-dealing and acting on behalf
of the Firm in transactions with which they or their family
have any significant financial interest.
72
The increase in loans was attributable to higher consumer
and wholesale loans. The increase in consumer loans was
due to prime mortgage originations in CCB and AM, as well
as credit card, business banking and auto loan originations
in CCB, partially offset by paydowns and charge-offs or
liquidation of delinquent loans. The increase in wholesale
loans was due to a favorable credit environment throughout
2014, which drove an increase in client activity.
Loans and allowance for loan losses
The decrease was predominantly due to lower levels of non-
U.S. residential mortgage-backed securities and U.S.
Treasuries, partially offset by higher levels of obligations of
U.S. states and municipalities and U.S. residential
mortgage-backed securities. For additional information
related to securities, refer to the discussion in the Corporate
segment on pages 103-104, and Notes 3 and 12.
Securities
The increase in both receivables and payables was
predominantly due to client-driven market-making activities
in CIB, specifically in interest rate derivatives as a result of
market movements; commodity derivatives predominantly
driven by the significant decline in oil prices; and foreign
exchange derivatives reflecting the appreciation of the U.S.
dollar against certain currencies. The increases were
partially offset by a decline in equity derivatives. For
additional information, refer to Derivative contracts on
pages 125-127, and Notes 3 and 5.
The decrease in federal funds sold and securities purchased
under resale agreements was predominantly attributable to
a shift in the deployment of the Firm's excess cash by
Treasury to deposits with banks and to client activity,
including a decline in public deposits that require collateral.
Trading assets and liabilities-debt and equity instruments
The increase in trading assets and liabilities predominantly
related to client-driven market-making activities in CIB was
primarily driven by higher levels of debt securities and
trading loans. For additional information, refer to Note 3.
Trading assets and liabilities-derivative receivables and
payables
Federal funds sold and securities purchased under resale
agreements
The following is a discussion of the significant changes in
the Consolidated balance sheets from December 31, 2013.
Cash and due from banks and deposits with banks
The net increase was attributable to higher levels of excess
funds primarily as a result of growth in deposits. The Firm's
excess funds were placed with various central banks,
predominantly Federal Reserve Banks.
JPMorgan Chase's total assets and total liabilities increased
by $157.4 billion and $136.6 billion, respectively, from
December 31, 2013.
Consolidated balance sheets overview
7 %
$ 2,415,689
$2,573,126
stockholders' equity
Total liabilities and
6
10
3
6
49,617
267,889
2,204,511
211,178
232,065
Stockholders' equity
2,341,061
Total liabilities
52,362
276,836
Long-term debt
consolidated VIES
Beneficial interests issued by
6
JPMorgan Chase & Co./2014 Annual Report
The decrease in the allowance for loan losses was driven by
a reduction in the consumer allowance, predominantly as a
result of continued improvement in home prices and
delinquencies in the residential real estate portfolio. For a
more detailed discussion of the loan portfolio and the
allowance for loan losses, refer to Credit Risk Management
on pages 110-111, and Notes 3, 4, 14 and 15.
Accrued interest and accounts receivable
The increase was due to higher receivables from security
sales that did not settle, and higher client receivables
related to client-driven market-making activities in CIB.
Mortgage servicing rights
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. SPES are an important part of the financial
markets, including the mortgage- and asset-backed
securities and commercial paper markets, as they provide
market liquidity by facilitating investors' access to specific
portfolios of assets and risks. SPES may be organized as
trusts, partnerships or corporations and are typically
established for a single, discrete purpose. SPEs are not
typically operating entities and usually have a limited life
and no employees. The basic SPE structure involves a
company selling assets to the SPE; the SPE funds the
purchase of those assets by issuing securities to investors.
JPMorgan Chase uses SPEs as a source of liquidity for itself
and its clients by securitizing financial assets, and by
creating investment products for clients. The Firm is
involved with SPEs through multi-seller conduits, investor
intermediation activities, and loan securitizations. See Note
16 for further information on these types of SPES.
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such as
derivative transactions and lending-related commitments
and guarantees.
Special-purpose entities
In the normal course of business, the Firm enters into
various contractual obligations that may require future cash
payments. Certain obligations are recognized on-balance
sheet, while others are off-balance sheet under U.S. GAAP.
The Firm is involved with several types of off-balance sheet
arrangements, including through nonconsolidated special-
purpose entities ("SPES"), which are a type of VIE, and
through lending-related financial instruments (e.g.,
commitments and guarantees).
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Management's discussion and analysis
73
JPMorgan Chase & Co./2014 Annual Report
The increase was due to net income and preferred stock
issuances, partially offset by the declaration of cash
dividends on common and preferred stock, and repurchases
of common stock. For additional information on
accumulated other comprehensive income/(loss) ("AOCI”),
see Note 25; for the Firm's capital actions, see Capital
actions on page 154.
Stockholders' equity
The increase was due to net issuances, consistent with
Treasury's long-term funding plans. For additional
information on the Firm's long-term debt activities, see
Liquidity Risk Management on pages 156-160.
The increase was predominantly due to net new
consolidated credit card and municipal bond vehicles,
partially offset by a reduction in conduit commercial paper
issued to third parties and the deconsolidation of certain
mortgage securitization trusts. For further information on
Firm-sponsored VIES and loan securitization trusts, see Off-
Balance Sheet Arrangements on pages 74-75 and Note 16.
Long-term debt
Implications of a credit rating downgrade to JPMorgan Chase
Bank, N.A.
15,655
The increase in federal funds purchased and securities
loaned or sold under repurchase agreements was
predominantly attributable to higher financing of the Firm's
trading assets-debt and equity instruments. The increase
was partially offset by client activity in CIB. For additional
information on the Firm's Liquidity Risk Management, see
pages 156-160.
For additional information on MSRs, see Note 17.
The increase was attributable to higher client payables
related to client short positions, and higher payables from
security purchases that did not settle, both in CIB. The
increase was partially offset by lower legal reserves, largely
reflecting the settlement of legal and regulatory matters.
Other assets
Accounts payable and other liabilities
The decrease was driven by several factors, including lower
deferred tax assets; lower private equity investments due to
sales, partially offset by unrealized gains; and lower real
estate owned.
The increase was due to commercial paper issuances in the
wholesale markets consistent with Treasury's liquidity and
short-term funding plans and, to a lesser extent, a higher
volume of liability balances related to CIB's liquidity
management product whereby clients choose to sweep their
deposits into commercial paper. For additional information
on the Firm's other borrowed funds, see Liquidity Risk
Management on pages 156-160.
Commercial paper
Beneficial interests issued by consolidated VIES
Federal funds purchased and securities loaned or sold
under repurchase agreements
The increase was attributable to higher consumer and
wholesale deposits. The increase in consumer deposits
reflected a continuing positive growth trend, resulting from
strong customer retention, maturing of recent branch
builds, and net new business. The increase in wholesale
deposits was driven by client activity and business growth.
For more information on consumer deposits, refer to the
CCB segment discussion on pages 81-91; the Liquidity Risk
Management discussion on pages 156-160; and Notes 3
and 19. For more information on wholesale client deposits,
refer to the AM, CB and CIB segment discussions on pages
100-102, pages 97-99 and pages 92-96, respectively, and
the Liquidity Risk Management discussion on pages 156-
160.
Deposits
Year ended December 31,
(in millions)
Business segment capital allocation changes
Segment Results - Managed Basis (a)
Where business segments use services provided by support
units within the Firm, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally allocated
based on actual cost and upon usage of the services
provided. In contrast, certain other expense related to
certain corporate functions, or to certain technology and
operations, are not allocated to the business segments and
are retained in Corporate. Retained expense includes:
parent company costs that would not be incurred if the
segments were stand-alone businesses; adjustments to
align certain corporate staff, technology and operations
allocations with market prices; and other items not aligned
with a particular business segment.
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons, regulatory
capital requirements (as estimated under Basel III Advanced
Fully Phased-In) and economic risk measures. The amount
of capital assigned to each business is referred to as equity.
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital to
its lines of business and updates the equity allocations to its
lines of business as refinements are implemented. For
further information about these capital changes, see Line of
business equity on page 153.
The following table summarizes the business segment results for the periods indicated.
Expense allocation
Includes:
=
The following chart depicts how preferred stock dividends
were allocated to the business segments before and after
the aforementioned methodology change.
Segment income statement
Previous methodology
Noninterest revenue
Net interest income
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Preferred stock dividends (pretax)
Provision for credit losses
Noninterest expense
Income tax expense
Net income
= Net income applicable to
common equity
÷
Average equity
ROE
=
Segment income statement
Revised methodology
Noninterest revenue
Net interest income
- Provision for credit losses
Noninterest expense
Income tax expense
Net income
Preferred stock dividends
= Net income applicable to
common equity
÷
Average equity
ROE
Asset Management
Corporate
34,762
Total noninterest expense
2014
$ 18,759 $ 18,695 $ 21,451
11,360 13,042 12,912
4,482
4,523
11,405
10,010
8,538
8,016
7,104
3,490
3,389
2,906
12
(22)
(2,072)
1,159
Management's discussion and analysis
4,187
Total
2,610
2,695
2014
Total net revenue
2013
Pre-provision profit/(loss)
2012
2013
2012
2014
2013
2012
$ 44,368 $ 46,537 $ 50,278
34,633
34,786
23,273
6,882
12,028
7,092
6,912
$ 25,609 $ 27,842 $ 28,827
21,744 21,850
2,389
79
2.23
Preferred stock dividend allocation reporting change
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. Prior to the
fourth quarter of 2014, this cost was allocated to the Firm's
reportable business segments as interest expense, with an
offset recorded as interest income in Corporate. Effective
with the fourth quarter of 2014, this cost is no longer
included in interest income and interest expense in the
segments, but rather is now included in net income
applicable to common equity to be consistent with the
presentation of firmwide results. As a result of this
reporting change, net interest income and net income in the
reportable business segments increases; however, there
was no impact to the segments' return on common equity
("ROE"). The Firm's net interest income, net income,
Consolidated balance sheets and consolidated results of
operations were not impacted by this reporting change, as
preferred stock dividends have been and continue to be
distributed from retained earnings and, accordingly, were
never reported as a component of the Firm's consolidated
net interest income or net income. Prior period segment
and core net interest income amounts throughout this
Annual Report have been revised to conform with the
current period presentation.
5.97%
88
Mortgage servicing-related matters
The financial crisis resulted in unprecedented levels of
delinquencies and defaults of 1-4 family residential real
estate loans. Such loans required varying degrees of loss
mitigation activities. Foreclosure is usually a last resort, and
accordingly, the Firm has made, and continues to make,
significant efforts to help borrowers remain in their homes.
The Firm has entered into various Consent Orders and
settlements with federal and state governmental agencies
and private parties related to mortgage servicing,
origination, and residential mortgage-backed securities
activities. The requirements of these Consent Orders and
settlements vary, but in the aggregate, include cash
compensatory payments (in addition to fines) and/or
“borrower relief," which may include principal reduction,
refinancing, short sale assistance, and other specified types
of borrower relief. Other obligations required under certain
Consent Orders and settlements, as well as under new
regulatory requirements, include enhanced mortgage
servicing and foreclosure standards and processes. The
Firm has satisfied or is committed to satisfying these
obligations within the mandated timeframes.
The mortgage servicing Consent Orders and settlements are
subject to ongoing oversight by the Mortgage Compliance
Committee of the Firm's Board of Directors. In addition,
certain of the Consent Orders and settlements are the
subject of ongoing reporting to various regulators and
independent overseers.
The Firm's compliance with the Global Settlement and the
RMBS Settlement are detailed in periodic reports published
by the independent overseers.
4.00%
JPMorgan Chase & Co./2014 Annual Report
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Results
of these lines of business are presented on a managed
basis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm's use of non-GAAP financial
measures, on pages 77-78.
Consumer Businesses
Consumer & Community Banking
JPMorgan Chase
Wholesale Businesses
BUSINESS SEGMENT RESULTS
3.24%
8,439
$ 10,579
10,255
4.14
(a) Net charge-offs and the net charge-off rates excluded $533 million and
$53 million of write-offs in the PCI portfolio for the years ended
December 31, 2014 and 2013, respectively. These write-offs decreased
the allowance for loan losses for PCI loans. For further information on PCI
write-offs, see Allowance for Credit Losses on pages 128-130.
(b) Net charge-offs and net charge-off rates for the year ended December 31,
2012, included $744 million of charge-offs related to regulatory
guidance. Excluding these charges-offs, net charge-offs for the year ended
December 31, 2012, would have been $1.8 billion, $410 million and
$416 million for the home equity, prime mortgage, including option
ARMS, and subprime mortgage portfolios, respectively. Net charge-off
rates for the same period, excluding these charge-offs and PCI loans,
would have been 2.41%, 0.97% and 4.65% for the home equity, prime
mortgage, including option ARMS, and subprime mortgage portfolios,
respectively.
(c) The 30+ day delinquency rate for PCI loans was 13.33% 15.31% and
20.14% at December 31, 2014, 2013 and 2012, respectively.
(d) Excludes PCI loans. The Firm is recognizing interest income on each pool
of PCI loans as they are all performing.
2.67%
3.66%
5.03%
$ 2,168 $ 2,568
$
4,868
3,325
4,158
5,711
Corporate & Investment Bank
JPMorgan Chase & Co./2014 Annual Report
Commercial
Banking
Consumer &
Business
Banking
Securities
Services
■ Credit
Adjustments &
Other
Market
Banking
■ Corporate
Client
Banking
■ Commercial
Term
Lending
■ Equity Markets
■ Real Estate
Banking
Management
Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results allocates income and expense
using market-based methodologies. The Firm continues to
assess the assumptions, methodologies and reporting
classifications used for segment reporting, and further
refinements may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income
and expense to each business and transfer the primary
interest rate risk exposures to the Treasury group within
Corporate. The allocation process is unique to each business
segment and considers the interest rate risk, liquidity risk
and regulatory requirements of that segment as if it were
operating independently, and as compared with its stand-
alone peers. This process is overseen by senior
management and reviewed by the Firm's Asset-Liability
Committee ("ALCO").
■ Global
Investment
Management
Global Wealth
Fixed Income
Markets
■ Middle
Markets & Investor
Services
■ Consumer
Banking
■ Business
Banking
■ Chase
Wealth
Management
Mortgage
Banking
Card, Merchant
Banking
Services & Auto
■ Mortgage
Production
■ Mortgage
Servicing
Real Estate
Portfolios
• Card
Services
o Credit
Card
Investment
Banking
■ Treasury
Services
o Merchant
Services
■ Lending
■ Auto &
Student
Asset
Management
4,559
1,473
$ 97,923 $ 99,798 $ 99,890
28,827
Income before income tax
expense
15,239
18,360
17,677
Income tax expense
Net income
6,054
$ 9,185
27,842
7,299
Financial ratios
Return on common equity
Overhead ratio
3,774
6,886
$ 10,791
18%
58
23%
60
25%
57
$ 11,061
Note: As discussed on pages 79-80, effective with the fourth quarter of
2014 the Firm changed its methodology for allocating the cost of preferred
stock to its reportable business segments. Prior periods have been revised to
conform with the current period presentation.
25,609
17,195
15,937
17,552
Net interest income
28,431
28,985
Total net revenue
44,368
46,537
20,813
29,465
50,278
Total noninterest expense
Provision for credit losses
335
Noninterest expense
Compensation expense
10,538
11,686
11,632
Noncompensation expense
15,071
16,156
3,520
Noninterest revenue
Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-
GAAP financial measures. For additional information, see Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial Measures.
Consumer & Community Banking net income was $9.2
billion, a decrease of $1.9 billion, or 17%, compared with
the prior year, due to higher provision for credit losses and
lower net revenue, partially offset by lower noninterest
expense.
Loans:
Selected metrics
As of or for the year ended
December 31,
(in millions, except ratios and
where otherwise noted)
2014
2013
2012
Credit data and quality statistics
Net charge-offs (a)(b)
Trading assets loans (a)
$
$ 9,280
Nonaccrual loans (c)(d)
6,401
7,455
9,114
Nonperforming assets (c)(d)(e)
6,872
8,109
9,791
4,773 $ 5,826
2014 compared with 2013
Total assets
Selected balance sheet
Net revenue was $44.4 billion, a decrease of $2.2 billion, or
5%, compared with the prior year. Net interest income was
$28.4 billion, down $554 million, or 2%, driven by spread
compression and lower mortgage warehouse balances,
largely offset by higher deposit balances in Consumer &
Business Banking and higher loan balances in Credit Card.
Noninterest revenue was $16.0 billion, a decrease of $1.6
billion, or 9%, driven by lower mortgage fees and related
income.
The provision for credit losses was $3.5 billion, compared
with $335 million in the prior year. The current-year
provision reflected a $1.3 billion reduction in the allowance
for loan losses and total net charge-offs of $4.8 billion. The
prior-year provision reflected a $5.5 billion reduction in the
allowance for loan losses and total net charge-offs of $5.8
billion. For more information, including net charge-off
amounts and rates, see Consumer Credit Portfolio.
Noninterest expense was $25.6 billion, a decrease of $2.2
billion, or 8%, from the prior year, driven by lower
Mortgage Banking expense.
2013 compared with 2012
Consumer & Community Banking net income was $11.1
billion, an increase of $270 million, or 3%, compared with
the prior year, due to lower provision for credit losses and
lower noninterest expense, predominantly offset by lower
net revenue.
Net revenue was $46.5 billion, a decrease of $3.7 billion, or
7%, compared with the prior year. Net interest income was
$29.0 billion, down $480 million, or 2%, driven by lower
deposit margins, lower loan balances due to net portfolio
runoff and spread compression in Credit Card, largely offset
by higher deposit balances. Noninterest revenue was $17.6
billion, a decrease of $3.3 billion, or 16%, driven by lower
mortgage fees and related income, partially offset by higher
card income.
The provision for credit losses was $335 million, compared
with $3.8 billion in the prior year. The current-year
provision reflected a $5.5 billion reduction in the allowance
for loan losses and total net charge-offs of $5.8 billion. The
prior-year provision reflected a $5.5 billion reduction in the
allowance for loan losses and total net charge-offs of $9.3
billion, including $800 million of incremental charge-offs
related to regulatory guidance. For more information,
including net charge-off amounts and rates, see Consumer
Credit Portfolio on pages 113-119.
JPMorgan Chase & Co./2014 Annual Report
81
2014
data (period-end)
2013
8,423
6,832
Management's discussion and analysis
Noninterest expense was $27.8 billion, a decrease of $985
million, or 3%, from the prior year, driven by lower
mortgage servicing expense, partially offset by investments
in Chase Private Client expansion, higher non-MBS related
legal expense in Mortgage Production, higher auto lease
depreciation, and costs related to the control agenda.
Selected metrics
As of or for the year ended
December 31,
(in millions, except
headcount)
$ 455,634 $ 452,929 $ 467,282
1,473
1,463
All other income
(479)
6,925
8,887
8,672
10
15
18
Commercial Banking
(189)
25%
85
2,635
2,648
2,699
18
19
28
Asset Management
4
65
41
86
23%
3,774 $ 9,185 $ 11,061 $ 10,791
$ 61,274 $ 70,467 $64,729 $ 36,649 $ 29,331 $ 35,161
Year ended December 31,
Provision for credit losses
(in millions, except ratios)
Consumer & Community Banking
$
2014
3,520 $
2013
2012
18%
Net income/(loss)
2013
Return on equity
2012
2014
2013
2012
Corporate & Investment Bank
(161)
335 $
(232)
2014
2,153
2,083
1,742
2013
2012
Year ended December 31,
(in millions, except ratios)
Revenue
Lending- and deposit-related fees $ 3,039
$ 2,983 $ 3,121
Asset management,
administration and commissions
2014
2,096
2,093
Mortgage fees and related
3,560
5,195
8,680
Card income
5,779
5,785
5,446
2,116
income
Selected income statement data
Consumer & Community Banking serves consumers and
businesses through personal service at bank branches
and through ATMs, online, mobile and telephone
banking. CCB is organized into Consumer & Business
Banking, Mortgage Banking (including Mortgage
Production, Mortgage Servicing and Real Estate
Portfolios) and Card, Merchant Services & Auto
("Card"). Consumer & Business Banking offers deposit
and investment products and services to consumers,
and lending, deposit, and cash management and
payment solutions to small businesses. Mortgage
Banking includes mortgage origination and servicing
activities, as well as portfolios comprised of residential
mortgages and home equity loans, including the PCI
portfolio acquired in the Washington Mutual
transaction. Card issues credit cards to consumers and
small businesses, provides payment services to
corporate and public sector clients through its
commercial card products, offers payment processing
services to merchants, and provides auto and student
loan services.
23
23
24
Corporate
Total
(35)
3,139 $
(28)
(37)
225 $
864
3,385 $ 21,762 $ 17,923 $ 21,284
(6,756) (2,620)
NM
NM
NM
10%
9%
11%
(a) Effective with the fourth quarter of 2014, the Firm changed the methodology it uses to allocate preferred stock dividends to the lines of business. Prior period amounts for net
revenue, pre-provision profit/(loss) and net income/(loss) for each of the business segments were revised to conform with the current allocation methodology. The Firm's
Consolidated balance sheets and consolidated results of operations were not affected by this reporting change. For further discussion please see Preferred stock dividend
allocation reporting change in Business Segment Results on pages 79-80.
80
JPMorgan Chase & Co./2014 Annual Report
CONSUMER & COMMUNITY BANKING
(1,147) (10,277) (6,631)
1.76
Subprime mortgage
excluding PCI loans
Average assets
Deposit margin
392,095
434,573
472,334
Total average deposits
$ 9,000
$ 11,000
34,224
29,227
24,057
Time and other
67
204,449
229,341
249,281
Savings
$
36%
2.21%
38,298
2.57%
2014
Credit data and quality statistics
Net charge-offs
(in millions, except ratios and
where otherwise noted)
As of or for the year ended
December 31,
Selected metrics
JPMorgan Chase & Co./2014 Annual Report
Net revenue was $17.4 billion, up 1% compared with the
prior year. Net interest income was $10.7 billion, flat
compared with the prior year, driven by higher deposit
balances, offset by lower deposit margin. Noninterest
revenue was $6.7 billion, an increase of 3%, driven by
higher investment sales revenue and debit card revenue,
partially offset by lower deposit-related fees.
Consumer & Business Banking net income was $2.9 billion,
a decrease of $281 million, or 9%, compared with the prior
year, due to higher noninterest expense, partially offset by
higher noninterest revenue.
2013 compared with 2012
Noninterest expense was $12.1 billion, flat from the prior
year, reflecting lower costs driven by efficiencies
implemented in the business, offset by the increased cost of
controls.
Net revenue was $18.2 billion, up 5% compared with the
prior year. Net interest income was $11.1 billion, up $384
million, or 4% compared with the prior year, driven by
higher deposit balances, largely offset by deposit spread
compression. Noninterest revenue was $7.2 billion, up $430
million, or 6%, driven by higher investment revenue,
reflecting record client investment assets, higher debit card
revenue, reflecting an increase in transaction volume, and
higher deposit-related fees as a result of an increase in
customer accounts.
Consumer & Business Banking net income was $3.4 billion,
an increase of $500 million, or 17%, compared with the
prior year, due to higher net revenue.
2014 compared with 2013
Equity (period-end and average) $11,000
34,431
$
$ 37,174
2.32%
26%
70
67
Overhead ratio
418,529
451,427
489,546
deposits
Total period-end
311
347
305
Provision for credit losses
31,753
26,022
21,349
Time and other
17,186
17,412
18,226
Total net revenue
Noninterest expense
12,149
12,162
11,490
31%
Return on common equity
153,422
176,005
198,996
Checking
Average deposits:
$ 2,943
2013
$ 3,443
4,903
5,772
expense
Income before income tax
18,104
18,844
20,152
Average loans
Net income
216,422
2012
Net charge-off rate
Net interest income
9,155
5,478
3,597
Noninterest revenue
475
283
$ 3,560
37
Mortgage fees and related
income
Revenue
2012
2013
2014
(in millions, except ratios)
December 31,
$ 5,195 $ 8,680
All other income
4,229
As of or for the year ended
4,758
Total net revenue
$ 1,668
Net income
5,315
2,759
expense
Income before income tax
9,121
7,602
5,284
Noninterest expense
(490)
(2,681)
(217)
Provision for credit losses
14,171
10,236
7,826
5,016
Selected Financial statement data
Mortgage Banking
Management's discussion and analysis
2,149
2,514
Chase Private Client
locations
29%
36%
39%
% managed accounts
Number of:
$ 11,128
158,502
$ 16,006
188,840
$ 16,088
213,459
488
698
2.27%
411
305
337 $
1.51%
1.79%
703 $ 707 $
286
391
$
Allowance for loan losses
Nonperforming assets
Retail branch business metrics
Net new investment assets
Client investment assets
1,218
Personal bankers
21,039
23,588
83
(a) Includes checking accounts and Chase LiquidⓇ cards.
Chase Private Clients
Sales specialists
Client advisors
28,073
24.1
29,437
25.0
30,481
25.7
Accounts (in thousands) (a)
Households (in millions)
$
105,700
325,653
2,963
3,044
3,090
6,076
5,740
3,994
23,674
215,888
$ 3,211
238,223
Savings
17,573
Number of:
$ 456,468 $ 467,641
15,603
8,040
Trading assets - loans (a)
$ 447,750
Total assets
Business metrics
data (average)
4.23
3.49
2.88
end loans, excluding credit card
and PCI loans (c)(e)
Selected balance sheet
Nonaccrual loans to total period-
43,000
3.31
Branches
2.80
5,602
5,614
36,396
thousands)
Active online customers (in
408,559
209
392,797
917
389,967
$ 390,884 $ 393,006 $ 408,992
Total loans
Loans held-for-sale
Loans retained
19,062
20,290
18,056
ATMs (g)
Loans:
5,630
2.38
credit card(e)
438,517
4.41
3.10
2.63
Allowance for loan losses to
period-end loans retained
Allowance for loan losses to
period-end loans retained,
excluding PCI loans (f)
Allowance for loan losses to
Loans retained
18,801
2.68
1.73
1.40
Net charge-off rate, excluding PCI
loans (b)
2012
2.27%
1.48%
1.22%
Net charge-off rate (a)(b)
17,752
12,201
2.02
2.36
3.51
396,288
Nonaccrual loans to total period-
end loans, excluding
402,963
394,291
464,412
46,000
502,520
51,000
Equity(b)
Deposits
399,704
Total loans
33,742
72
58
excluding credit card (c)(f)
940
3,416
Loans held-for-sale
nonaccrual loans retained,
402,963
393,351
57
255,148
31,114
Active mobile customers (in
1,353
1,495
1,605
Card income
$ 5,148 $
6,599
$
origination volume
Business banking
1,638
1,815
2,025
commissions
administration and
2012
2013
2014
Period-end loans
Business metrics
21,200
6,542
18,883
10,629
10,668
11,052
Net interest income
170,354
187,182
213,049
Checking
6,557
6,744
7,174
Noninterest revenue
Period-end deposits:
498
492
534
All other income
19,416
(in millions, except
ratios)
As of or for the year
ended December 31,
Selected metrics
(b) 2014 includes $3.0 billion of capital held at the CCB level related to legacy
mortgage servicing matters.
(a) Predominantly consists of prime mortgages originated with the intent to sell that
are accounted for at fair value.
164,391
151,333
137,186
413,948
43,000
46,000
51,000
453,304
486,919
Headcount
Equity(b)
Deposits
12,359
15,629
19,084
thousands)
(a) Net charge-offs and the net charge-off rates excluded $533 million and $53
million of write-offs in the PCI portfolio for the years ended December 31, 2014
and 2013, respectively. These write-offs decreased the allowance for loan losses
for PCI loans. For further information on PCI write-offs, see Allowance for Credit
Losses on pages 128-130.
(b) Net charge-offs and net charge-off rates for the year ended December 31, 2012,
included $800 million of charge-offs, recorded in accordance with regulatory
guidance on certain loans discharged under Chapter 7 bankruptcy and not
reaffirmed by the borrower ("Chapter 7 loans") to be charged off to the net
realizable value of the collateral and to be considered nonaccrual, regardless of
their delinquency status. Excluding these charges-offs, net charge-offs for the
year ended December 31, 2012, would have been $8.5 billion and excluding
these charge-offs and PCI loans, the net charge-off rate for the year ended
December 31, 2012, would have been 2.45%.
(c) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as they are all performing.
(d) At December 31, 2014, 2013 and 2012, nonperforming assets excluded: (1)
mortgage loans insured by U.S. government agencies of $7.8 billion, $8.4 billion
and $10.6 billion, respectively, that are 90 or more days past due; (2) student
loans insured by U.S. government agencies under the Federal Family Education
Loan Program ("FFELP") of $367 million, $428 million and $525 million
respectively, that are 90 or more days past due; (3) real estate owned ("REO")
insured by U.S. government agencies of $462 million, $2.0 billion and $1.6
billion, respectively. These amounts have been excluded based upon the
government guarantee.
prior year, reflecting continued investments in the business,
and costs related to the control agenda.
Noninterest expense was $12.2 billion, up 6% from the
$ 3,010 $ 2,942 $ 3,068
Asset management,
Lending- and deposit-related
fees
Revenue
2012
2013
433
2014
As of or for the year ended
December 31,
Selected income statement data
Consumer & Business Banking
JPMorgan Chase & Co./2014 Annual Report
32
82
(f) The allowance for loan losses for PCI loans of $3.3 billion, $4.2 billion and $5.7
billion at December 31, 2014, December 31, 2013, and December 31, 2012,
respectively; these amounts were also excluded from the applicable ratios.
(g) Includes eATMs, formerly Express Banking Kiosks ("EBK"). Prior periods were
revised to conform with the current presentation.
(e) Prior periods were revised to conform with the current presentation.
(in millions, except ratios)
5,540
$ 3,468
Return on common equity
Overhead ratio
$ 54,410 $ 62,369
72,674
Third-party mortgage loans
serviced (period-end)
$ 751.5
$ 815.5
$ 859.4
Prime mortgage, including
option ARMS
Third-party mortgage loans
serviced (average)
Subprime mortgage
784.6
MSR carrying value (period-end)
7.4
837.3
9.6
847.0
7.6
Other
56,104
6,257
511
Home equity
44,988
265.7
$ 118.8
7,104
8,255
551
633
$ 55.6
$ 108.0
$ 164.5
Total period-end loans owned
$123,002
$114,981
$117,589
Correspondent (a)
63.2
89.2
101.2
Average loans owned:
Total mortgage application
volume
$ 197.2
42,311
7,687
8,947
MSR revenue multiple(c)
2.72x
2.95x
1.91x
Option ARMS
$ 17,095
10,220
3,673
15,708
(a) Includes rural housing loans sourced through correspondents, and
prior to November 2013, through both brokers and correspondents,
which are underwritten and closed with pre-funding loan approval
from the U.S. Department of Agriculture Rural Development, which
acts as the guarantor in the transaction.
(b) Firmwide mortgage origination volume was $83.3 billion, $176.4
billion and $189.9 billion for the years ended December 31, 2014,
2013 and 2012, respectively.
(c) Represents the ratio of MSR carrying value (period-end) to third-
party mortgage loans serviced (period-end) divided by the ratio of
loan servicing-related revenue to third-party mortgage loans serviced
(average).
Average loans owned:
Home equity
Prime mortgage
Subprime mortgage
Option ARMS
Total average loans owned
Total Real Estate Portfolios
Period-end loans owned:
Home equity
Total period-end loans owned
$ 46,696
Loans held-for-sale
Prime mortgage, including
option ARMS (b)
Subprime mortgage
0.46
0.40
0.36
588
675
Ratio of MSR carrying value
Total average loans owned
PCI loans
$117,282
$115,632
$124,607
(period-end) to third-party
41,316
mortgage loans serviced (period-
end)
0.98%
1.18%
0.88%
Home equity
Ratio of loan servicing-related
revenue to third-party mortgage
Prime mortgage
loans serviced (average)
Period-end loans owned:
Loans:
49,463
Other
2,530
Credit data and quality
statistics
Net charge-offs:
Prime mortgage, including
option ARMS
6
12
19
Net charge-off rate:
Prime mortgage, including
option ARMS
30+ day delinquency rate (c)
Nonperforming assets (d)(e)
0.04%
2.06
$
389
0.07%
2.75
$ 519 $ 599
0.11%
3.05
(a) Predominantly consists of prime mortgages originated with the intent
to sell that are accounted for at fair value.
(b) Predominantly represents prime mortgage loans repurchased from
Government National Mortgage Association ("Ginnie Mae") pools,
which are insured by U.S. government agencies.
651
(c) At December 31, 2014, 2013 and 2012, excluded mortgage loans
insured by U.S. government agencies of $9.7 billion, $9.6 billion and
$11.8 billion respectively, that are 30 or more days past due. These
amounts have been excluded based upon the government guarantee.
For further discussion, see Note 14 which summarizes loan
delinquency information.
249
59,837
$ 5,493 $ 6,726
5,786
6,919
$17,290
$15,136
614
$ 13,557
314
Selected balance sheet data
(average)
Trading assets loans (a)
8,040
15,603
17,573
Loans:
Prime mortgage, including
option ARMs (b)
14,993
Loans held-for-sale
Average assets
394
42,456
16,495
114
57,131
17,335
Repurchase liability (period-
end)
(d) At December 31, 2014, 2013 and 2012, nonperforming assets
excluded: (1) mortgage loans insured by U.S. government agencies of
$7.8 billion, $8.4 billion and $10.6 billion respectively, that are 90 or
more days past due; and (2) REO insured by U.S. government
agencies of $462 million, $2.0 billion and $1.6 billion, respectively.
These amounts have been excluded based upon the government
guarantee.
(e) Prior periods were revised to conform with the current presentation.
98
$ 77.0
48.5
88.5
$ 101.4
79.4
Period-end loans owned:
Home equity
$ 50,899
$ 57,863 $ 67,385
Total mortgage origination
volume(b)
$ 78.0
$ 165.5
$ 180.8
Prime mortgage, including
option ARMS
Mortgage application volume by
Subprime mortgage
channel
Retail
$ 29.5
Correspondent(a)
Retail
Loans, excluding PCI
86
JPMorgan Chase & Co./2014 Annual Report
Selected metrics
As of or for the year ended
December 31,
(in billions, except ratios)
Business metrics
2014
2013
66,543
5,083
477
2012
Selected metrics
As of or for the year ended
December 31,
(in millions)
2014
2013
2012
Mortgage origination volume by
channel
Real Estate Portfolios
$18,801
$ 6,832
$ 8,423
314
Servicing-related net interest
income(a)
4,110
3,744
3,294
Loan servicing revenue and
other income(a)
Mortgage Servicing
3,563
851
294
Income before income tax
expense
3,835
(272)
331
458
Repurchase (losses)/benefits
520
(164)
Servicing-related revenue
benefits
3,608
93
4,203
Servicing Expense
904
865
Core servicing expense (b)
2,069
1,406
Default servicing expense
2,903
2,703
revenue
Net servicing-related
(1,222)
(1,094)
(905)
expected cash flows
due to collection/realization of
Changes in MSR asset fair value
253
3,997
repurchase (losses)/
Income, excluding
2,747
Functional results
JPMorgan Chase & Co./2014 Annual Report
==
84
Net revenue was $10.2 billion, a decrease of $3.9 billion, or
28%, compared with the prior year. Net interest income
was $4.8 billion, a decrease of $258 million, or 5%, driven
by lower loan balances due to net portfolio runoff.
Noninterest revenue was $5.5 billion, a decrease of $3.7
billion, driven by lower mortgage fees and related income.
The provision for credit losses was a benefit of $2.7 billion,
compared with a benefit of $490 million in the prior year.
The current year reflected a $3.8 billion reduction in the
allowance for loan losses due to continued improvement in
home prices and delinquencies. The prior year included a
$3.9 billion reduction in the allowance for loan losses.
Noninterest expense was $7.6 billion, a decrease of $1.5
billion, or 17%, from the prior year, due to lower servicing
expense, partially offset by higher non-MBS related legal
expense in Mortgage Production.
Mortgage Banking net income was $3.2 billion, a decrease
of $257 million, or 7%, compared with the prior year,
driven by lower net revenue, predominantly offset by a
higher benefit from the provision for credit losses and lower
noninterest expense.
2013 compared with 2012
Noninterest expense was $5.3 billion, a decrease of $2.3
billion, or 30%, from the prior year, due to lower expense in
production and servicing reflecting lower headcount-related
expense, the absence of non-MBS related legal expense and
lower expense on foreclosure-related matters.
The provision for credit losses was a benefit of $217
million, compared with a benefit of $2.7 billion in the prior
year. The current year reflected a $700 million reduction in
the allowance for loan losses, reflecting continued
improvement in home prices and delinquencies. The prior
year included a $3.8 billion reduction in the allowance for
loan losses. Net charge-offs were $483 million, compared
with $1.1 billion in the prior year.
Mortgage Banking net income was $1.7 billion, a decrease
of $1.5 billion, or 48%, from the prior year, driven by a
lower benefit from the provision for credit losses and lower
net revenue, partially offset by lower noninterest expense.
Net revenue was $7.8 billion, a decrease of $2.4 billion, or
24%, compared with the prior year. Net interest income
was $4.2 billion, a decrease of $529 million, or 11%,
driven by spread compression and lower loan balances due
to portfolio runoff and lower warehouse balances.
Noninterest revenue was $3.6 billion, a decrease of $1.9
billion, or 34%, driven by lower mortgage fees and related
income.
19%
64
2014 compared with 2013
$ 19,500 $ 17,500
$ 18,000
Equity (period-end and
average)
16%
74
9%
68
Year ended December 31,
(in millions, except ratios)
2014
2013
3,088
1,646
Production expense (b)
6,582
3,608
1,482
(losses)/benefits
excluding repurchase
2,271
Production-related revenue,
422
income(a)
Production-related net interest
$ 2,973
$ 1,060
Production revenue and other
Income(a)
Mortgage Production
2012
635
2,973
2,981
3,707
1,033
4,740
Income/(loss), excluding MSR
(1,759)
705
$ 5,877
JPMorgan Chase & Co./2014 Annual Report
(a) Prior periods were revised to conform with the current presentation.
(b) Includes provision for credit losses.
39
42
43
Real Estate Portfolios
132
78%
113
85
Mortgage Servicing
85%
Mortgage Production
Overhead ratios
$ 5,315 $ 5,540
$ 3,211 $ 3,468
616
43%
2014 compared with 2013
Mortgage Production pretax income was $294 million, a
decrease of $557 million, or 65%, from the prior year,
reflecting lower revenue, largely offset by lower expense
and higher benefit from repurchase losses. Mortgage
production-related revenue, excluding repurchase losses,
was $1.5 billion, a decrease of $2.1 billion, from the prior
year, driven by lower volumes due to higher levels of
mortgage interest rates and tighter margins. Production
expense was $1.6 billion, a decrease of $1.4 billion, or
47%, from the prior year, driven by lower headcount-
related expense and the absence of non-MBS related legal
expense.
Trading assets - loans (a)
2012
2013
2014
(in millions, except ratios)
Selected balance sheet data
(Period-end)
As of or for the year ended
December 31,
Selected metrics
Servicing
$ 1,668
Mortgage Production and Mortgage
Mortgage Servicing pretax loss was $338 million,
compared with a pretax loss of $1.1 billion in the prior year,
driven by lower expense, partially offset by a MSR risk
management loss. Mortgage net servicing-related revenue
was $2.9 billion, a decrease of $78 million. MSR risk
management was a loss of $268 million, compared with
income of $616 million in the prior year, driven by the net
impact of various changes in model inputs and assumptions.
See Note 17 for further information regarding changes in
value of the MSR asset and related hedges. Servicing
expense was $3.0 billion, a decrease of $1.8 billion, or
37%, from the prior year, reflecting lower costs associated
with the Independent Foreclosure Review and lower
servicing headcount.
Mortgage Production pretax income was $851 million, a
decrease of $2.7 billion from the prior year, reflecting lower
margins, lower volumes and higher legal expense, partially
offset by a benefit in repurchase losses. Production-related
revenue, excluding repurchase losses, was $3.6 billion, a
decrease of $3.0 billion, or 45%, from the prior year,
largely reflecting lower margins and lower volumes from
rising rates. Production expense was $3.1 billion, an
increase of $341 million, or 12%, from the prior year, due
to higher non-MBS related legal expense and higher
compensation-related expense. Repurchase losses for the
current year reflected a benefit of $331 million, compared
with repurchase losses of $272 million in the prior year. The
current year reflected a reduction in the repurchase liability
largely as a result of the settlement with the GSES.
2013 compared with 2012
Management's discussion and analysis
85
85
Real Estate Portfolios pretax income was $2.1 billion,
down $2.7 billion, or 57%, from the prior year, due to a
lower benefit from the provision for credit losses and lower
net revenue, partially offset by lower noninterest expense.
Net revenue was $3.2 billion, a decrease of $451 million, or
12%, from the prior year, driven by lower net interest
income as a result of spread compression and lower loan
balances due to portfolio runoff. The provision for credit
losses was a benefit of $223 million, compared with a
benefit of $2.7 billion in the prior year. The current-year
provision reflected a $700 million reduction in the
allowance for loan losses, $400 million from the non credit-
impaired allowance and $300 million from the purchased
credit-impaired allowance, due to continued improvement
in home prices and delinquencies. The prior-year provision
reflected a $3.8 billion reduction in the allowance for loan
losses, $2.3 billion from the non credit-impaired allowance
and $1.5 billion from the purchased credit-impaired
allowance. Net charge-offs were $477 million, compared
with $1.1 billion in the prior year. See Consumer Credit
Portfolio on pages 113-119 for the net charge-off amounts
and rates. Noninterest expense was $1.4 billion, a decrease
of $180 million, or 12%, compared with the prior year,
driven by lower FDIC-related expense and lower foreclosed
asset expense due to lower foreclosure inventory.
Mortgage Servicing pretax income was $404 million,
compared with a loss of $338 million in the prior year,
reflecting lower expenses and lower MSR risk management
loss, partially offset by lower net revenue. Mortgage net
servicing-related revenue was $2.7 billion, a decrease of
$200 million, or 7%, from the prior year, driven by lower
average third-party loans serviced and lower revenue from
an exited non-core product, partially offset by lower MSR
asset amortization expense as a result of lower MSR asset
value. MSR risk management was a loss of $28 million,
compared with a loss of $268 million in the prior year. See
Note 17 for further information regarding changes in value
of the MSR asset and related hedges. Servicing expense was
$2.3 billion, a decrease of $702 million, or 24%, from the
prior year, reflecting lower headcount-related expense and
lower expense for foreclosure related matters.
Real Estate Portfolios pretax income was $4.8 billion, up
$1.7 billion from the prior year, or 54%, due to a higher
benefit from the provision for credit losses, partially offset
by lower net revenue. Net revenue was $3.7 billion, a
decrease of $602 million, or 14%, from the prior year. This
decrease was due to lower net interest income, resulting
from lower loan balances due to net portfolio runoff, and
lower noninterest revenue due to higher loan retention. The
provision for credit losses was a benefit of $2.7 billion,
compared with a benefit of $509 million in the prior year.
The current-year provision reflected a $3.8 billion reduction
in the allowance for loan losses, $2.3 billion from the non
credit-impaired allowance and $1.5 billion from the
purchased credit-impaired allowance, reflecting continued
improvement in home prices and delinquencies. The prior-
year provision included a $3.9 billion reduction in the
allowance for loan losses from the non credit-impaired
allowance. Net charge-offs were $1.1 billion, compared with
$3.3 billion in the prior year. Prior-year total net charge-
offs included $744 million of incremental charge-offs
reported in accordance with regulatory guidance on certain
loans discharged under Chapter 7 bankruptcy. Noninterest
expense was $1.6 billion, a decrease of $100 million, or
6%, compared with the prior year, driven by lower
foreclosed asset expense due to lower foreclosure
inventory, largely offset by higher FDIC-related expense.
10,404
Mortgage Banking net income
income tax expense
(209)
(282)
Noninterest revenue
Real Estate Portfolios
(1,143)
(338)
404
tax expense/(benefit)
Income/(loss) before income
(268)
(28)
income/(expense)
including related net interest
MSR risk management,
(70)
432
risk management
43
Net interest income
3,493
3,871
Mortgage Banking income before
3,120
4,802
2,061
Income before income tax
expense
1,653
1,553
1,373
$ 2,759
Noninterest expense
(2,693)
(223)
Provision for credit losses
4,264
3,662
3,211
Total net revenue
4,221
(509)
Allowance for loan losses (a)
5,385
$ 3,224
Prime mortgage, including
option ARMS
78,256
13,724
588
675
Average assets
$164,387
$172,143
$163,898
$187,169
$175,712
Home equity origination volume
3,102
2,124
1,420
88
87
Management's discussion and analysis
Credit data and quality statistics
As of or for the year ended
2,385
$
966
$
473
$
77,133
12,103
2012
2014
Home equity
(recoveries), excluding PCI
loans:(a)(b)
$ 20,971
13,674
(in millions, except ratios)
December 31,
2013
Prime mortgage, including
84,155
10,178
511
$167,284
Other
4,626
20,466
$ 59,737
$ 18,030
11,257
3,921
16,794
$ 19,950
12,909
4,416
19,236
$ 21,840
14,400
4,777
21,545
$ 50,002
$ 56,511 $ 62,562
JPMorgan Chase & Co./2014 Annual Report
$ 67,994
$ 76,790
$ 88,356
Prime mortgage, including
option ARMS
Subprime mortgage
Subprime mortgage
$ 94,514
$ 72,440 $ 82,319
Home equity
Average loans owned:
$177,326
Total average loans owned
$168,036
Total period-end loans owned
633
75,456
12,881
79,416
11,279
551
92,471
8,756
477
Other
$169,698
option ARMS
Net charge-offs/
41
(recovery) rate, excluding
PCI loans
0.41
0.96
2.68
Net charge-off/(recovery)
rate reported:(a)(b)
Home equity
0.65%
1.17%
22
Prime mortgage, including
option ARMS
0.03
0.05
0.58
Subprime mortgage
excluding PCI loans (c)
Allowance for loan losses,
excluding PCI loans
Allowance for PCI loans (a)
Allowance for loan losses
Nonperforming assets (d)
Allowance for loan losses to
period-end loans retained
Allowance for loan losses to
period-end loans retained,
30+ day delinquency rate,
1.79
0.64
0.29
(recovery) rate - reported
Total net charge-off/
Total net charge-off/
1.70
1.76
Other
3.54
0.74
(0.27)
2.37
2.37
2.52%
1.76
Net charge-off/(recovery)
$ 3,341
1,107
$
477
$
(recoveries), excluding
PCI loans
Total net charge-offs/
16
10
9
486
90
(27)
Other
Subprime mortgage
454
rate, excluding PCI loans: (b)
1.70
$ 18,927
12,038
4,175
17,915
$ 53,055
option ARMS
Other
5.43
1.17
(0.43)
1.07
0.09
0.04
Prime mortgage, including
3.28%
1.55%
0.87%
Home equity
Average Consumer Banking deposits ($B)²
Average Business Banking deposits ($B)
$152
62%
$548
22%
4,976
2020
Active digital customers (M)
58%
<30%
% of digital payment volume¹
72%
64%
<25%
% of digital payment transactions¹
10%
3,079
NM
Active mobile customers growth rate
40.9
37.3
Active mobile customers (M)
55.3
52.5
4.9
# of branches
12%
22%
2006
Overall gain
10.4%
Compounded annual gain
S&P Financials Index
S&P 500 Index
JPMorgan Chase & Co.
4.1%
128.8%
6.5%
268.0%
11.9%
928.1%
412.0%
S&P Financials Index
Bank One
(7/1/2004-12/31/2020)
and JPMorgan Chase & Co. merger
Performance since the Bank One
Compounded annual gain
Overall gain
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2020)¹
Stock total return analysis
Average stock price
$657
S&P 500 Index
9.7%
362.0%
3.7%
82.3%
Performance for the period ended
Client Franchises Built Over the Long Term
5
Adhering to these principles allows us to drive good organic growth and prop-
erly manage our capital (including dividends and stock buybacks), which we have
consistently demonstrated over the past decades. All of this is shown in the charts
in this introduction. In addition, we urge you to read the CEO letters in this Annual
Report, which will give you a lot more specific detail about our businesses and what
our plans are for the future.
We have consistently described to you, our shareholders, the basic principles and
strategies we use to build this company – from maintaining a fortress balance
sheet, constantly investing, nurturing talent, fully satisfying regulators, and
continually improving risk, governance and controls to serving customers and
clients while lifting up communities worldwide.
back over five years, 10 years or since the JPMorgan Chase/Bank One merger
(approximately 15 years ago), these investments mean our stock has significantly
outperformed the Standard & Poor's 500 Index and the Standard & Poor's
Financials Index. These important investments will also drive our company's
future prospects and position it to grow and prosper for decades.
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500 Index) and the Standard & Poor's Financials Index (S&P Financials Index).
Ten years
10.8%
11.1%
(1.8)%
13.9%
14.7%
15.2%
17.2%
18.4%
(5.5)%
Five years
One year
Compounded annual gain/(loss)
December 31, 2020
2019
$37
$31.0
$175
2017
2018
2019
2020
Assets under custody²
($ in trillions)
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
■Tangible book value
$26.8
$23.5 $23.2
$18.8
$20.5 $20.5 $19.9 $20.5
$16.1 $16.9
$14.9
$13.2
2008
2016
2009
2015
2013
■Consumer deposits
$3,258
$2,783 $2,740
$2,329 $2,376 $2,353
$2,427
$2,061
$1,743
$1,881 $1,883
$1,415
$722
$757
2008
2009
Client assets
2010
2011
Wholesale deposits
2012
2014
2010
2011
2012
$590
$501
$80
Client investment assets ($B)
$38
$24
$13
Average Business Banking loans ($B)
Community
Banking
$833
$684
$189
deposits ($B)
Consumer &
Average Consumer & Business Banking
Deposits market share³
3.6%
9.3%
9.8%
2013
2014
2015
2016
2017
2018
2019
$136
2020
16.0
15.5
Selected balance sheet data (period-end)
Loans
$1,012,853
$ 997,620
$1,015,760
17.3
$15.35 $16.45 $18.8 52196 52.52▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
11%
$30.12
#1
Named to Fortune magazine's
Most Admired Companies list
TOP 10
#1 traditional Middle Market
bookrunner in the U.S.
MIDDLE MARKET LENDER
TRADITIONAL
#1
#1 in customer satisfaction with
online banking among national
banks according to J.D. Power
$2.3 trillion in credit and capital
raised for consumers and clients of
all sizes, including those in some of
the hardest-hit industries
Committed to finance and facilitate $200
billion to drive action on climate change and
advance sustainable development
CUSTOMER SATISFACTION
#1
CREDIT AND CAPITAL RAISED
$2.3T
SUSTAINABLE DEVELOPMENT
$200B
Total assets
MULTIFAMILY LENDER
#1 U.S.
multifamily lender
#1
WEALTH MANAGEMENT APP
While we don't run the company worrying about the stock price in the short run, in
the long run our stock price is a measure of the progress we have made over the
years. This progress is a function of continual investments in our people, systems
and products, in good and bad times, to build our capabilities. Whether looking
JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember that
in almost all cases, the ultimate beneficiaries are the individuals in our commu-
nities. More than 100 million people in the United States own stock, and a large
percentage of these individuals, in one way or another, own JPMorgan Chase stock.
Many of these people are veterans, teachers, police officers, firefighters, health-
care workers, retirees or those saving for a home, school or retirement. Your
management team goes to work every day recognizing the enormous responsibility
that we have to perform for our shareholders.
As I look back on the last year and the last two decades – starting from my time
as CEO of Bank One in 2000 - it is remarkable how much we persevered and have
accomplished, not only in terms of financial performance but also in our stead-
fast dedication to help clients, communities and countries throughout the world.
2020 was another strong year for JPMorgan Chase, with the firm generating record
revenue, as well as numerous other records in each of our lines of business. We
earned $29.1 billion in net income on revenue of $122.9 billion versus $36.4 billion
on revenue of $118.5 billion in 2019, reflecting strong underlying performance across
our businesses offset by additional reserves under new accounting rules. We gener-
ally grew market share across our businesses and continued to make significant
investments in products, people and technology, all while maintaining credit
discipline and a fortress balance sheet. In total, we extended credit and raised
$2.3 trillion in capital for businesses, institutional clients and U.S. customers.
I discuss these themes later in this letter.
and for being a source of strength in difficult times. Those opportunities were
powerfully presented to us this year, and I am proud of how we stepped up.
Jamie Dimon,
Chairman and
Chief Executive Officer
2
I am proud of what our company and our tens of thousands of employees around
the world achieved, collectively and individually. As you know, we have long cham-
pioned the essential role of banking in a community – its potential for bringing
people together, for enabling companies and individuals to reach for their dreams,
3,386,071
Watching events unfold throughout the year, we were keenly focused on what we,
as a company, could do to serve. As I begin this annual letter to shareholders,
Dear Fellow Shareholders,
#1 bank for COVID-19 response
according to JUST Capital
COVID-19 RESPONSE
#1
$276 billion in total Asset & Wealth
Management client asset inflows
AWM CLIENT ASSET INFLOWS
$276B
#1 digital wealth management app
according to J.D. Power
2020 was an extraordinary year by any measure. It was a year of a global
pandemic, a global recession, unprecedented government actions, turbulent
elections, and deeply felt social and racial injustice. It was a year in which each of
us faced difficult personal challenges, and a staggering number of us lost loved
ones. It was also a year when those among us with less were disproportionately
hurt by joblessness and poverty. And it was a time when companies discovered
what they really were and, sometimes, what they might become.
2,687,379
2,622,532
Deposits
Headcount
255,351
256,981
256,105
(a) TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP
Financial Measures on pages 62-64 for additional information on these measures.
(b) Refer to Liquidity Risk Management on pages 102-108 for additional information on this measure.
(c) The ratios presented are calculated under the Basel III Fully Phased-In Approach. Refer to Capital Risk Management on pages 91-101
for additional information on these measures.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $3.4 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States and
many of the world's most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.
319,780
3,275.8
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and about
Chase's capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.
ADVANCE RACIAL EQUITY
$30 billion to advance
racial equity
#1
INVESTMENT BANK
#1 globally in both investment
banking fees and Markets revenue
100
HUMAN RIGHTS EQUALITY
100: Score on Human Rights
Campaign's Corporate Equality Index
$30B
3
429,913
3,084.0
Common shares at period-end
2,144,257
1,562,431
1,470,666
Common stockholders' equity
249,291
Total stockholders' equity
279,354
234,337
261,330
3,049.4
230,447
Market data
Closing share price
$ 127.07
$ 139.40
$
97.62
Market capitalization
387,492
256,515
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004-2020
($ in billions, except per share and ratio data)
$36.4
High: $141.10
Low: $76.91
$92.01
Tangible Book Value and Average Stock Price per Share
2004-2020
for 2017
Adjusted
ROTCE¹ was
13.6%
2019 2020
1 Adjusted net income, a non-GAAP financial measure, excludes $2.4 billion from net income in 2017 as a result of the enactment of the Tax Cuts and Jobs Act.
2018
$113.80
2017
2015
2014
2009 2010 2011 2012 2013
Return on tangible common equity (ROTCE)
Diluted earnings per share
■Net income
2006 2007 2008
2004 2005
$2.26
2016
$5.6
$110.72
$63.83 $65.62
$33.62
$38.68 $40.72
$44.60
$48.13
$35.49
$53.56
$51.44
$40.36 $39.36 $39.22
$106.52
$36.07
$38.70
$56.33
$43.93
$60.98
$47.75
$51.88
$66.11
$58.17
$39.83
$27.09
$2.35
6%
$6.19
$6.00
$17.9
$17.4
$19.0
$8.88
$21.7
$24.7 $24.4
15%
$24.4
$26.9
$21.3
22%
24%
$29.1
$10.72
Adjusted net income¹
$32.5
$9.00
$3.96
19%
13%
$4.00 $4.33
$8.5
$4.34
$4.48
$11.7
10%
12%
13%
$15.4
$5.29 13%
14%
10%
17%
$3,781
15%
15%
15% $14.4
$6.31
$5.19
$648
4,908
$730
54%
JPM
ROTCE
Overhead ratio5
34%
UBS-GWM & MS-IM
JPMorgan Chase compared with peers4
28%
60%
CS-PB & TROW
Management
70%
Asset & Wealth
PNC
USB-C & CB
Banking
15%
11%
39%
41%
Commercial
MS-IS
16%
20%
17%
BAC-CB
15%
Bank
MS
C-ICG
15%
58%
12.0
Tier 1 capital ratio (c)
15.0
14.1
13.7
Total capital ratio(c)
For footnoted information, refer to page 67 in this Annual Report.
ROTCE = Return on tangible common equity
WFC 1%
80%
WFC
7%
$573
70%
MS
9%
BAC
65%
GS
12%
GS
65%
BAC
14%
JPM
с
12.4
Investment
48%
#2
#1
Market share¹3
8.7%
8.9%
Total Markets revenue¹4
#8
Market share¹4
6.3%
#1
11.4%
Corporate &
Investment
FICC¹4
Market share¹4
Equities¹4
Market share¹4
#7
#1
#1
9.2%
#1
12.9%
#1
7.0%
11.6%
13.1%
#8
Co-#1
Co-#1
Global investment banking fees¹³
53%
■#1 PPP lender on a dollar basis
■Provided customer assistance to ~2.0M accounts,
Corporate &
Banking
COF-CB & DC
49%
Community
55%
Consumer &
peer ROTCE², 3
Best-in-class
JPM 2020
ROTCE
peer overhead ratio¹
overhead ratio
Best-in-class
JPM 2020
Returns
Efficiency
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
7
1 Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
2 Represents activities associated with the safekeeping and servicing of assets.
million active mobile customers?
■#1 primary bank within Chase footprint
■ #1 U.S. credit card issuer based on sales and
outstandings⁹
■#4 mortgage servicer¹º
■ #2 bank auto lender¹¹
representing balances of ~$83B¹²
13.1
Common equity Tier 1 capital ratio (c)
113
2020
ANNUAL REPORT
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JPMORGAN CHASE & Co.
Financial Highlights
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
CHASE
2020
Explore ways tones online
JPMorgan
16%
Credit card sales market share5
$144
$169
$153
Credit card loans ($B, EOP)
$1,081
$1,114
ΝΑ
Debit & credit card sales volume ($B)
$379
$352
ΝΑ
Debit card sales ($B)
$703
$763
$257
Credit card sales ($B)
9.5%
9.4%
5.1%
Business Banking primary market share4
14 (41)
14 (40)
■Serve >63 million U.S. households including
4.3 million small business relationships
■■55 million active digital customers, including 41
Welcome to a more
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2019
2018
Selected income statement data
9.00
Book value per share
81.75
75.98
70.35
Tangible book value per share (TBVPS)(a)
66.11
60.98
56.33
Cash dividends declared per share
3.60
3.40
2.72
Selected ratios
Return on common equity
12%
15%
13%
Return on tangible common equity (ROTCE)(a)
14
19
17
Liquidity coverage ratio (average) (b)
110
116
10.72
8.88
Diluted
9.04
Total net revenue
Total noninterest expense
$ 119,543
66,656
$ 115,399
65,269
$ 108,783
63,148
Pre-provision profit
52,887
50,130
45,635
Provision for credit losses
17,480
5.0%
5,585
Net income
$ 29,131
$
36,431
$
32,474
Per common share data
Net income per share:
Basic
8.89
$
10.75
4,871
11.0%
с
Bank
$399
$430
$326
$252
$1,567
$1,577
$275
$460
$476
$309
$368
$1,494
$222
$252
$312
$243
$281
$167
$167
$136
$1,789
$1,693
$1,621
$1,519
$1,619
$1,820
$1,659
$233
$274
PPP Paycheck Protection Program
AUM Assets under management
For footnoted information, refer to page 67 in this Annual Report.
6
B = Billions
T = Trillions
M = Millions
K = Thousands
New and Renewed Credit and Capital for Our Clients
2008-2020
($ in billions)
$2,496
$2,357
$2,307
$227
$2,345
$2,263
$2,144
$265
$226
$2,102
$258
$2,044
$262
$197
$480
$1,866
$1,525
$1,392
$1,443
$3,802
$3,633
$660 $679
$844
$3,255
$464
$503
$618
$558
# of top 50 Chase markets where we
are #1 (top 3)
$3,011
$2,681
12.3%
$784
$439
$792
$398
$824
$861
$2,424
$372
$365
$755
$361
$558
$3,740
$3,617
$1,186
($ in billions)
$1,264
$1,088
$1,115 $1,158
2008
2009
2010
2011
2012
2013
2014
2015
2016
EOP = End of period
2017
2019
2020
Corporate clients
■Commercial clients
Consumer
Assets Entrusted to us by Our Clients
at December 31,
$5,926
$959
$4,820
Deposits and client assets¹
$4,227 $4,211 $718
2018
MSAS = Metropolitan statistical areas
$2,811
NA Not available
# of top 75 MSAS with dedicated teams
36
Bankers
1,203
67
2,101
New relationships (gross)
NA
1,706
Commercial
Average loans ($B)
$53.6
$207.9
Banking
Average deposits ($B)
$73.6
$172.7
67
2,020
1,856
$218.9
$237.8
Gross investment banking revenue ($B) 20
$0.7
$2.7
Multifamily lending21
#28
#1
$3.3
#1
■137 locations across the U.S. and 30 international
locations
$655
■Credit, banking and treasury services to ~18K
$516
Average total deposits ($B)
Assets under custody ($T)
FICC = Fixed Income, Currencies and Commodities
$13.9
11 (25)
$26.8
$31.0
$190
$465
$611
■>80% of Fortune 500 companies do business with us
■Presence in over 100 markets globally
■#1 in global investment banking fees for the 12th
consecutive year¹³
■Consistently ranked #1 in Markets revenue since
2012¹4
■J.P. Morgan Research ranked as the #1 Global Research
Firm¹7
■■#1 in USD payments volume18
■■■ #2 custodian globally19
Daily payment processing ($T) 16
ΝΑ
>$7
>$8
Average daily security purchases and
sales ($T)
ΝΑ
$2.3
$2.7
ΝΑ
Commercial & Industrial clients²² and ~33K real estate
owners and investors
Average deposits ($B) 15
■ #1 traditional Middle Market Bookrunner in the U.S.23
■23,000 affordable housing units financed in 202024
$1.4
$1.6
■183 4/5-star rated funds33
■Business with 56% of the world's largest pension
funds, sovereign wealth funds and central banks
■■■Positive client asset flows across all regions, segments
and products
■63% of Asset Management AUM managed by female
and/or diverse portfolio managers34
U.S. ultra-high-net-worth client assets
market share31
ΝΑ
11%
12%
Average loans ($B) 29
$26.5
$147.4
$166.3
Average deposits ($B) 29
$50.6
$135.3
$162.0
# of Global Private Bank client
advisors 29, 30
2,419
USD U.S. dollar
2,462
■17 specialized industry coverage teams
NM Not meaningful
$0.5
Global Private Bank client assets ($T) 29,30
1,506
$1.3
Management
#1
Ranking of 5-year cumulative net client
U.S. Private Bank (Euromoney) 25
■80% of 10-year JPMAM long-term mutual fund AUM
performed above peer median³2
asset flows26
ΝΑ
#2
#2
China inbound funds AUM27
ΝΑ
#6
#1
Global Funds AUM ($T)
$1.1
#3
$0.5
Global Institutional AUM ($T)
Asset & Wealth
2.7%
#1
2.5%
1.8%
Global active long-term fund AUM
market share28
$0.8
$0.6
$0.3
JPMorgan Chase & Co./2020 Form 10-K
Recent events
• On January 27, 2021, JPMorgan Chase announced that it
will launch a digital retail bank in the U.K. this year, and
on February 23, 2021, JPMorgan Chase announced that it
will appoint Sanoke Viswanathan, head of International
Consumer, to the Operating Committee.
On December 31, 2020, JPMorgan Chase acquired the
Global Loyalty business ("cxLoyalty") of cxLoyalty Group
Holdings, Inc. This includes cxLoyalty's technology
platforms, full-service travel agency, and gift card and
merchandise services.
On December 31, 2020, JPMorgan Chase acquired 55ip,
a financial technology company and leading provider of
automated tax-smart investment strategies.
On December 18, 2020, JPMorgan Chase received the
results of the 2020 Comprehensive Capital Analysis and
Review ("CCAR") Round 2 stress test from the Federal
Reserve. The Firm's Stress Capital Buffer ("SCB")
requirement remained at 3.3%. The Federal Reserve also
announced that all large banks, including the Firm, could
resume share repurchases commencing in the first
quarter of 2021, subject to certain restrictions. The
Firm's Board of Directors has authorized a new common
share repurchase program for up to $30 billion. The Firm
expects to repurchase up to $4.5 billion of common stock
in the first quarter of 2021 and, subject to approval by
the Board of Directors, maintain the quarterly common
stock dividend of $0.90 per share.
• On December 18, 2020, JPMorgan Chase announced the
retirement of Lee Raymond, the Firm's Lead Independent
Director. Stephen B. Burke has succeeded Mr. Raymond
as Lead Independent Director effective January 1, 2021.
On December 7, 2020, Phebe N. Novakovic became a
member of the Firm's Board of Directors. Ms. Novakovic is
Chairman and Chief Executive Officer of General
Dynamics Corporation.
2021 outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. Refer to Forward-Looking Statements on page
157, and the Risk Factors section on pages 8-32 of the Firm's
2020 Form 10-K, for a further discussion of certain of those
risks and uncertainties and the other factors that could cause
JPMorgan Chase's actual results to differ materially because
of those risks and uncertainties. There is no assurance that
actual results in 2021 will be in line with the outlook set forth
below, and the Firm does not undertake to update any
forward-looking statements.
JPMorgan Chase's current outlook for 2021 should be
viewed against the backdrop of the global and U.S.
economies, the COVID-19 pandemic, financial markets
activity, the geopolitical environment, the competitive
environment, client and customer activity levels, and
regulatory and legislative developments in the U.S. and
other countries where the Firm does business. Each of these
factors will affect the performance of the Firm and its LOBS.
The Firm will continue to make appropriate adjustments to
its businesses and operations in response to ongoing
developments in the business, economic, regulatory and
legal environments in which it operates. The outlook
information contained in this Form 10-K supersedes all
outlook information included in the Firm's periodic reports
furnished or filed with the SEC prior to the date of this Form
10-K.
Full-year 2021
• Management expects net interest income, on a managed
basis, to be in excess of $14 billion, market dependent.
•
Management expects net interest income, on a managed
basis, to be approximately $55 billion, market
dependent.
Management expects adjusted expense to be
First-quarter 2021
•
Management expects net interest income, on a managed
basis, to be approximately $13 billion, market
dependent.
• Investment banking fees are expected to be flat when
compared with the fourth quarter of 2020, depending on
market conditions.
Fourth-quarter 2021
Refer to the Business Segment Results on pages 65-66 for
a detailed discussion of results by business segment.
•
approximately $69 billion, which includes accelerated
contributions to the Firm's Foundation in the form of
equity investments, as well as higher revenue-related
expense.
• Total Markets revenue of $29.5 billion, up
41%, with Fixed Income Markets up 45% and
Equity Markets up 33%
.
ROE
15%
Net interest income, on a managed basis, and adjusted
expense are non-GAAP financial measures. Refer to
Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures on pages 62-64.
Average loans down 6%; debit and credit
card sales volume down 3%
Active mobile customers up 10%
$103
billion
Credit and capital raised for nonprofit
and U.S. government entities (b)
CIB
ROE
20%
Average deposits up 20%; average loans up
13%
CB
ROE
11%
#1 ranking for Global Investment Banking
fees with 9.2% wallet share for the year
• Gross Investment Banking revenue of $3.3
billion, up 22%
Average deposits up 38%; average loans up
5%
$28 billion
Loans under the Small Business
Administration's Paycheck Protection
Program
(a) Excludes loans under the SBA's PPP.
(b) Includes states, municipalities, hospitals and universities.
AWM
• Assets under management (AUM) of $2.7
trillion, up 17%
ROE
28%
$9.5 billion of Global Investment Banking
fees, up 25%
JPMorgan Chase & Co./2020 Form 10-K
JPMorgan Chase & Co./2020 Form 10-K
49
On November 30, 2020, ICE Benchmark Administration, the
administrator of LIBOR, announced a public consultation on
its proposal to cease the publication of the principal tenors
of U.S. dollar LIBOR (i.e., overnight, one-month, three-
month, six-month and 12-month LIBOR) immediately
following a final publication on June 30, 2023. The Federal
Reserve, the OCC and the FDIC also released guidance
encouraging market participants to cease dealing in new
U.S. dollar LIBOR contracts from the end of 2021. There has
been no change in the scheduled cessation of U.K. sterling,
Japanese yen, Swiss franc and Euro LIBOR, or the remaining
tenors of U.S. dollar LIBOR, from December 31, 2021.
The Firm continues to work towards reducing its exposure
to IBOR-referencing contracts, including derivatives,
bilateral and syndicated loans, securities, and debt and
preferred stock issuances, to meet the industry milestones
and recommendations published by National Working
Groups ("NWG"), including the Alternative Reference Rates
Committee (the "ARRC") in the U.S.
On October 23, 2020, the International Swaps and
Derivatives Association, Inc. ("ISDA") published a new
supplement to the ISDA 2006 definitions and the related
2020 IBOR Fallbacks Protocol (the "Protocol"). These
publications are intended to facilitate the incorporation of
robust rate fallback provisions into both legacy and new
derivative contracts with effect from January 25, 2021. The
Firm's client-facing legal entities have agreed to adhere to
the Protocol, in accordance with recommendations from
multiple industry working groups, including the ARRC. ISDA
further announced that bilateral templates have been made
available for use with counterparties who choose not to
adhere to the Protocol.
As a key objective of the ARRC's transition plan to
encourage adoption of the Secured Overnight Financing
Rate ("SOFR"), counterparty clearing houses, clearing
house members and other impacted market participants
successfully executed the discounting and price alignment
interest ("PAI") switch from federal funds to SOFR on
October 16, 2020. The industry completed a similar switch
from EONIA to €STR on July 27, 2020.
On March 12, 2020 and January 7, 2021, the Financial
Accounting Standards Board ("FASB") issued accounting
standards updates providing optional expedients and
exceptions for applying generally accepted accounting
principles to contracts and hedge accounting relationships
affected by reference rate reform. These optional
expedients are intended to simplify the operational impact
of applying U.S. GAAP to transactions impacted by
reference rate reform. The Firm elected to apply certain of
these expedients beginning in the third quarter of 2020. On
August 27, 2020, the International Accounting Standards
Board ("IASB") issued guidance that provides similar relief
for entities reporting under International Financial
Reporting Standards ("IFRS"). Refer to Accounting and
Reporting Developments on page 156 for additional
information. The Firm continues to monitor the transition
relief being considered by the U.S. Treasury Department
regarding the tax implications of reference rate reform.
The Firm's initiatives in connection with LIBOR transition
include:
•
•
•
•
•
rates.
•
continuing to educate and inform clients on LIBOR
transition and the necessity to prepare for the cessation
of LIBOR
assisting clients with discontinuing their issuance or use
of LIBOR-linked products within the timelines specified by
NWGS
supporting clients in their efforts to remediate contracts
linked to LIBOR, including contracts to which the Firm is a
party, which it manages or for which it acts as agent
offering products linked to alternative reference rates
("ARRS") across its businesses, and
planning for the implementation of rate fallback
mechanisms across products based on the conventions
recommended by NWGs to prepare for transition to ARRS
upon the cessation of various IBORS.
The Firm is on schedule to implement necessary changes to
operational and risk management systems in order to
transition away from IBORS, including by aiming to meet
proposed deadlines set by NWGs for the cessation of new
contracts referencing these benchmarks. The Firm
continues to engage with and remains committed to NWGS
in devising solutions to unresolved issues relating to IBOR
transition.
The Firm continues to engage with market participants,
NWGs and regulators to address market-wide challenges
associated with LIBOR transition, including efforts to:
•
Capital raised for corporate clients and
non-U.S.government entities
continuing to reduce its overall exposure to LIBOR
implementing rate fallback provisions developed by NWGS
in new LIBOR contracts, where appropriate
JPMorgan Chase and other market participants continue to
make progress in preparing for the discontinuation of the
London Interbank Offered Rate ("LIBOR") and other IBORS
to comply with the International Organization of Securities
Commission's standards for transaction-based benchmark
Interbank Offered Rate ("IBOR") transition
The COVID-19 pandemic introduced additional risk to the
Firm's Brexit Implementation program, particularly in
relation to staff relocations. As a result, the Firm has
worked closely with regulators and employees to ensure
that critical staff are relocated in a safe and timely manner
so that the Firm can meet its regulatory commitments and
continue serving its clients. Further relocations are planned
for 2021, and the Firm's longer-term EU staffing strategy
will be developed over time in cooperation with its
regulators and as the post-Brexit market landscape evolves
in order to ensure that the Firm maintains operational
resilience and effective client coverage.
50
50
Management's discussion and analysis
Business Developments
COVID-19 Pandemic
In response to the COVID-19 pandemic the Firm invoked
resiliency plans to allow its businesses to remain
operational, utilizing disaster recovery sites and
implementing alternative work arrangements globally.
Additionally, the Firm implemented strategies and
procedures designed to help it respond to increased market
volatility, client demand for credit and liquidity, distress in
certain industries and the ongoing impacts to consumers
and businesses.
Throughout 2020, the Firm remained focused on serving its
clients, customers and communities, as well as the well-
being of its employees, during the pandemic. The Firm
continues to actively monitor the health and safety
situations at local and regional levels, and will continue to
adapt as these situations evolve.
Supporting clients and customers
The Firm has supported its clients and customers during the
challenging conditions caused by the COVID-19 pandemic
by providing assistance, primarily in the form of payment
deferrals on loans and extending credit, including through
its participation in the Small Business Association's ("SBA")
PPP.
Refer to Credit Portfolio on page 112 for information on
assistance granted to customers and clients. Refer to
Consumer Credit portfolio on page 116 and Wholesale
Credit Portfolio on page 122 for information on retained
loans under payment deferral.
The Firm has gradually re-opened its branches since April
2020, with nearly 90% of its branches returning to full
service as of December 31, 2020. Additionally, the Firm
continues to provide a wide range of banking services that
are accessible to clients and customers through mobile and
other digital channels.
Protecting and supporting employees
In response to the COVID-19 pandemic, the Firm
implemented alternative work arrangements, with the vast
majority of its global workforce working from home since
the onset of the pandemic and continuing into the first
quarter of 2021. The Firm also provided additional benefits
to employees during the COVID-19 pandemic.
Supporting communities
Since March, the Firm has committed $250 million to help
address humanitarian needs and long-term economic
challenges posed by the COVID-19 pandemic on the
communities in which the Firm operates. As of December
31, 2020, over 75% of this commitment has been funded.
Departure of the U.K. from the EU
The U.K.'s departure from the EU, which is commonly
referred to as "Brexit," was completed on December 31,
2020. The U.K. and the EU have entered into a Trade and
Cooperation Agreement which delineates many significant
aspects of the future relationship between the U.K. and the
EU. However, the agreement contained very limited
provisions relating to cross-border financial services, and
the U.K. and the EU are expected to engage in further
negotiations concerning financial services.
The Firm has executed and continues to execute on its
Firmwide Brexit Implementation program, which
encompasses a strategic implementation plan across all
impacted businesses and functions, including an ongoing
assessment of political, legal and regulatory and other
implementation risks. A key focus of the program has been
to ensure continuity of service to the Firm's EU clients in the
following areas: regulatory and legal entities; clients; and
business and operations.
Regulatory and legal entities
The Firm's legal entities in Germany, Luxembourg and
Ireland are now licensed to provide and are providing
services to the Firm's EU clients, including through a branch
network covering locations such as Paris, Madrid and Milan.
Subject to limited exceptions, the Firm's U.K.-based legal
entities are no longer permitted to transact business from
the U.K. with EU clients.
Clients
Agreements covering substantially all of the Firm's EU client
activity have been re-documented to EU legal entities to
facilitate continuation of service. The Firm continues to
actively engage with those clients that have not completed
re-documentation or required operational changes.
Business and operations
49
trillion
60.98
• Average deposits up 22%; client investment
assets up 17%
5,585
Net income
29,131
36,431
213
(20)
Diluted earnings per share
8.88
10.72
(17)
Selected ratios and metrics
17,480
Return on common equity
12 %
14
15 %
19
Book value per share
$ 81.75
$ 75.98
8
Tangible book value per share
66.11
8
Return on tangible common equity
Capital ratiosb
Provision for credit losses
50,130
•
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2020 Form 10-K. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates, affecting the Firm and
its various LOBS, this 2020 Form 10-K should be read in its
entirety.
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. Refer to Note 1 for further
information.
Financial performance of JPMorgan Chase
Year ended December 31,
(in millions, except per share data
and ratios)
2020
2019
5
Change
Total net revenue (a)
$119,543
$115,399
4 %
Total noninterest expense (a)
66,656
65,269
2
Pre-provision profit
52,887
Selected income statement data
(b)
CET1
Tier 1 capital
47
48
88
•
Management's discussion and analysis
Selected capital-related metrics
The Firm's CET1 capital was $205 billion, and the
Standardized and Advanced CET1 ratios were 13.1% and
13.8%, respectively.
• The Firm's SLR was 6.9%. The SLR reflects the temporary
exclusions of U.S. Treasury securities and deposits at
Federal Reserve Banks, as required by the Federal
Reserve's interim final rule issued on April 1, 2020. The
Firm's SLR excluding the temporary relief was 5.8%.
• The Firm grew TBVPS, ending 2020 at $66.11, up 8%
versus the prior year.
Pre-provision profit, ROTCE and TBVPS are non-GAAP
financial measures. Refer to Explanation and Reconciliation
of the Firm's Use of Non-GAAP Financial Measures on pages
62-64, and Capital Risk Management on pages 91-101 for
a further discussion of each of these measures.
Business segment highlights
JPMorgan Chase & Co./2020 Form 10-K
Credit provided and capital raised
$2.3 trillion
Total credit provided and capital raised
(including loans and commitments) (a)
$226
billion
Credit for consumers
$18
billion
Credit for U.S. small businesses
Selected business metrics for each of the Firm's four LOBS
are presented below for the full year of 2020.
$865
billion
Credit for corporations
CCB
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided new and renewed credit and raised capital for
wholesale and consumer clients during 2020, consisting of:
As of December 31, 2020, the Firm had average eligible
High Quality Liquid Assets (“HQLA") of approximately
$697 billion and unencumbered marketable securities
with a fair value of approximately $740 billion, resulting
in approximately $1.4 trillion of liquidity sources. Refer
to Liquidity Risk Management on pages 102-108 for
additional information.
Firmwide average deposits of $1.9 trillion were up 25%,
reflecting significant inflows across the Firm, primarily
driven by the impact of the COVID-19 pandemic and the
related effect of certain government actions.
Firmwide average loans of $1.0 trillion were up 1%,
driven by higher loan balances in AWM and CIB, as well as
loans originated under the Small Business
Administration's ("SBA") Paycheck Protection Program
("PPP"), predominantly offset by lower loan balances in
Home Lending and Card.
Total capital
13.1 %
15.0
12.4 %
14.1
17.3
16.0
(a) In the second quarter of 2020, the Firm reclassified certain spend-
based credit card reward costs from marketing expense to be a
reduction of card income, with no effect on net income. Prior-period
amounts have been revised to conform with the current presentation.
(b) As of December 31, 2020, the capital metrics reflect the relief
provided by the Federal Reserve Board in response to the COVID-19
pandemic, including the CECL capital transition provisions that became
effective in the first quarter of 2020. Refer to Regulatory
Developments relating to the COVID-19 Pandemic on pages 52-53 and
Capital Risk Management on pages 91-101 for additional information.
Comparisons noted in the sections below are for the full year
of 2020 versus the full year of 2019, unless otherwise
specified.
Firmwide overview
JPMorgan Chase reported net income of $29.1 billion for
2020, or $8.88 per share, on net revenue of $119.5 billion.
The Firm reported ROE of 12% and ROTCE of 14%. The
Firm's results for 2020 included net additions to the
allowance for credit losses of $12.2 billion and Firmwide
legal expense of $1.1 billion.
•
•
The Firm had net income of $29.1 billion, down 20%.
Total net revenue was up 4%. Noninterest revenue was
$65.0 billion, up 12%, driven by higher CIB Markets
revenue, Investment Banking fees and net production
revenue in Home Lending. Net interest income was $54.6
billion, down 5%, driven by the impact of lower rates,
•
•
•
predominantly offset by higher net interest income in CIB
Markets as well as balance sheet growth.
Noninterest expense was $66.7 billion, up 2%, driven by
higher volume- and revenue-related expense, legal
expense and continued investments in the businesses,
partially offset by lower structural expense.
The provision for credit losses was $17.5 billion, up
$11.9 billion from the prior year, driven by net additions
to the allowance for credit losses of $12.2 billion due to
the deterioration and increased uncertainty in the
macroeconomic environment as a result of the impact of
the COVID-19 pandemic.
The total allowance for credit losses was $30.8 billion at
December 31, 2020. The Firm had an allowance for loan
losses to retained loans coverage ratio of 2.95%,
compared with 1.39% in the prior year; the increase
from the prior year was driven by the additions to the
allowance for credit losses and the adoption of CECL.
⚫ The Firm's nonperforming assets totaled $10.9 billion at
December 31, 2020, an increase of $5.9 billion from the
prior year, primarily reflecting client credit deterioration
across multiple industries in the wholesale portfolio; and
in the consumer portfolio, loans placed on nonaccrual
status related to the impact of the COVID-19 pandemic,
as well as the adoption of CECL, as the purchased credit
deteriorated loans in the mortgage portfolio became
subject to nonaccrual loan treatment. In the fourth
quarter of 2020, nonperforming assets decreased $556
million from the prior quarter, reflecting some credit
improvement in the wholesale portfolio. The consumer
portfolio remained relatively flat, as the increase in loans
placed on nonaccrual status in Home Lending related to
the impact of the COVID-19 pandemic was predominantly
offset by lower loans at fair value in CIB, largely due to
sales.
•
•
$1.1
•
.
develop and introduce forward-looking term rates linked
to ARRS, and
Total provision for credit losses $ 17,480
ΝΑ
5,585 $ 4,871
Effective January 1, 2020, the Firm adopted the CECL accounting
guidance. In conjunction with the adoption of CECL, the Firm reclassified
risk-rated loans and lending-related commitments from the consumer,
excluding credit card portfolio segment to the wholesale portfolio segment,
to align with the methodology applied when determining the allowance.
Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 1 for further information.
2020 compared with 2019
The provision for credit losses increased in consumer and
wholesale primarily driven by the deterioration and
uncertainty in the macroeconomic environment, in
particular in the first half of 2020, as a result of the impact
of the COVID-19 pandemic.
The increase in consumer reflected:
⚫ net additions of $7.4 billion to the allowance for credit
losses, consisting of $6.6 billion for Card, $520 million
for Auto, $252 million for Business Banking,
partially offset by
.
lower net charge-offs largely in Card, reflecting lower
charge-offs and higher recoveries, primarily benefiting
from payment assistance and government stimulus.
The prior year included a $244 million net reduction in the
allowance for credit losses.
The increase in wholesale reflected a net addition of $4.7
billion to the allowance for credit losses across the LOBS,
impacting multiple industries.
Investment securities
The investment securities provision for credit losses
relates to the HTM portfolio, which became subject to
the CECL accounting guidance beginning on January 1,
2020.
JPMorgan Chase & Co./2020 Form 10-K
55
Income tax expense
Management's discussion and analysis
Noninterest expense
Year ended December 31,
(in millions)
Compensation expense
2020
2019
2018
Refer to the segment discussions of CCB on pages 67-70,
CIB on pages 71-76, CB on pages 77-79, AWM on pages
80-82, the Allowance for Credit Losses on pages 132-133,
and Notes 1, 10 and 13 for further discussion of the credit
portfolio and the allowance for credit losses.
Wholesale
Total consumer
ΝΑ
partially offset by
• a net increase from a gain on an equity investment.
Net interest income decreased due to the impact of lower
rates, predominantly offset by higher net interest income in
CIB Markets, as well as balance sheet growth.
The Firm's average interest-earning assets were $2.8
trillion, up $434 billion, and the yield was 2.34%, down
127 basis points ("bps"), primarily due to lower rates. The
net yield on these assets, on an FTE basis, was 1.98%, a
decrease of 48 bps. The net yield excluding CIB Markets was
2.30%, down 97 bps.
Net yield excluding CIB Markets is a non-GAAP financial
measure. Refer to the Consolidated average balance sheets,
interest and rates schedule on pages 300-304 for further
details; and the Explanation and Reconciliation of the Firm's
Use of Non-GAAP Financial Measures on pages 62-64 for a
further discussion of Net interest yield excluding CIB
Markets.
Provision for credit losses
Year ended December 31,
(in millions)
Credit card
2020
2019
2018
Consumer, excluding credit card
$ 1,016 $ (378) $
(119)
10,886
5,348
4,818
11,902
4,970
4,699
5,510
615
172
68
Year ended December 31,
(in millions, except rate)
2020
2019
2018
3,351
3,044
5,941
5,087
5.731
31,668 31,114
30,031
Total noncompensation expense
Total noninterest expense
$ 66,656 $ 65,269 $ 63,148
(a) In the second quarter of 2020, the Firm reclassified certain spend-
based credit card reward costs from marketing expense to be a
reduction of card income, with no effect on net income. Prior-period
amounts have been revised to conform with the current presentation.
(b) Included Firmwide legal expense of $1.1 billion, $239 million and $72
million for the years ended December 31, 2020, 2019 and 2018,
respectively.
(c) Included FDIC-related expense of $717 million, $457 million and $1.2
billion for the years ended December 31, 2020, 2019 and 2018,
respectively.
2020 compared with 2019
Compensation expense increased driven by higher volume-
and revenue-related expense, predominantly CIB and
CCB, as well as the impact of investments in the businesses.
Noncompensation expense increased as a result of:
higher legal expense predominantly in CIB and AWM
higher volume-related expense, in particular brokerage
expense in CIB and depreciation from growth in auto
lease assets in CCB
higher investments in the businesses, including
technology and real estate,
• an impairment on a legacy investment in Corporate, and
• higher FDIC-related expense,
partially offset by
•
lower marketing expense as a result of lower investments
in marketing campaigns and lower travel-related benefits
in CCB, and
lower structural expense, including lower travel and
entertainment across the businesses, and payment
processing costs, partially offset by higher contributions
to the Firm's Foundation.
2020 compared with 2019
The effective tax rate decreased, with the current year rate
reflecting the impact of a lower level of pre-tax income and
changes in the mix of income and expenses subject to U.S.
federal, and state and local taxes, as well as other tax
adjustments. The prior year included the effect of $1.1
billion of tax benefits related to the resolution of certain tax
audits. Refer to Note 25 for further information.
56
JPMorgan Chase & Co./2020 Form 10-K
improve liquidity in ARRS
2,476
• higher losses related to the early termination of certain of
the Firm's long-term debt in Treasury and CIO,
Marketing (a)
Other (b)(c)
8,533
$ 34,988 $ 34,155 $ 33,117
Income before income tax
Noncompensation expense:
expense
$35,407
$44,545
Occupancy
4,449
4,322
3,952
Income tax expense
6,276
Technology, communications and
Effective tax rate
17.7 %
8,114
18.2 %
$40,764
8,290
20.3 %
equipment
9,821
8,802
Professional and outside services
8,464
8,502
• higher costs associated with using forward contracts to
hedge certain non-U.S. dollar-denominated net
investment exposures, and
10,338
⚫ lower net valuation gains on certain investments in AWM
Management's discussion and analysis
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan
Chase's Consolidated Results of Operations on a reported
basis for the two-year period ended December 31, 2020,
unless otherwise specified. Refer to Consolidated Results of
Operations on pages 48-51 of the Firm's Annual Report on
Form 10-K for the year ended December 31, 2019 (the
"2019 Form 10-K") for a discussion of the 2019 versus 2018
results. Factors that relate primarily to a single business
segment are discussed in more detail within that business
segment's results. Refer to pages 152-155 for a discussion of
the Critical Accounting Estimates Used by the Firm that affect
the Consolidated Results of Operations.
Revenue
Year ended December 31,
2018
(in millions)
2020
2019
Investment banking fees
$
9,486 $
Principal transactions
18,021
Lending- and deposit-related fees (a)
6,511
7,501 $
14,018
6,626
7,550
12,059
6,377
Asset management, administration
(a)
and commissions
18,177
16,908
53
16,793
JPMorgan Chase & Co./2020 Form 10-K
U.S.government facilities. Beginning in March 2020, the
Federal Reserve announced a suite of facilities using its
emergency lending powers under section 13(3) of the
Federal Reserve Act to support the flow of credit to
individuals, households and businesses adversely affected
by the COVID-19 pandemic and to support the broader
economy.
support legislative proposals in the U.S., the U.K. and the
EU that aim to resolve concerns involving "tough legacy"
contracts (i.e. contracts that do not provide for automatic
conversion to another rate or that are difficult to amend
in order to add rate fallback provisions).
Resolution of these challenges should provide more
certainty and help to provide a framework for market
participants in transitioning away from IBORS.
⚫ net losses on certain equity investments in CIB, compared
with net gains in the prior year
JPMorgan Chase & Co./2020 Form 10-K
51
Management's discussion and analysis
Regulatory Developments Relating to the
COVID-19 Pandemic
Since March 2020, the U.S. government as well as central
banks and banking authorities around the world have taken
and continue to take actions to help individuals, households
and businesses that have been adversely affected by the
economic disruption caused by the COVID-19 pandemic.
The CARES Act and the Consolidated Appropriations Act,
which were signed into law on March 27, 2020 and
December 27, 2020, respectively, provide, among other
things, funding to support loan facilities to assist consumers
and businesses. Set forth below is a summary as of the date
of this Form 10-K of U.S. government actions currently
impacting the Firm and U.S. government programs in which
the Firm is participating. The Firm will continue to assess
ongoing developments in government actions in response
to the COVID-19 pandemic.
U.S. government actions
Eligible retained income definition. On March 17, 2020, the
Office of the Comptroller of the Currency ("OCC"), the Board
of Governors of the Federal Reserve System ("Federal
Reserve"), and the Federal Deposit Insurance Corporation
("FDIC"), collectively the "federal banking agencies," issued
an interim final rule (issued as final on August 26, 2020)
that revised the definition of "eligible retained income" in
the regulatory capital rules that apply to all U.S. banking
organizations. On March 23, 2020, the Federal Reserve
issued an interim final rule (issued as final on August 26,
2020) that revised the definition of "eligible retained
income" for purposes of the total loss-absorbing capacity
("TLAC") buffer requirements that apply to global
systemically important banking organizations. The revised
definition of eligible retained income makes any automatic
limitations on payout distributions that could apply under
the agencies' capital rules or TLAC rule take effect on a
more graduated basis in the event that a banking
organization's capital, leverage and TLAC ratios were to
decline below regulatory requirements (including buffers).
The March 17, 2020 interim final rule was issued, in
conjunction with an interagency statement encouraging
banking organizations to use their capital and liquidity
buffers, to further support banking organizations' abilities
to lend to households and businesses affected by the
COVID-19 pandemic.
Reserve requirements. On March 24, 2020, the Federal
Reserve issued an interim final rule (issued as final on
December 22, 2020) reducing reserve requirement ratios
for all depository institutions to zero percent, effective
March 26, 2020, an action intended to free up liquidity in
the banking system to support lending to households and
businesses.
Refer to Note 26 for additional information on the
reduction to the reserve requirement.
•
Regulatory Capital - Current Expected Credit Losses ("CECL")
transition delay. On March 31, 2020, the federal banking
agencies issued an interim final rule (issued as final on
August 26, 2020) that provided banking organizations with
the option to delay the effects of CECL on regulatory capital
for two years, followed by a three-year transition period
("CECL capital transition provisions"). The Firm elected to
apply the CECL capital transition provisions.
Supplementary leverage ratio ("SLR") temporary revision. On
April 1, 2020, the Federal Reserve issued an interim final
rule that requires, on a temporary basis, the calculation of
total leverage exposure for purposes of calculating the SLR
for bank holding companies ("BHC"), to exclude the on-
balance sheet amounts of U.S. Treasury securities and
deposits at Federal Reserve Banks. These exclusions
became effective April 1, 2020, and will remain in effect
through March 31, 2021.
Refer to Capital Risk Management on pages 91-101 and
Note 27 for additional information on the CECL capital
transition provisions, the impact to the Firm's capital
metrics and the Firm's SLR.
Loan modifications. On April 7, 2020, the federal banking
agencies along with the National Credit Union
Administration, and the Consumer Financial Protection
Bureau, in consultation with the state financial regulators,
issued an interagency statement revising a March 22, 2020
interagency statement on loan modifications and the
reporting for financial institutions working with customers
affected by the COVID-19 pandemic (the "IA Statement").
The IA Statement reconfirmed that efforts to work with
borrowers where the loans are prudently underwritten, and
not considered past due or carried on nonaccrual status,
should not result in the loans automatically being
considered modified in a troubled debt restructuring
("TDR") for accounting and financial reporting purposes, or
for purposes of their respective risk-based capital rules,
which would otherwise require financial institutions subject
to the capital rules to hold more capital. The IA Statement
also clarified the interaction between its previous guidance
and Section 4013 of the CARES Act, as extended by Section
541 of the Consolidated Appropriations Act, which provides
certain financial institutions with the option to suspend the
application of accounting guidance for TDRS for a limited
period of time for loan modifications made to address the
effects of the COVID-19 pandemic.
The Firm has granted various forms of assistance to
customers and clients impacted by the COVID-19 pandemic,
including payment deferrals and covenant modifications.
The majority of the Firm's COVID-19 related loan
modifications have not been considered TDRs because:
52
62
JPMorgan Chase & Co./2020 Form 10-K
the CARES Act and extended by the Consolidated
Appropriations Act.
To the extent that certain modifications do not meet any of
the above criteria, the Firm accounts for them as TDRs.
Refer to Credit Portfolio on pages 112-113 and Note 12 for
additional information on the Firm's loan modification
activities.
PPP. Beginning April 3, 2020, the PPP, established by the
CARES Act and administered by the SBA, authorized eligible
lenders to provide nonrecourse loans to eligible borrowers
until August 8, 2020 to provide an incentive for these
businesses to keep their workers on their payroll. As part of
the Consolidated Appropriations Act, additional funding was
provided for new PPP loans beginning in early January
2021. This program was designed to target smaller
businesses as well as to simplify the loan forgiveness
process for loans under $150,000. As of February 19,
2021, the Firm has funded approximately $5 billion under
this extension of the program.
The Firm has participated and is participating in the PPP
and certain of the other government facilities and
programs, as needed, to assist its clients and customers or
to support the broader economy. Refer to Capital Risk
Management on pages 91-101, Liquidity Risk Management
on pages 102-108, Credit Portfolio on pages 112-113,
Note 12 and Note 27 for additional information on the
Firm's participation in the PPP and other government
facilities and programs.
Investment securities gains/(losses)
they represent short-term or other insignificant
modifications, whether under the Firm's regular loan
modification assessments or the IA Statement guidance, or
the Firm has elected to apply the option to suspend the
application of accounting guidance for TDRs as provided by
258
Principal transactions revenue increased, predominantly
in CIB, reflecting higher revenue in Fixed Income Markets,
driven by strong performance in Currencies & Emerging
Markets, Rates, and Credit.
The increase in principal transactions revenue also reflected
higher net valuations on several legacy equity investments
in Corporate, compared with net losses in the prior year.
Principal transactions revenue in CIB may in certain cases
have offsets across other revenue lines, including net
interest income. The Firm assesses the performance of its
CIB Markets business on a total revenue basis.
Refer to CIB and Corporate segment results on pages 71-76
and pages 83-84, respectively, and Note 6 for additional
information.
Lending- and deposit-related fees decreased as a result of
lower deposit-related fees in CCB, reflecting lower
transaction activity and the impact of fee refunds related to the
COVID-19 pandemic, predominantly offset by higher cash
management fees in CIB and CB, as well as higher lending-
related fees, particularly loan commitment fees in CIB.
Refer to CCB, CIB and CB segment results on pages 67-70,
pages 71-76 and pages 77-79, respectively, and Note 6 for
additional information.
Asset management, administration and commissions
revenue increased driven by:
•
•
higher asset management fees in AWM as a result of net
inflows into liquidity and long term products, and higher
performance fees; and in CCB related to a higher level of
investment assets
higher brokerage commissions in CIB and AWM on higher
client-driven volume,
partially offset by
•
lower volume of annuity sales in CCB.
Refer to CCB, CIB and AWM segment results on pages 67-
70, pages 71-76 and pages 80-82, respectively, and Note
6 for additional information.
Investment securities gains/(losses) increased due to the
repositioning of the investment securities portfolio,
including sales of U.S. GSE and government agency
mortgage-backed securities, particularly in the first and
third quarters of 2020. Refer to Corporate segment results
on pages 83-84 and Note 10 for additional information.
Mortgage fees and related income increased due to higher
net mortgage production revenue reflecting higher
mortgage production volumes and margins; the prior year
included gains on sales of certain loans.
54
JPMorgan Chase & Co./2020 Form 10-K
Card income decreased due to:
•
•
lower net interchange income reflecting lower credit card
sales volumes and debit card transactions as a result of
the impact of the COVID-19 pandemic, largely offset by
lower acquisition costs and higher annual fees in CCB, and
lower merchant processing fees in CIB predominantly
driven by a reporting reclassification of certain expenses
to be a reduction of revenue in Merchant Services. Refer
to CCB and CIB segment results on pages 67-70 and
pages 71-76, respectively, and Note 6 for further
information.
802
Other income decreased reflecting:
Refer to CIB segment results on pages 71-76 and Note 6 for
additional information.
higher debt underwriting fees in investment-grade and
high-yield bonds driven by increased industry-wide fees
and wallet share gains. The increased activity resulted in
part from clients seeking liquidity in the first half of the
year as a result of the COVID-19 pandemic.
Refer to CCB segment results on pages 67-70, Note 6 and
15 for further information.
Investment banking fees increased, driven by CIB,
reflecting:
Mortgage fees and related income
3,091
higher equity underwriting fees predominantly in follow-
on offerings and convertible securities markets due to
increased industry-wide fees
2,036
Card income (b)
4,435
5,076
Other income (c)
4,457
5,731
64,980
58,154
Increased amortization on higher levels of alternative
energy investments in CIB. The increased amortization
was more than offset by lower income tax expense from
the associated tax credits
57,245
(395)
1,254
4,743
5,343
53,724
55,059
Noninterest revenue
Net interest income
Total net revenue
$ 119,543 $ 115,399 $ 108,783
(a) In the first quarter of 2020, the Firm reclassified certain fees from asset
management, administration and commissions to lending- and deposit-
related fees. Prior-period amounts have been revised to conform with the
current presentation.
54,563
(c) Included operating lease income of $5.5 billion for each of the years ended
December 31, 2020 and 2019, and $4.5 billion for the year ended
December 31, 2018.
2020 compared with 2019
(b) In the second quarter of 2020, the Firm reclassified certain spend-based
credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been
revised to conform with the current presentation.
2019
2020
December 31,
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
management to assess the comparability of revenue from
year-to-year arising from both taxable and tax-exempt
sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense.
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. Refer to
Business Segment Results on pages 65-84 for additional
information on these non-GAAP measures. Non-GAAP
financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 162-166. That presentation, which is
referred to as "reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm's performance with the U.S. GAAP financial
statements of other companies.
2018
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES
Management's discussion and analysis
61
JPMorgan Chase & Co./2020 Form 10-K
(e) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm's payment obligation
is based on the performance of certain benchmarks.
(d) Refer to unsettled resale and securities borrowed agreements in Note 28 for further information.
In addition to analyzing the Firm's results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a "managed" basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the LOBS on a managed
basis. The Firm's definition of managed basis starts, in each
case, with the reported U.S. GAAP results and includes
certain reclassifications to present total net revenue for the
Firm (and each of the reportable business segments) on an
FTE basis. Accordingly, revenue from investments that
receive tax credits and tax-exempt securities is presented in
the managed results on a basis comparable to taxable
investments and securities. These financial measures allow
Fully taxable-
equivalent
adjustments"
tc(b
)
(in millions, except ratios)
1,877 $ 7,220
(b) Includes noncancelable operating leases for premises and equipment used primarily for business purposes. Excludes the benefit of noncancelable sublease
rentals of $593 million and $846 million at December 31, 2020 and 2019, respectively. Refer to Note 18 for further information on operating leases.
(c) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit
obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.
$
58,154
$ 5,731
2,968 $ 7,425
2,968 67,948
64,980
Total noninterest revenue (a)
$
Other income
Reported
Managed
basis
equivalent
adjustments (b)
Reported
Fully taxable-
Year ended
Managed
basis
$ 4,457
Contractual purchases and capital expenditures
177,648
1,968
333
Obligations under co-brand programs
539
286
286
Equity investment commitments
54,681
117,951
96,848
54,368
29,719
8,128
10,450
6,071
Fully taxable-
equivalent
adjustments (b)
2,534
2,534
(e)
942
(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
225
3,333
1,548
1,182
156,017
29,996
161,716 $
57,791 $
67,551 $
$ 2,529,130 $
Total contractual cash obligations
8,593
13,686
103,742
Total off-balance sheet obligations
79
240
530
2,929
198
Managed
basis
6,276
$ 8,265
60,688
Net income
44,545
38,793
9,662
3,386
Income tax expense
3,386
35,407
Income before income tax expense
ΝΑ
4,871
5,585
ΝΑ
5,585
17,480
NA
$29,131
17,480
NA $29,131
3,065
3,065
Contractual interest payments"
55 %
NM
57 %
54 %
NM
56 %
Overhead ratio
NA $32,474
$32,474
10,795
4,871
43,269
2,505
2,505
40,764
8,290
47,610
11,179
NA $36,431
8,114
$36,431
Provision for credit losses
55,687
111,288
63,148
48,140
2,505
531 57,776
57,245
54,981
122,929
66,656
ΝΑ
66,656
(a)
Total noninterest expense
418
3,386
119,543
Total net revenue
54,563
Net interest income
53,724
$
$ 5,343
55,059
1,877
628
55,601
115,399
45,635
53,195
3,065
50,130
56,273
3,386
52,887
Reported
Pre-provision profit
63,148
2,505
108,783
118,464
65,269
ΝΑ
65,269
3,065
ΝΑ
1,764
Net increase/(decrease) in
agreements
Investing activities
In 2019, cash provided primarily reflected net income
excluding noncash adjustments, lower trading assets,
and net proceeds of sales, securitizations, and paydowns
of loans held-for-sale, partially offset by higher securities
borrowed, an increase in other assets and a decrease in
trading liabilities.
In 2020, cash used primarily reflected higher trading
assets, other assets, and securities borrowed, partially
offset by higher trading liabilities and net income
excluding noncash adjustments.
JPMorgan Chase's operating assets and liabilities primarily
support the Firm's lending and capital markets activities.
These assets and liabilities can vary significantly in the
normal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes that cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources, are sufficient to
meet its operating liquidity needs.
Operating activities
$ 263,978 $ (15,162) $(152,511)
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans
and other assets. Prior-period amounts have been revised to conform
with the current presentation.
cash and due from banks and
deposits with banks
58 %
(2,863)
(182)
9,155
Effect of exchange rate
changes on cash
32,987
$ (79,910) $ 4,092 $ 15,614
(261,912) (52,059) (199,420)
34,158
596,645
The Firm's investing activities predominantly include
originating held-for-investment loans and investing in the
investment securities portfolio, and other short-term
instruments.
Financing activities
• In 2020, cash used primarily reflected net purchases of
investment securities, higher net originations of loans,
and higher securities purchased under resale
agreements.
The Firm's financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
stock.
The table below provides an index of where in this 2020 Form 10-K discussions of the Firm's various off-balance sheet
arrangements can be found. Refer to Note 1 for additional information about the Firm's consolidation policies.
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPES be conducted at arm's length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPES
with which the Firm is involved where such investment
would violate the Firm's Code of Conduct.
The Firm holds capital, as appropriate, against all SPE-
related transactions and related exposures, such as
derivative contracts and lending-related commitments and
guarantees.
The Firm has several types of off-balance sheet
arrangements, including through nonconsolidated special-
purpose entities ("SPES"), which are a type of VIE, and
through lending-related financial instruments (e.g.,
commitments and guarantees).
In the normal course of business, the Firm enters into
various off-balance sheet arrangements and contractual
obligations that may require future cash payments. Certain
obligations are recognized on-balance sheet, while others
are disclosed as off-balance sheet under accounting
principles generally accepted in the U.S. ("U.S. GAAP").
Special-purpose entities
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Management's discussion and analysis
59
JPMorgan Chase & Co./2020 Form 10-K
Refer to Consolidated Balance Sheets Analysis on pages
57-58, Capital Risk Management on pages 91-101, and
Liquidity Risk Management on pages 102-108 for a further
discussion of the activities affecting the Firm's cash flows.
* *
*
• For both periods, cash was used for repurchases of
common stock and cash dividends on common and
preferred stock. On March 15, 2020, in response to the
economic disruptions caused by the COVID-19 pandemic,
the Firm temporarily suspended repurchases of its
common stock. Subsequently, the Federal Reserve
directed all large banks, including the Firm, to
discontinue net share repurchases through the end of
2020.
• In 2019, cash provided reflected higher deposits,
partially offset by a decrease in short-term borrowings
and net payments of long-term borrowings.
In 2020, cash provided reflected higher deposits and an
increase in securities loaned or sold under repurchase
agreements, partially offset by net payments of long-term
borrowings.
• In 2019, cash used reflected net purchases of investment
securities, partially offset by lower securities purchased
under resale agreements, and net proceeds from sales
and securitizations of loans held-for-investment.
Financing activities
Type of off-balance sheet arrangement
Special-purpose entities: variable interests and other
obligations, including contingent obligations, arising
from variable interests in nonconsolidated VIES
Investing activities (a)
2019
281,685
(1)
17,841
17,578
11
210,407
232,599
43
119,277
170,181
10
40,920
45,208
17
183,675
291,498
2018
(3)
28
2020
Year ended December 31,
Net cash provided by/(used in)
Operating activities (a)
(in millions)
The following is a discussion of cash flow activities during
the years ended December 31, 2020 and 2019. Refer to
Consolidated cash flows analysis on page 54 of the Firm's
2019 Form 10-K for a discussion of the 2018 activities.
Consolidated cash flows analysis
JPMorgan Chase & Co./2020 Form 10-K
58
Stockholders' equity increased reflecting the combined
impact of net income, capital actions, the adoption of CECL
and an increase in accumulated other comprehensive income
("AOCI"). The increase in AOCI was driven by net unrealized
gains on AFS securities, and higher valuation of interest rate
cash flow hedges. Refer to page 165 for information on
changes in stockholders' equity, and Capital actions on page
99, Note 24 for additional information on AOCI.
Long-term debt decreased as a result of maturities of FHLB
advances; net maturities of senior debt, which included the
early termination of certain of the Firm's debt; partially
offset by an issuance of subordinated debt, and higher fair
value hedge accounting adjustments related to lower interest
rates. Refer to Liquidity Risk Management on pages 102-108
and Note 20 for additional information.
Trading liabilities increased reflecting client-driven market-
making activities, which resulted in higher levels of short
positions in debt and equity instruments and higher
derivative payables as a result of market movements in CIB
Markets. Refer to Notes 2 and 5 for additional information.
Accounts payable and other liabilities increased reflecting
higher client payables related to client-driven activities in CIB
Markets. Refer to Note 19 for additional information.
Refer to Off-Balance Sheet Arrangements on pages 60-61
and Note 14 and 28 for information on Beneficial interests
issued by consolidated VIES.
26 %
3,106,717
279,354
$ 3,386,071 $
7
261,330
2,687,379
2,426,049
Location of disclosure
Refer to Note 14
Page references
253-260
1,606
(b)
Operating leases"
250,415
230,202
123,477
42,180
42,084
22,461
Long-term debt (a)
17,874
17,599
223
2,400
14,976
2,705
Beneficial interests issued by consolidated VIES
2,070
Other(c)
(d)
Unsettled resale and securities borrowed
Off-balance sheet obligations
15,568
2,070,769
10,090
9,983
15,531
2,660,171
131,720
49,198
53,865
2,425,388
Total on-balance sheet obligations
2,592
2,008
2,237
8,694
3,602
35,107
28,514
28,514
Total
After 2025
2020
2024-2025
2022-2023
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. Refer
to Note 28 for a discussion of mortgage repurchase
liabilities and other obligations.
By remaining maturity at December 31,
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase's significant contractual cash
obligations at December 31, 2020. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the table are certain liabilities with variable cash flows
and/or no obligation to return a stated amount of principal
at maturity.
Contractual cash obligations
JPMorgan Chase & Co./2020 Form 10-K
60
000
283-288
Refer to Note 28
Off-balance sheet lending-related financial instruments,
guarantees, and other commitments
2019
Total
(in millions)
2021
On-balance sheet obligations
Short-term borrowings (a)
183,675
215,197
189
9
118
214,881
95,084
sold under repurchase agreements
2,143,145 $ 1,558,040
1,637 $
2,931 $
4,321 $
2,134,256 $
$
Deposits (a)
Federal funds purchased and securities loaned or
NM
2020
$ 236,865
47,820
781
2,399
$ 190,663
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
(b) Predominantly recognized in CIB, CB and Corporate.
2020
2018
Commercial Banking
Corporate & Investment Bank
$ 51,268 $ 55,133 $ 51,271
2019
2020
Consumer & Community Banking (a)
Year ended December 31,
(in millions, except ratios)
Total net revenue
The following tables summarize the Firm's results by segment for the periods indicated.
Refer to Line of business equity on page 98 for additional
information on business segment capital allocation.
The amount of capital assigned to each business is referred to
as equity. As of January 1, 2021, the Firm has changed its
line of business capital allocations primarily as a result of
changes in exposures for each LOB and an increase in the
relative risk weighting toward Standardized RWA. The
assumptions and methodologies used to allocate capital are
periodically assessed and as a result, the capital allocated
to the LOBS may change from time to time.
Business segment capital allocation
cost of unsecured long-term debt and preferred stock
dividends to the business segments is aligned with the Firm's
process to allocate capital. The allocated cost of unsecured
long-term debt is included in a business segment's net
interest income, and net income is reduced by preferred stock
dividends to arrive at a business segment's net income
applicable to common equity.
Segment Results - Managed Basis
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
As part of the funds transfer pricing process, almost all of the
cost of the credit spread component of outstanding unsecured
long-term debt and preferred stock dividends is allocated to
the reportable business segments, while the balance of the
cost is retained in Corporate. The methodology to allocate the
27,990
23,278
9,336
$ 9,313 $ 9,264 $
2018
2019
2020
2018
$ 37,382
21,876
2019
$ 39,265
22,444
16,821
$49,284
27,168 23,538
24,103 25,746
4,754 2,726
14,707 17,094
28%
20 %
31%
4,954
16,541
8,217
15%
Return on equity ("ROE")
Net income/(loss)
12,312
26,857
28,276
3,798
Debt expense and preferred stock dividend allocation
Funds transfer pricing
Services
• Securities
⚫ Lending
• Wholesale
Payments
• Wealth
Management
Management
• Asset
Real Estate
Banking
• Commercial
• Corporate
Client
Banking
• Middle
Market
Banking
Equity
Markets
•
Income
Markets
Asset & Wealth
Management
⚫ Credit
Funds transfer pricing is the process by which the Firm
allocates interest income and expense to each business
segment and transfers the primary interest rate risk and
liquidity risk exposures to Treasury and CIO within Corporate.
The funds transfer pricing process considers the interest rate
risk, liquidity risk and regulatory requirements on a product-
by-product basis within each business segment.
Adjustments
Business segment changes
allocated to the business segments and are retained in
Corporate. Expense retained in Corporate generally includes
parent company costs that would not be incurred if the
segments were stand-alone businesses; and other items not
aligned with a particular business segment.
Management's discussion and analysis
65
Where business segments use services provided by corporate
support units, or another business segment, the costs of those
services are allocated to the respective business segments.
The expense is generally allocated based on the actual cost
and use of services provided. In contrast, certain costs and
investments related to corporate support units, technology
and operations not currently utilized by any LOB, are not
Expense Allocation
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments may agree to share revenue from those
transactions. Revenue is generally recognized in the segment
responsible for the related product or service, with allocations
to the other segment(s) involved in the transaction. The
segment results reflect these revenue-sharing agreements.
Revenue sharing
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were a stand-alone business. The
management reporting process that derives business segment
results includes the allocation of certain income and expense
items. The Firm also assesses the level of capital required for
each LOB on at least an annual basis. The Firm periodically
assesses the assumptions, methodologies and reporting
classifications used for segment reporting, and further
refinements may be implemented in future periods.
to reflect this realignment and revised allocation
methodology.
JPMorgan Chase & Co./2020 Form 10-K
In connection with the alignment of Wholesale Payments, the
assets, liabilities and headcount associated with the Merchant
Services business were realigned to CIB from CCB, and the
revenue and expenses of the Merchant Services business are
reported across CCB, CIB and CB based primarily on client
relationships. In the fourth quarter of 2020, payment
processing-only clients along with the associated revenue and
expenses were realigned to CIB's Wholesale Payments
business from CCB and CB. Payment processing-only clients
are those that only use payment services offered by Merchant
Services, and in general do not currently utilize other services
offered by the Firm. Prior-period amounts have been revised
Merchant Services, which was realigned from CCB to CIB
Treasury Services and Trade Finance in CIB. Trade Finance
was previously reported in Lending in CIB.
•
•
In the fourth quarter of 2020, the Firm transferred certain
assets, liabilities, revenue, expense and headcount associated
with certain wealth management clients from AWM to the J.P.
Morgan Wealth Management business unit within CCB. Prior-
period amounts have been revised to conform with the
current presentation, including the transfer of approximately
1,650 technology and support staff during the second and
third quarters of 2020. Ultra-high-net-worth and certain
high-net-worth client relationships remained in AWM.
In the first quarter of 2020, the Firm began reporting a
Wholesale Payments business unit within CIB following a
realignment of the Firm's wholesale payments businesses.
The Wholesale Payments business comprises:
& Other
3,735
3,627
15,506
65,269
66,656
$111,288
$ 118,464
$122,929
$ (128)
902
(1,030)
(4)
144
(1)
1,111
(1,750)
NM
2,945
32%
66
52
59
2,867
26%
28 %
Return on equity ("ROE")
2,992
63,148
Net income/(loss)
56,273
48,140
JPMorgan Chase & Co./2020 Form 10-K
66
60
13%
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
The following sections provide a comparative discussion of the Firm's results by segment as of or for the years ended
December 31, 2020 and 2019.
15%
32,474
36,431
29,131
12%
NM
NM
(1,241)
4,871
5,585
17,480
53,195
263
Provision for credit losses
$ (1,176) $ 1,211
1,067
17%
11 %
16%
4,264
3,958
2,578
11,799
129
296
2,113
(60)
277
11,954
14%
5,709
5,529
5,515
20%
Year ended December 31,
(in millions, except ratios)
Total net revenue
Total noninterest expense
Asset & Wealth Management
2020
2019
1,373
(2,549)
3,852
3,844
4,283
Pre-provision profit/(loss)
$ 13,591 $ 13,427
9,747
9,575
9,957
Portfolios
$14,240
2019
2020
2018
Total(a)
Corporate
2019
2020
2018
2018
57 %
• Real Estate
Home
Average interest-earning
assets excluding CIB
Markets
Less: Average CIB Markets
interest-earning assets (b)(c)
performance.
Management believes that these measures help investors
understand the effect of these items on reported results
and provide an alternate presentation of the Firm's
Pre-provision profit, which represents total net revenue
less total noninterest expense.
Allowance for loan losses to period-end loans retained
excluding trade finance and conduits
$ 54,656 $ 52,600
$2,212,657
$2,345,279
$2,779,710
Average interest-earning
assets(c)
$ 46,607
Net interest income
excluding CIB Markets (a)
3,087
3,120
751,131
8,374
672,417
$2,028,579
3.27 %
2.30 %
excluding CIB Markets
interest-earning assets
Net yield on average
0.52
0.46
1.11
Net yield on average CIB
Markets interest-earning
assets (b)
2.52 %
2.46 %
1.98 %
interest-earning assets -
managed basis
Net yield on average
$1,672,862 $1,619,553
593,104
3.25 %
(b)
$ 57,776 $ 55,687
Return on assets ("ROA")
Total net revenue - Total noninterest expense
Total noninterest expense / Total net revenue
Pre-provision profit
Overhead ratio
Common stockholders' equity at period-end /
Common shares at period-end
Book value per share ("BVPS")
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Calculation of certain U.S. GAAP and non-GAAP financial measures
2018
2019
2020
Year ended December 31,
(in millions, except rates)
Net interest income and net yield excluding CIB Markets
In addition to reviewing net interest income and the net
yield on a managed basis, management also reviews these
metrics excluding CIB Markets, as shown below; these
metrics, which exclude CIB Markets, are non-GAAP financial
measures. Management reviews these metrics to assess the
performance of the Firm's lending, investing (including
asset-liability management) and deposit-raising activities.
The resulting metrics that exclude CIB Markets are referred
to as non-markets-related net interest income and net yield.
CIB Markets consists of Fixed Income Markets and Equity
Markets. Management believes that disclosure of non-
markets-related net interest income and net yield provides
investors and analysts with other measures by which to
analyze the non-markets-related business trends of the
Firm and provides a comparable measure to other financial
institutions that are primarily focused on lending, investing
and deposit-raising activities.
JPMorgan Chase & Co./2020 Form 10-K
62
Reported net income / Total average assets
Less: CIB Markets net
interest income"
Return on common equity ("ROE")
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
$ 54,981
•
Net interest income -
(a)
managed basis
628
•
531
418
adjustments
Fully taxable-equivalent
Adjusted expense, which is noninterest expense
excluding Firmwide legal expense
$ 57,245 $ 55,059
$ 54,563
•
Net interest income -
reported
In addition, the Firm reviews other non-GAAP financial
measures which include:
Net income* / Average common stockholders' equity
Return on tangible common equity ("ROTCE")
Net income* / Average tangible common equity
Tangible book value per share ("TBVPS")
(a) Interest includes the effect of related hedges. Taxable-equivalent
amounts are used where applicable.
(b) Refer to pages 74-75 for further information on CIB Markets.
(c) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
JPMorgan Chase & Co./2020 Form 10-K
Wholesale Businesses
Consumer & Community Banking
Consumer Businesses
JPMorgan Chase
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by the Firm's Operating
Committee. Segment results are presented on a managed
basis. Refer to Explanation and Reconciliation of the Firm's
use of Non-GAAP Financial Measures, on pages 62-64 for a
definition of managed basis.
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment.
BUSINESS SEGMENT RESULTS
JPMorgan Chase & Co./2020 Form 10-K
64
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
ΝΑ
NA
NA
60.98
66.11 $
Commercial
Banking
$
Corporate & Investment Bank
Card & Auto
Banking
⚫ Business
Management
Wealth
• J.P. Morgan
• Consumer
Banking
Consumer &
Business Banking
• Fixed
• Investment
Banking
• Auto
Lending
Production
• Credit Card
• Home
Markets &
Securities Services
Banking
Home Lending
17 %
19 %
14 %
Tangible book value per share
Return on tangible common equity
Tangible common equity
(a)
Add: Certain deferred tax liabilities (a
Less: Other intangible assets
Less: Goodwill
Common stockholders' equity
(in millions, except per share and ratio data)
Average
Tangible common equity ("TCE"), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common
stockholders' equity (i.e., total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other
than MSRS), net of related deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a
percentage of average TCE. TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE,
ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm's use of equity.
The following summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
Tangible common equity, ROTCE and TBVPS
Management's discussion and analysis
33
63
Period-end
Year ended December 31,
Dec 31,
2020
NA
ΝΑ
2,231
$ 183,155
47,491
807
2018
$ 229,222
$ 232,907
47,620
789
2,328
$ 186,826
2019
Lending
Servicing
37
201,592 $
$
2,453
904
49,248
249,291 $
$
Dec 31,
2019
234,337
47,823
819
2,381
188,076
1,562,431
2,816,188 $ 2,248,417
Change
108
296,284
249,157
19
160,635
139,758
15
503,126
369,687
36
388,178
350,699
15%
11
47,540
325
589,999
398,239
48
1,012,853
997,620
2
(28,328)
(13,123)
116
984,525
201,821
21,704
241,927
502,735
$
$ 2,144,257 $
215,209
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
Consolidated balance sheets analysis
The following is a discussion of the significant changes between December 31, 2020 and 2019.
Selected Consolidated balance sheets data
December 31, (in millions)
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets (a)
Available-for-sale securities
Investment securities, net of allowance for credit losses
Loans (a)
Held-to-maturity securities, net of allowance for credit losses
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill, MSRS and other intangible assets
(a)
Other assets"
Total assets
2020
2019
Change
$
984,497
90,503
24,874
24
credit losses were $12.1 billion related to COVID-19, and
$4.3 billion related to CECL, as of December 31, 2020.
Refer to Credit and Investment Risk Management on pages
110-134, and Notes 1, 2, 3, 12 and 13 for further discussion
of loans and the allowance for loan losses.
Accrued interest and accounts receivable increased driven
by higher client receivables related to client-driven
activities in CIB prime brokerage.
Refer to Note 16 and 18 for additional information on
Premises and equipment.
Selected Consolidated balance sheets data
December 31, (in millions)
Liabilities
Deposits
Goodwill, MSRs and other intangibles was flat as the
increase in goodwill related to the acquisitions of cxLoyalty
and 55ip was offset by lower MSRS as a result of faster
prepayment speeds on lower rates, and the realization of
expected cash flows, partially offset by net additions to the
MSRs. Refer to Note 15 for additional information.
Other assets increased reflecting higher cash collateral
placed with central counterparties in CIB.
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities
Beneficial interests issued by consolidated variable interest entities ("VIES")
Long-term debt
Management's discussion and analysis
Total liabilities
Total liabilities and stockholders' equity
Deposits increased reflecting significant inflows across the
LOBS primarily driven by the impact of the COVID-19
pandemic and the related effect of certain government
actions;
•
in the wholesale businesses, while the inflows principally
occurred in March as clients sought to remain liquid as a
result of market conditions, balances continued to increase
through the end of 2020, and
in CCB, the increase was driven by lower spending and
higher cash balances across both consumer and small
business customers, as well as growth from existing and
new accounts.
Refer to the Liquidity Risk Management discussion on pages
102-108; and Notes 2 and 17 for more information.
Federal funds purchased and securities loaned or sold
under repurchase agreements increased reflecting:
higher secured financing of AFS investment securities in
Treasury and CIO, as well as trading assets in CIB,
partially offset by
• a decline in client-driven market-making activities in CIB,
including the Firm's non-participation in the Federal
Reserve's open market operations. Refer to the Liquidity
Risk Management discussion on pages 102-108 and Note
11 for additional information.
Short-term borrowings increased reflecting higher financing
of CIB prime brokerage activities. Refer to pages 102-108
for information on changes in Liquidity Risk Management.
2020
72,861
2019
Stockholders' equity
57
Accounts payable and other liabilities
JPMorgan Chase & Co./2020 Form 10-K
27,109
25,813
57
5
53,428
53,341
152,853
130,395
17
3,386,071 $
2,687,379
26 %
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
Cash and due from banks and deposits with banks
increased primarily as a result of significant deposit inflows,
which also funded asset growth across the Firm, including
investment securities and securities purchased under resale
agreements. Deposits with banks reflect the Firm's
placements of its excess cash with various central banks,
including the Federal Reserve Banks.
$
• a net $3.6 billion addition in wholesale, across the LOBS,
impacting multiple industries.
The adoption of CECL on January 1, 2020, resulted in a
$4.2 billion addition to the allowance for loan losses.
There were also additions to the allowance for lending-
related commitments, which is included in other liabilities on
the consolidated balance sheets, of $1.1 billion related to the
impact of the COVID-19 pandemic, and $98 million related to
the adoption of CECL. Total additions to the allowance for
Federal funds sold and securities purchased under resale
agreements increased as a result of higher deployment of
cash in Treasury and CIO, as well as the impact of client
activity and higher demand for securities to cover short
positions in CIB. Refer to Liquidity Risk Management on
pages 102-108 and Note 11 for additional information.
Securities borrowed increased driven by client-driven
activities in CIB. Refer to Liquidity Risk Management on
pages 102-108 and Note 11 for additional information.
Trading assets remained elevated at the end of 2020, due to
stronger client-driven market-making activities in debt and
equity instruments and higher derivative receivables as a
result of market movements in CIB Markets. Refer to Notes 2
and 5 for additional information.
•
The allowance for loan losses increased primarily reflecting
the deterioration and uncertainty in the macroeconomic
environment, in particular in the first half of 2020, as a
result of the impact of the COVID-19 pandemic, consisting of:
a net $7.4 billion addition in consumer, predominantly in
the credit card portfolio, and
lower loans in Home Lending primarily due to net
paydowns; and lower loans in Card due to the decline in
•
sales volumes that began in March as a result of the impact
of the COVID-19 pandemic.
growth in wholesale loans and mortgages in AWM and the
impact of PPP loans in CBB and CB, as well as higher
wholesale loans related to client-driven activities in CIB
Markets
•
Corporate segment results on pages 83-84, Investment
Portfolio Risk Management on page 134 and Notes 2 and 10
for additional information on investment securities.
Loans increased, reflecting:
Investment securities increased, reflecting net purchases of
U.S. Treasuries and U.S. GSE and government agency MBS in
the available-for-sale ("AFS") portfolio, driven by interest
rate risk management activities and cash deployment. AFS
securities of $164 billion were transferred to the held-to-
maturity ("HTM") portfolio, resulting in a decrease in AFS
and a comparable increase in HTM securities. The transfers
were executed for capital management purposes. Refer to
largely offset by
Auto
3.10
Loans:
Total assets
(average)
(0.09)
(0.05)
2.93
Card
Selected balance sheet data
(0.12)
0.20
3.10
0.33
Home Lending (a)
$ 501,584
$ 543,127 $ 548,637
Total net charge-off/
(recovery) rate
1.03 %
1.13 %
0.98 %
Consumer & Business
30+ day delinquency rate
Banking
43,064
(a)(c)
Home Lending
197,148
0.38
0.88 %
Auto
0.61 % (g)
28,859
230,662
182,121
Card
144,216
66,432
Total loans
441,579
61,522
473,476
29,585
213,445 247,721
168,924 156,632
63,573
28,450
Card
4,286
4,848
4,518
1.03 %
Auto
206
243
Total net charge-offs/
(recoveries)
$4,503
$5,254
$4,713
Deposits
958,706
Equity
52,000
723,418
52,000
496,376
684,124
51,000
Net charge-off/(recovery) rate
Consumer & Business Banking
123
27,890
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm's Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB's Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
period-end assets of $6.6 billion and $6.2 billion and headcount of 4,022
and 4,092, as of December 31, 2019 and 2018, respectively.
(h)
Consumer & Business Banking
Home Lending
$1,372
$ 750
$ 796
1,813
1,890
2,791
Headcount
122,894
125,756
127,826
Card
17,800
5,683
51,000
5,184
1,042
465
464
Total allowance for loan
losses
$22,027
$8,788 $9,235
(a)(b)
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including an increase to
headcount of 2,641 and 2,400 as of December 31, 2019 and 2018,
respectively.
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
(b) At December 31, 2020, 2019 and 2018, Home Lending loans held-
for-sale and loans at fair value were $9.7 billion, $16.6 billion and
$7.9 billion, respectively.
(c) Average Home Lending loans held-for sale and loans at fair value were
$11.1 billion, $14.1 billion and $9.0 billion, respectively, for the years
ended December 31, 2020, 2019 and 2018.
(d) At December 31, 2020 included $19.2 billion of loans in Business
Banking under the PPP. Refer to Credit Portfolio on pages 112-113 for
a further discussion of the PPP.
Effective January 1, 2020, the Firm adopted the CECL accounting
guidance. The adoption resulted in a change in the accounting for PCI
loans, which are considered purchased credit deteriorated ("PCD") loans
under CECL. Refer to Note 1 for further information.
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation.
Auto
Home Lending (d)(e)
Allowance for loan losses
0.95 %
1.15 %
1.58 %
1.63 %
250,373
Card
1.68
(h)
1.87
1.83
Card
146,633
156,325
145,652
(h)
0.92 %
Auto
0.94
0.93
Auto
61,476
Total loans
448,321
Deposits
851,390
Equity
52,000
61,862 64,675
477,708 488,590
698,378 675,537
52,000
90+ day delinquency rate - Card
(h)
0.92 %
0.69
Home Lending
Refer to Note 15 for further information regarding changes
in the value of the MSR asset and related hedges, and
mortgage fees and related income.
Banking
1,618
268
Net mortgage servicing
revenue
450
417
984
Mortgage fees and related
income
$ 3,079
$ 2,035
$ 1,252
Financial ratios
Return on equity
Overhead ratio
15 %
55
31 %
51
28 %
53
In the first quarter of 2020, the Merchant Services business was realigned from
CCB to CIB as part of the Firm's Wholesale Payments business. In the fourth
quarter of 2020, payment processing-only clients along with the associated
revenue and expenses were realigned to CIB's Wholesale Payments business
from CCB and CB. Prior-period amounts have been revised to conform with the
current presentation.
In the fourth quarter of 2020, the Firm realigned certain wealth management
clients from AWM to CCB. Prior-period amounts have been revised to conform
with the current presentation, including an increase to net revenue of $725
million and $649 million for the years ended December 31, 2019 and 2018,
respectively. Ultra-high-net-worth and certain high-net-worth client
relationships remained in AWM.
(a) In the first quarter of 2020, the Firm reclassified certain fees from asset
management, administration and commissions to lending- and deposit-
related fees. Prior-period amounts have been revised to conform with the
current presentation.
(b) In the second quarter of 2020, the Firm reclassified certain spend-based
credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been
revised to conform with the current presentation.
(c) Included depreciation expense on leased assets of $4.2 billion, $4.0 billion
and $3.4 billion for the years ended December 31, 2020, 2019 and 2018,
respectively.
(d) Included MSR risk management results of $(18) million, $(165) million and
$(111) million for the years ended December 31, 2020, 2019 and 2018,
respectively.
67
Management's discussion and analysis
2020 compared with 2019
Net income was $8.2 billion, a decrease of 50%, largely
driven by an increase in the provision for credit losses.
Net revenue was $51.3 billion, a decrease of 7%.
•
2,629
Net production revenue
income details:
Mortgage fees and related
17,461
16,588
Total noninterest expense
Income before income tax
expense
27,990
28,276
27,168
10,966
21,903
19,349
Income tax expense
2,749
5,362
4,642
Net income
Net interest income was $33.5 billion, down 10%, driven
by:
$ 8,217
$14,707
Revenue by line of business
Consumer & Business Banking
$22,955
$27,376
$25,607
Home Lending
6,018
(b)
Card & Auto
22,295
5,179
22,578
5,484
20,180
$16,541
the impact of deposit margin compression in CBB, spread
compression and lower loans in Home Lending,
predominantly due to paydowns and prior year loan
sales, and lower loans in Card due to the decline in sales
volume as a result of the COVID-19 pandemic,
partially offset by
⚫ growth in deposits in CBB, and loan margin expansion in
Card, the prior year included charges for the unwind of
the internal funding from Treasury and CIO associated
with the sales of certain mortgage loans.
Noninterest revenue was $17.7 billion, flat, reflecting:
⚫ lower deposit-related fees due to lower transaction
activity and the impact of fee refunds related to the
COVID-19 pandemic,
2019
2018
headcount)
2020
2019
2018
Credit data and quality statistics
Selected balance sheet data
(a)(b)(c)
Nonaccrual loans
$5,675
(f) $3,027
$3,349
(period-end)
2020
Total assets
$ 541,367
$ 560,177
Net charge-offs/(recoveries)
Consumer & Business Banking
263
298
246
Loans:
Home Lending
(169)
(98)
(294)
Consumer & Business
(d)
$ 496,705
48,810
(in millions, except ratio data)
December 31,
lower card income due to lower net interchange income
reflecting lower credit card sales volumes and debit card
transactions as a result of the impact of the COVID-19
pandemic, largely offset by lower acquisition costs and
higher annual fees, and
lower asset management, administration and
commissions due to a lower volume of annuity sales
offset by a higher level of investment assets,
offset by
•
higher net mortgage production revenue reflecting higher
mortgage production volumes and margins; the prior
year included gains on the sales of certain mortgage
loans.
(a) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD
loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI
loans as the Firm recognized interest income on each pool of PCI loans
as each of the pools was performing.
Noninterest expense was $28.0 billion, relatively flat,
reflecting:
•
•
lower marketing expense as a result of lower investments
in marketing campaigns and lower travel-related
benefits, and
lower structural expenses,
(in millions, except
offset by
The provision for credit losses was $12.3 billion, an
increase of $7.4 billion from the prior year, driven by:
•
•
additions to the allowance for credit losses as a result of
the impact of the COVID-19 pandemic, consisting of: $6.6
billion for Card, $649 million for CBB, and $560 million
for Auto,
partially offset by
lower net charge-offs largely in Card, reflecting lower
charge-offs and higher recoveries primarily benefiting
from payment assistance and government stimulus.
The prior year included a $300 million net reduction in the
allowance for credit losses.
Refer to Credit and Investment Risk Management on pages
110-134 and Allowance for Credit Losses on pages
132-133 for further discussions of the credit portfolios and
the allowance for credit losses.
68
JPMorgan Chase & Co./2020 Form 10-K
Selected metrics
As of or for the year ended
Selected metrics
As of or for the year ended
December 31,
investments in the business, higher volume-related
compensation, and higher depreciation on auto lease
assets.
(b) At December 31, 2020, 2019 and 2018, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $558 million, $963 million and $2.6 billion,
respectively. These amounts have been excluded based upon the
government guarantee. Prior-period amounts of mortgage loans 90 or
more days past due and insured by U.S. government agencies excluded
from nonaccrual loans have been revised to conform with the current
presentation; refer to footnote (c) for additional information.
Correspondent
(d) At December 31, 2020, the 30+ day delinquency rates included PCD
loans. The rates prior to January 1, 2020 were revised to include the
impact of PCI loans.
2020
2019 (c)
2018 (c)
$
13,872
$
11,905
$
12,422
7,524
5,319
5,077
1,931
1,543
North America
1,473
18,767
18,972
25,957
20,498
18,410
Total net revenue
$
49,284 $
39,265 $
37,382
Loans retained (period-end) (a)
Europe/Middle East/Africa
$
27,659 $
23,327
26,067 $
Total international net revenue
Asia-Pacific
$
$
11,489
3,651
30,980
1,597.3 $
610,555 $
13,498
10,100
$
12,440
8,078
3,233
2,699
$
26,831 $
23,217
1,511.5 $
1,366.1
Latin America/Caribbean
464,795 $
In the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm's Wholesale Payments business. Prior-period
amounts have been revised to conform with the current presentation.
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Represents total merchant processing volume across CIB, CCB and CB.
(c) Client deposits and other third-party liabilities pertain to the Wholesale Payments and Securities Services businesses.
JPMorgan Chase & Co./2020 Form 10-K
75
Management's discussion and analysis
International metrics
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Total net revenue
(a)
Europe/Middle East/Africa
434,422
$
23,648
12,802
373,401
$
293,865 $
272,381
North America
237,154
170,930
162,041
Total client deposits and other third-party liabilities
$
610,555 $
464,795 $
434,422
AUC (period-end)(b)
$
(in billions)
All other regions
Total AUC
$
$
20,028 $
10,952
30,980 $
16,855 $
9,976
26,831 $
14,359
8,858
23,217
In the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm's Wholesale Payments business. In the fourth
quarter of 2020, payment processing-only clients along with the associated revenue and expenses were realigned to CIB's Wholesale Payments business
from CCB and CB. Prior-period amounts have been revised to conform with the current presentation.
(a) Total net revenue and loans retained (excluding loans held-for-sale and loans at fair value) are based on the location of the trading desk, booking location,
or domicile of the client, as applicable.
(b) Client deposits and other third-party liabilities pertaining to the Wholesale Payments and Securities Services businesses, and AUC, are based on the
domicile of the client.
(c) Prior-period amounts have been revised to conform with the current presentation.
76
JPMorgan Chase & Co./2020 Form 10-K
North America
Asia-Pacific
Total international
29,024
14,759
17,101
Latin America/Caribbean
5,425
6,173
6,515
Total international loans
45,886
46,999
47,264
North America
87,410
74,734
82,125
26,668
Total loans retained
133,296 $
121,733 $
129,389
Client deposits and other third-party liabilities (average)(b)
Europe/Middle East/Africa
$
Asia-Pacific
211,592 $
124,145
174,477
90,364
$
162,846
82,867
Latin America/Caribbean
37,664
$
(c) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
15,840 $
2018
$ 683.7 $ 661.7
2.48 % 2.38 %
(f)
$
26.6
$
6.6 $ 6.7
590.2
501.4
399.7
4,417
4,196
3,929
Debit and credit card
sales volume
1.58 %
Deposit margin
Client investment assets
70
Number of client advisors
Home Lending
Mortgage origination volume
by channel
Retail
$
16,976
72.9
40.9
$
51.0
54.2
$ 38.3
41.1
Total mortgage origination
Business banking
origination volume
volume
$ 832.5
Consumer & Business Banking
(e) At December 31, 2020, 2019 and 2018, excluded mortgage loans
insured by U.S. government agencies of $744 million, $1.7 billion and
$4.1 billion, respectively, that are 30 or more days past due. These
amounts have been excluded based upon the government guarantee.
Prior-period amounts of mortgage loans 30 or more days past due and
insured by U.S. government agencies excluded from 30+ day
delinquency rate have been revised to conform with the current
presentation; refer to footnote (c) for additional information.
JPMorgan Chase & Co./2020 Form 10-K
69
Management's discussion and analysis
(f) Generally excludes loans under payment deferral programs offered in
response to the COVID-19 pandemic. Refer to Consumer Credit
Portfolio on pages 114-116 for further information on consumer
payment assistance activity. Includes loans to customers that have
exited COVID-19 payment deferral programs and are 90 or more days
past due, predominantly all of which were also at least 150 days past
due and therefore considered collateral-dependent. Collateral-
dependent loans are charged down to the lower of amortized cost or
fair value of the underlying collateral less costs to sell.
(g) At December 31, 2020, included $19.2 billion of loans in Business
Banking under the PPP. Given that PPP loans are guaranteed by the
SBA, the Firm does not expect to realize material credit losses on these
loans. Refer to Credit Portfolio on pages 112-113 for a further
discussion of the PPP.
(h) At December 31, 2020, the principal balance of loans in Home
Lending, Card and Auto under payment deferral programs offered in
response to the COVID-19 pandemic were $9.1 billion, $264 million
and $376 million, respectively. Loans that are performing according to
their modified terms are generally not considered delinquent. Refer to
Consumer Credit Portfolio on pages 114-116 for further information
on consumer payment assistance activity.
Selected metrics
As of or for the year ended
December 31,
(in thousands) (b)
(in billions, except ratios and
where otherwise noted)
Business Metrics
2020
2019
2018
CCB households (in millions)
Number of branches
Active digital customers
Average deposits
63.4
61.7
4,908
4,976
5,036
(in thousands) (a)
55,274
52,453
49,254
Active mobile customers
40,899
37,315
33,260
$1,081.2
$1,114.4 $1,016.9
62.6
$
$ 113.8
$ 79.4
17,792
9,119
7,388
2,204
974
16,507
(1,035)
3,120
3,587
(500)
3,087
6,494 $ 20,912 $ 12,706 $ 6,888 $ 19,594
Loss days
(a)
4
1
7,529
5
Selected metrics
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Assets under custody ("AUC") by asset class (period-end) (in billions):
Fixed Income
Equity
Other(a)
Total AUC
(b)
Merchant processing volume (in billions)
Client deposits and other third party liabilities (average) (c)
2020
2019
(a) Loss days represent the number of days for which CIB Markets, which consists of Fixed Income Markets and Equity Markets, posted losses to total net
revenue. The loss days determined under this measure differ from the measure used to determine backtesting gains and losses. Daily backtesting gains
and losses include positions in the Firm's Risk Management value-at-risk (“VaR”) measure and exclude select components of total net revenue, which may
more than offset backtesting gains or losses on a particular day. For more information on daily backtesting gains and losses, refer to the VaR discussion on
pages 137-139.
$ 105.2
10,263
952
Total loans serviced
(period-end)
$ 626.3
$ 761.4
$ 789.8
Third-party mortgage loans
serviced (period-end)
447.3
520.8
519.6
411
2,087
2,498
407
22
All other income
Noninterest revenue
12,987
(62)
8,122
Net interest income
7,891
Total net revenue
$ 20,878 $
431
21,109
483
8,374
4,155
8,605 $ 29,483 $ 14,418 $
872
1,775
8
2,182
410
1,794
880
493
Noncompensation expense (b)(c)
71
10,815
35,120
30,060
2,125
27,854
Net interest income
14,164
9,205
Total net revenue (b)
49,284
39,265
9,528
37,382
Provision for credit losses
2,726
277
(60)
Noninterest expense
Compensation expense
11,612
11,180
10,776
Noncompensation expense
11,926
11,264
11,100
Total noninterest expense
23,538
22,444
21,876
Income before income tax
expense
2,018
1,292
Noninterest revenue
All other income
4,245
Credit Adjustments & Other(a)
(29)
121
(373)
Total Markets & Securities
Services
Total net revenue
33,707 25,187
$49,284 $39,265
23,466
$37,382
(in millions)
2020
2019
2018
23,020
Revenue
$ 9,477
Principal transactions
17,560
$ 7,575 $ 7,473
14,399 12,262
Lending- and deposit-related fees (a)
2,070
1,668
1,633
Asset management, administration
(a)
and commissions
4,721
4,400
4,361
Investment banking fees
16,544
15,566
Income tax expense
1
8.6
2
8.8
2
9.2
2
9.7
2
8.6 %
2
8.9 % #
2
9.3 % #
9.3
2
Rank
Share
Rank
Share
Rank
2018
2019
2020
#
Global investment banking fees(e)
U.S.
Global
Loan syndications
U.S.
Share
4,154
1
2
5,926
4,590
3,767
12.3
1
12.5
1
11.5
1
10.1
1
10.1
1
11.1
9.0
1
7.2
12.0
1
12.8
1
7.8
1
8.9
1
12.3
1
13.2
2
11.1
11.4
4,253
Securities Services
6,888
1
#
8.9 %
1
#
9.2 %
1
#
MSR carrying value
(period-end)
3.3
4.7
6.1
Ratio of MSR carrying value
8.6 %
(period-end) to third-party
(period-end)
MSR revenue multiple (d)
0.74 %
2.55x
0.90 %
2.65x
1.17 %
3.34x
Credit Card
Credit card sales volume,
excluding commercial card $ 702.7
$ 762.8
$ 692.4
New accounts opened
(in millions)
5.4
$
mortgage loans serviced
Net revenue rate (e)
(a) Source: Dealogic as of January 4, 2021. Reflects the ranking of revenue wallet and market share.
(b) Global M&A excludes any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and
mortgage-backed securities ("MBS"); and exclude money market, short-term debt, and U.S. municipal securities.
(e) Global investment banking fees exclude money market, short-term debt and shelf securities.
The following table summarizes select income statement
data for the Markets businesses. Markets consists of Fixed
Income Markets and Equity Markets. Markets revenue
comprises principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that are
recorded in principal transactions revenue. Refer to Notes 6
and 7 for a description of the composition of these income
statement line items.
203
6
197
$ 7,560 $ 5,566 $ 13,126
Total
Markets
Income Equity
Markets Markets
Total
Markets
Equity
Markets
8,786 $ 5,739 $ 14,525
198
7
205
236
10
226
$
$ 11,857 $ 6,087 $ 17,944
Fixed
Markets revenue
Fixed
Income
Markets
Fixed
Income
Markets
administration and commissions
Asset management,
Lending- and deposit-related fees
Principal transactions
(in millions, except where
otherwise noted)
2018
2019
2020
For the periods presented below, the predominant source of principal transactions revenue was the amount recognized upon
executing new transactions.
JPMorgan Chase & Co./2020 Form 10-K
74
between the price at which a market participant is willing
and able to sell an instrument to the Firm and the price at
which another market participant is willing and able to buy
it from the Firm, and vice versa), market liquidity and
volatility. These factors are interrelated and sensitive to the
same factors that drive inventory-related revenue, which
include general market conditions, such as interest rates,
foreign exchange rates, credit spreads, and equity and
commodity prices, as well as other macroeconomic
conditions.
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market-making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as "inventory-
related revenue", which is revenue recognized from gains
and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to,
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is driven by many factors including the level of
client activity, the bid-offer spread (which is the difference
Equity
Total
Markets Markets
Global
10.92 %
7.8
10.17 %
59
Compensation expense as
percentage of total net
revenue
24
28
29
Revenue by business
Investment Banking
$8,871
$7,215
$ 6,987
Wholesale Payments
5,560
5,842
57
5,930
1,146
1,021
999
Total Banking
15,577
14,078
13,916
Fixed Income Markets
20,878
14,418
12,706
Equity Markets
8,605
6,494
Lending
7.8
10.48 %
48
16 %
Auto
Loan and lease
origination volume
$
38.4
$ 34.0 $ 31.8
Average auto
operating lease assets
22.0
21.6
18.8
In the fourth quarter of 2020, the Firm realigned certain wealth management
clients from AWM to CCB. Prior-period amounts have been revised to conform
with the current presentation, including an increase to client investment assets
of $143.3 billion and $117.3 billion as of December 31, 2019 and 2018,
respectively.
(a) Users of all web and/or mobile platforms who have logged in within the
past 90 days.
(b) Users of all mobile platforms who have logged in within the past 90 days.
(c) Firmwide mortgage origination volume was $133.4 billion, $115.9 billion
and $86.9 billion for the years ended December 31, 2020, 2019 and
2018, respectively.
Overhead ratio
(d) Represents the ratio of MSR carrying value (period-end) to third-party
mortgage loans serviced (period-end) divided by the ratio of loan servicing-
related revenue to third-party mortgage loans serviced (average).
(e) In the second quarter of 2020, the Firm reclassified certain spend-based
credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been
revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, merchants,
government and municipal entities. Banking offers a
full range of investment banking products and services
in all major capital markets, including advising on
corporate strategy and structure, capital-raising in
equity and debt markets, as well as loan origination
and syndication. Banking also includes Wholesale
Payments, which provides payments services enabling
clients to manage payments and receipts globally, and
cross-border financing. Markets & Securities Services
includes Markets, a global market-maker across
products, including cash and derivative instruments,
which also offers sophisticated risk management
solutions, prime brokerage, and research. Markets &
Securities Services also includes Securities Services, a
leading global custodian which provides custody, fund
accounting and administration, and securities lending
products principally for asset managers, insurance
companies and public and private investment funds.
Selected income statement data
Year ended December 31,
(b) Includes tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits
and amortization of the cost of investments in affordable housing
projects; and tax-exempt income from municipal bonds of $2.8 billion,
$2.3 billion and $1.7 billion for the years ended December 31, 2020,
2019 and 2018, respectively.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Financial ratios
Return on equity
2020
2019
2018
20 %
14 %
(f) Included $21.9 billion of origination volume under the PPP for the year
ended December 31, 2020. Refer to Credit Portfolio on pages 112-113 for
a further discussion of the PPP.
Long-term debt (d)
U.S.
Global
Net charge-offs/
$ 914,705 $ 909,292
$1,097,219
Assets
2018
2019
2020
(in millions, except ratios)
Credit data and quality
statistics
Selected balance sheet data
(period-end)
2018
2019
2020
(in millions, except headcount)
December 31,
(recoveries)
As of or for the year ended
December 31,
As of or for the year ended
Selected metrics
JPMorgan Chase & Co./2020 Form 10-K
72
Noninterest expense was $23.5 billion, up 5%, driven by
higher volume- and revenue-related expense and legal
expense.
The provision for credit losses was $2.7 billion, compared
with $277 million in the prior year. The increase was driven
by net additions to the allowance for credit losses as a
result of the impact of the COVID-19 pandemic across
multiple industries.
driven by deposit balance and fee growth largely offset by
deposit margin compression.
Securities Services revenue was $4.3 billion, up 2%,
Equity Markets revenue was $8.6 billion, up 33%, driven
by strong client activity across products.
Fixed Income Markets revenue was $20.9 billion, up
45%, driven by strong client activity across products
primarily in Rates, Credit, Currencies & Emerging
Markets, and Securitized Products.
•
•
Markets & Securities Services revenue was $33.7 billion, up
34%. Markets revenue was $29.5 billion, up 41%.
•
Selected metrics
predominantly driven by higher net interest income
reflecting higher yields on new loans and higher loan
balances, as well as higher loan commitment fees, largely
offset by fair value losses on hedges of accrual loans.
$
$
644
1,662
(b)(c)
fair value"
Selected balance sheet data
for-sale and loans at
Nonaccrual loans held-
443
308
1,008
retained (a)
Nonaccrual loans
34,317
36,407
156,050 165,796
80,000 70,000
80,000
370
Equity
Total loans
39,588
loans at fair value (b)(c)
Loans held-for-sale and
Nonaccrual loans:
129,389
121,733
133,296
Nonperforming assets:
Loans retained (a)
Loans:
93
$
183
172,884
921
⚫ Lending revenue was $1.1 billion, up 12%,
- Advisory fees of $2.4 billion were flat, reflecting an
increase in wallet share, despite a decrease in industry-
wide fees.
income
3,079
2,035
1,252
Card income (b)
3,068
3,412
3,108
All other income
5,647
5,603
4,599
Noninterest revenue
17,740
Mortgage fees and related
17,796
Net interest income
Total net revenue
33,528
37,337
35,933
51,268
55,133
51,271
Provision for credit losses
12,312
4,954
4,754
Noninterest expense
Compensation expense
11,014
15,338
Wholesale Payments revenue was $5.6 billion, down 5%,
driven by deposit margin compression and a reporting
reclassification for certain expenses which are now
reported as a reduction of revenue in Merchant Services,
largely offset by higher deposit balances.
2,592
2,780
Equity underwriting fees were $2.8 billion, up 66%,
predominantly in follow-on offerings and convertible
securities markets due to increased industry-wide fees.
Debt underwriting fees were $4.4 billion, up 23%,
driven by increased industry-wide fees and wallet share
gains in investment grade and high yield bonds. The
increased activity resulted in part from clients seeking
liquidity in the first half of the year as a result of the
COVID-19 pandemic.
•
• Investment Banking revenue was $8.9 billion, up 23%,
driven by higher Investment Banking fees, up 25%,
reflecting higher equity and debt underwriting fees. The
Firm maintained its #1 ranking for Global Investment
Banking fees with overall share gains, according to
Dealogic.
Net revenue was $49.3 billion, up 26%.
Banking revenue was $15.6 billion, up 11%.
Net income was $17.1 billion, up 43%.
2020 compared with 2019
Management's discussion and analysis
(a) Includes credit valuation adjustments ("CVA") managed centrally
within CIB and funding valuation adjustments ("FVA") on derivatives
and certain components of fair value option elected liabilities, which
are primarily reported in principal transactions revenue. Results are
presented net of associated hedging activities and net of CVA and FVA
amounts allocated to Fixed Income Markets and Equity Markets. Refer
to Notes 2, 3 and 24 for additional information.
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm's Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB's Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
(a) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions to lending- and
deposit-related fees. Prior-period amounts have been revised to
conform with the current presentation.
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm's Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB's Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation.
$ 17,094 $ 11,954 $ 11,799
Net income
2,808
CONSUMER & COMMUNITY BANKING
2019
2018
(a)
$ 3,166
$ 3,938
$ 3,787
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including mobile and online) and
telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking, J.P.
Morgan Wealth Management and Business Banking),
Home Lending (including Home Lending Production,
Home Lending Servicing and Real Estate Portfolios) and
Card & Auto. Consumer & Business Banking offers
deposit and investment products, payments and
services to consumers, and lending, deposit, and cash
management and payment solutions to small
businesses. Home Lending includes mortgage
origination and servicing activities, as well as portfolios
consisting of residential mortgages and home equity
loans. Card & Auto issues credit cards to consumers and
small businesses and originates and services auto loans
and leases.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Revenue
Lending- and
deposit-related fees"
Asset management,
JPMorgan Chase & Co./2020 Form 10-K
administration and
commissions (a)
2020
10,580
(average)
2,670
73
JPMorgan Chase & Co./2020 Form 10-K
0.82
0.61
1.54
period-end loans
(b)
Nonaccrual loans to total
271
390
235
retained (a)
nonaccrual loans
Allowance for loan losses to
Management's discussion and analysis
1.24
2.54
and conduits (e)
excluding trade finance
period-end loans retained,
Allowance for loan losses to
0.93
0.99
1.77
retained
Allowance for loan losses to
period-end loans
0.08 %
0.15 %
0.27 %
Net charge-off/(recovery)
rate
1.31
(e) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB's allowance
coverage ratio.
Investment banking fees
(in millions)
Equity and equity-related (c)
U.S.
Global
M&A(b)
Based on fees (a)
Year ended December 31,
League table results - wallet share
(a) Represents long-term debt and loan syndications.
7,473
7,575 $
9,477 $
$
Total investment banking fees
3,280
Year ended December 31,
3,532
Debt underwriting (a)
1,684
1,666
2,758
Equity underwriting
2,509
2,377 $
$
2,368
$
2018
2019
2020
Advisory
4,351
Total nonaccrual loans
(d) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(b) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
135,676
Loans retained (a)
Allowance for credit losses:
Loans:
1,481
1,052
2,811
assets
60,552
Total nonperforming
48,196
72,065
receivables
Trading assets-derivative
122,371
57
85
60
30
56
Derivative receivables
Assets acquired in loan
satisfactions
321,280
376,182
422,237
Trading assets-debt and equity
instruments (c)
$993,508 $ 930,126
$1,122,939
Assets
1,364
952
70
(c) At December 31, 2020, 2019 and 2018, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $316 million, $127 million and $155 million,
respectively. These amounts have been excluded based upon the
government guarantee.
114,417
Loans held-for-sale and
(a) Allowance for loan losses of $278 million, $110 million and $174
million were held against these nonaccrual loans at December 31,
2020, 2019 and 2018, respectively.
(c) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans
and other assets. Prior-period amounts have been revised to conform
with the current presentation.
(b) Loans held-for-sale and loans at fair value primarily reflect lending-
related positions originated and purchased in CIB Markets, including
loans held for securitization.
(a) Loans retained includes credit portfolio loans, loans held by
consolidated Firm-administered multi-seller conduits, trade finance
loans, mortgage-related secured lending, other held-for-investment
loans and overdrafts
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm's Wholesale Payments business. In the
fourth quarter of 2020, payment processing-only clients along with the
associated revenue and expenses were realigned to CIB's Wholesale
Payments business from CCB and CB. Prior-period amounts have been
revised to conform with the current presentation, including an increase to
period-end assets of $6.6 billion and $6.2 billion and headcount of 4,022
and 4,092, as of December 31, 2019 and 2018, respectively.
58,572
60,013
61,733
Headcount
1,953
2,050
3,900
losses
Total allowance for credit
Allowance for loan
754
1,534
related commitments
Allowance for lending-
32,884 30,317
155,255 144,734
80,000 70,000
80,000
Equity
169,468
Total loans
33,792
loans at fair value (b)(c)
1,199
1,202
2,366
losses
848
Year ended December 31,
428 $ 366
86
ASSET & WEALTH MANAGEMENT
Management's discussion and analysis
64
79
JPMorgan Chase & Co./2020 Form 10-K
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(a) Allowance for loan losses of $273 million, $114 million and $92
million was held against nonaccrual loans retained at December 31,
2020, 2019 and 2018, respectively.
0.25
0.24
0.67
Asset & Wealth Management, with client assets of $3.7
trillion, is a global leader in investment and wealth
management.
total loans
525
558
259
nonaccrual loans retained (a)
Allowance for loan losses to
1.31
1.34
1.60
period-end loans retained
Allowance for loan losses to
Nonaccrual loans to period-end
Asset Management
Offers multi-asset investment management solutions
across equities, fixed income, alternatives and money
market funds to institutional and retail investors
providing for a broad range of clients' investment needs.
Wealth Management
$ 9,808
244
10,052
3,375
13,427
$ 9,818
418
10,236
3,355
13,591
14,240
Total net revenue
3,418
Net interest income
10,822
Noninterest revenue
212
All other income
$10,610
and commissions
Asset management, administration
Revenue
and headcount)
(in millions, except ratios
Year ended December 31,
2018
2019
2020
Selected income statement data
The majority of AWM's client assets are in actively
managed portfolios.
Provides retirement products and services, brokerage,
custody, trusts and estates, loans, mortgages, deposits
and investment management to high net worth clients.
0.03 %
Provision for credit losses
0.08 %
(b)
Nonaccrual loans held-for-sale
511
498
1,286
Nonaccrual loans retained (a)
Nonaccrual loans:
Nonperforming assets
$ 53
$ 160
$ 401
and loans at fair value
Net charge-offs/(recoveries)
2018
2019
2020
December 31, (in millions, except
ratios)
As of or for the year ended
Selected metrics
JPMorgan Chase & Co./2020 Form 10-K
78
(a) At December 31, 2020, total loans included $6.6 billion of loans under
the PPP, of which $6.4 billion were in Middle Market Banking. Refer to
Credit Portfolio on pages 112-113 for a further discussion of the PPP.
(b) Refer to Business Segment Results page 65 for a discussion of revenue
sharing.
Credit data and quality statistics
120
Total nonaccrual loans
1,406
Net charge-off/(recovery) rate (D.
254
2,936
293
3,073
3,986
Total allowance for credit losses
651
Allowance for lending-related
commitments
2,682
2,780
3,335
Allowance for loan losses
Allowance for credit losses:
513
523
1,430
Total nonperforming assets
2
25
24
satisfactions
Assets acquired in loan
511
498
0.18 %
(a) Includes CB's share of revenue from investment banking products sold
to CB clients through the CIB.
263
52
Retail clients include financial intermediaries and individual investors.
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers and business owners.
AWM's client segments consist of the following:
JPMorgan Chase & Co./2020 Form 10-K
80
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
net revenue of $725 million and $649 million for the years ended
December 31, 2019 and 2018, respectively. Effective in the first quarter
of 2021, the Wealth Management business was renamed Global Private
Bank.
28
28
28
Asset Management has two high-level measures of its
overall fund performance.
30
26
26
៩៩
27
29
222
71
72
32 %
26 %
30
• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
"overall Morningstar rating" is derived from a weighted average of the
performance associated with a fund's three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura "star rating" is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a "primary share class" level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The “primary share class”,
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds and at the "primary share class" level or
fund level for all other funds. The "primary share class", as defined by
Morningstar, denotes the share class recommended as being the best
proxy for the portfolio and in most cases will be the most retail
version (based upon annual management charge, minimum
investment, currency and other factors). Where peer group rankings
given for a fund are in more than one "primary share class" territory
both rankings are included to reflect local market competitiveness.
The performance data could have been different if all funds/accounts
would have been included. Past performance is not indicative of
future results.
Selected metrics
77
69
68
59
55
271
58 %
61 %
55 %
2019
2020
2018
Selected balance sheet data
(c)
(period-end)"
(b)
5 years
3 years
1 year
% of JPM mutual fund assets
ranked in 1st or 2nd
quartile:
% of JPM mutual fund assets
rated as 4- or 5-star (a)
data and ratios)
(in millions, except ranking
December 31,
As of or for the year ended
20
59
28 %
70
Net income
855
918
1,028
Income tax expense
3,800
3,785
4,020
Income before income tax expense
9,575
$2,992
9,747
Total noninterest expense
4,687
4,719
4,998
Noncompensation expense
4,888
5,028
4,959
Compensation expense
Noninterest expense
9,957
$ 2,867
$2,945
Revenue by line of business
$14,240 $13,591 $13,427
Asset & Wealth Management
Wealth Management
Asset Management
Pre-tax margin ratio:
Overhead ratio
Return on common equity
Financial ratios
Total net revenue
The provision for credit losses was $263 million, driven by
additions to the allowance for credit losses, predominantly
as a result of the impact of the COVID-19 pandemic.
Noninterest expense was $10.0 billion, an increase of 2%,
driven by legal expense, volume- and revenue-related
expense as well as investments in the business, partially
offset by lower structural expense.
Revenue from Wealth Management was $6.6 billion, up 4%,
predominantly driven by higher deposit and loan balances,
increased brokerage commissions and asset management
fees, largely offset by deposit margin compression.
Revenue from Asset Management was $7.7 billion, up 6%,
predominantly driven by higher asset management fees as
a result of net inflows into liquidity products as well as
higher performance fees, partially offset by lower net
investment valuation gains.
Net revenue was $14.2 billion, an increase of 5%. Net
interest income was $3.4 billion, up 2%, driven by higher
deposit and loan balances as well as loan margin expansion,
offset by deposit margin compression. Noninterest revenue
was $10.8 billion, up 6%, predominantly driven by higher
asset management fees as a result of net inflows into
liquidity and long term products, higher performance fees
and increased brokerage commissions on higher client-
driven volume, partially offset by lower net investment
valuation gains.
Net income was $3.0 billion, an increase of 4%.
2020 compared with 2019
6,264
6,337
6,586
Wealth Management
$ 7,163
$ 7,254
$7,654
Asset Management
270
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm's Wholesale Payments business. In
conjunction with this realignment, treasury services product revenue has
been renamed wholesale payments. In the fourth quarter of 2020,
payment processing-only clients along with the associated revenue and
expenses were realigned to CIB's Wholesale Payments business from CCB
and CB. Prior-period revenue and expense amounts have been revised to
conform with the current presentation.
11,042
11,629
Selected balance sheet data
(period-end)
As of or for the year ended
December 31, (in millions,
except headcount)
Selected metrics
Selected income statement data (continued)
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.
Wholesale payments includes revenue from a broad range
of products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.
CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
Management's discussion and analysis
77
JPMorgan Chase & Co./2020 Form 10-K
Total assets
(b) Total net revenue included tax-equivalent adjustments from income
tax credits related to equity investments in designated community
development entities and in entities established for rehabilitation of
historic properties, as well as tax-exempt income related to municipal
financing activities of $351 million, $460 million and $444 million for
the years ended December 31, 2020, 2019 and 2018, respectively.
In the first quarter of 2020, the Merchant Services business was realigned
from CCB to CIB as part of the Firm's Wholesale Payments business. In
conjunction with this realignment, treasury services product revenue has
been renamed wholesale payments. In the fourth quarter of 2020,
payment processing-only clients along with the associated revenue and
expenses were realigned to CIB's Wholesale Payments business from CCB
and CB. Prior-period revenue and expense amounts have been revised to
conform with the current presentation.
$ 2,578 $ 3,958 $ 4,264
Net income
1,316
1,275
824
Income tax expense
5,580
5,233
3,402
(a) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions (which are
included in all other income) to lending and deposit-related fees. Prior
period amounts have been revised to conform with the current period
presentation.
Loans:
Loans retained
Loans held-for-sale and
loans at fair value
$ 56,656
48,343
$ 54,188
51,165
$ 61,115
47,420
(a)
20,000
22,000
$ 208,296
1,009
2,245
$ 210,125
22,000
204,219
207,287
207,880
$ 220,229
$ 220,514
$ 228,932
2018
2019
2020
Other
Middle Market Banking
Corporate Client Banking
Period-end loans by client
segment
Equity
Total loans
Income before income tax expense
Commercial Real Estate
Banking
3,627
3,798
1,880
The provision for credit losses was $2.1 billion, compared
to $296 million in the prior year. The increase was driven
by net additions to the allowance for credit losses as a
result of the impact of the COVID-19 pandemic across
multiple industries.
Noninterest expense was $3.8 billion, an increase of 2%,
driven by higher compensation expense.
Net revenue was $9.3 billion, flat compared to the prior
year. Net interest income was $6.2 billion, a decrease of
5%, driven by deposit margin compression, predominantly
offset by higher deposit balances and lending revenue.
Noninterest revenue was $3.1 billion, an increase of 13%,
driven by higher deposit-related fees, particularly cash
management fees, higher investment banking revenue, and
a gain on a strategic investment. The increase was partially
offset by a $56 million markdown of a held-for-sale position
and lower card income, primarily due to lower volumes as a
result of the COVID-19 pandemic.
Net income was $2.6 billion, a decrease of 35%, driven by
an increase in the provision for credit losses.
2020 compared with 2019
$ 1,187 $ 941 $ 896
1,724
2018
2019
2020
1,769
(a)
All other income (a)
Lending- and deposit-related fees
Revenue
(in millions)
Year ended December 31,
Selected income statement data
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Commercial Banking provides comprehensive financial
solutions, including lending, wholesale payments,
investment banking and asset management products
across three primary client segments: Middle Market
Banking, Corporate Client Banking and Commercial
Real Estate Banking. Other includes amounts not
aligned with a primary client segment.
COMMERCIAL BANKING
JPMorgan Chase & Co./2020 Form 10-K
Noninterest revenue
3,067
2,710
2,620
Total noninterest expense
1,933
1,950
1,944
Noncompensation expense
1,694
1,785
1,854
Compensation expense
Noninterest expense
129
296
2,113
Provision for credit losses
9,336
9,264
9,313
(b)
Total net revenue
6,716
6,554
6,246
Net interest income
3,735
101,146
101,951
444
171
157
Other
Average loans by client
segment
2,251
2,169
2,313
Commercial Real Estate Banking
3,119
3,119
169
3,203
170,901
20,000
172,734
22,000
237,825
22,000
Equity
$3,797
$3,805
$3,640
Middle Market Banking
third-party liabilities
Revenue by client segment
Corporate Client Banking
Total Commercial Banking net
revenue
$9,313
11,675
Headcount
$ 205,501
$ 207,919
$ 218,896
Total Commercial Banking
loans
1,386
99,243
100,884
985
687
Other
20 %
39
17 %
40
11 %
41
102,479
$ 55,690 $ 57,092
50,360 47,780
$ 61,558
54,172
Middle Market Banking
Corporate Client Banking
Commercial Real Estate
Banking
Overhead ratio
Return on equity
Financial ratios
$9,336
$9,264
Client deposits and other
1,258
$ 205,501
$ 207,919
$ 218,896
Total assets
4,351
4,200
3,715
1,069
Investment banking (a)
Wholesale payments
Selected balance sheet data
(average)
$4,049
$4,396 $4,057
Lending
Revenue by product
$ 206,197
$ 208,296
$ 210,125
(a)
Total Commercial Banking
loans
2018
2019
2020
(in millions, except ratios)
Year ended December 31,
100,088
1,110
992
$ 233,158
73
$ 218,896
919
Total loans
$2,491
$2,744
Investment banking revenue, gross (b) $3,348
1,082
1,129
loans at fair value
$9,336
$9,264
$9,313
revenue
Loans held-for-sale and
Total Commercial Banking net
204,243
206,837
217,767
Loans retained
84
88
133
Other
Loans:
852
$ 218,259
68
1,978
$ 206,197
85
(1,176)
Total net revenue (a)
1,325
(2,375)
Net interest income
(114)
1,199
Noninterest revenue
89
258
(395)
558
(263)
135
(128)
795
159
(losses)
Investment securities gains/
(426)
(461) $
245 $
$
Principal transactions
Revenue
2018
2019
All other income
Provision for credit losses
66
(1)
(128)
$
$ (1,176) $ 1,211
(638)
(821)
510
2,032
(1,368)
192
Other Corporate
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
Total net income/(loss)
Treasury and CIO
Total net revenue
145
(865) (966)
(1,750) $ 1,111
$
Net income/(loss)
Income tax expense/(benefit)
(2,615)
tax expense/(benefit)
Income/(loss) before income
902
1,067
1,373
Noninterest expense
(4)
2020
(1,403)
(347)
(in millions, except headcount)
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting and
managing the Firm's liquidity, funding, capital,
structural interest rate and foreign exchange risks. The
major Other Corporate functions include Real Estate,
Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
impacts
Market/performance/other
5
2
6
Alternatives
17
2
5
(11)
192
33
104
48
30
61
104
$ 2,328 $ 1,958 $ 2,010
2018
2019
2020
$ 3,652 $ 3,089 $ 2,619
(4)
212
(100)
Ending balance, December 31
CORPORATE
JPMorgan Chase & Co./2020 Form 10-K
82
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
client assets of $137 billion and $114 billion as of December 31, 2019
and 2018, respectively.
$ 3,652 $ 3,089 $ 2,619
(140)
294
287
2,685
74
2,619 $
176
276
$ 3,089 $
Ending balance, December 31
impacts
Market/performance/other
Net asset flows
Beginning balance
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
net revenue of $725 million and $649 million for the years ended
December 31, 2019 and 2018, respectively, and client assets of $137
billion and $114 billion as of December 31, 2019 and 2018, respectively.
(a) Regional revenue is based on the domicile of the client.
(b) The prior period amounts have been revised to conform with the
current period presentation.
$ 3,652 $ 3,089 $ 2,619
Client assets rollforward
1,958
2,716 $ 2,328 $
$
Selected income statement and balance sheet data
Year ended December 31,
Multi-asset
1,394
(283)
(1,172)
The Firm's risk governance and oversight functions align to:
The Firm's risk management governance and oversight
framework involves understanding drivers of risks, types of
risks, and impacts of risks.
Risk governance and oversight framework
The Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent oversight by the Board of Directors (the
"Board"). The impact of risk and control issues is carefully
considered in the Firm's performance evaluation and
incentive compensation processes.
Firmwide structures for risk governance.
and
Ownership of risk identification, assessment, data and
management within each of the LOBS and Corporate;
Acceptance of responsibility, including identification and
escalation of risks by all individuals within the Firm;
•
The Firm believes that effective risk management requires,
among other things:
Drivers of Risks
Factors that
cause a risk
to exist
•
FIRMWIDE RISK MANAGEMENT
JPMorgan Chase & Co./2020 Form 10-K
84
(b) During 2020, the Firm transferred $164.2 billion of investment
securities from AFS to HTM for capital management purposes.
Refer to Note 10 for further information.
(a) At December 31, 2020, the allowance for credit losses on HTM
securities was $78 million.
$260,115
$ 396,416
$ 587,886
31,434
47,540
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale-
loan, advises customers and clients on their investment
decisions, makes markets in securities, or offers other
products or services, the Firm takes on some degree of risk.
The Firm's overall objective is to manage its businesses, and
the associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
Types of Risks
Categories
by which risks
manifest themselves
Impacts of Risks
Consequences of
risks, both
quantitative and
qualitative
75
Risk appetite
Each LOB and Corporate area owns the ongoing
identification of risks, as well as the design and execution of
controls, inclusive of IRM-specified controls, to manage
those risks. To support this activity, the Firm has a formal
Risk Identification framework designed to facilitate their
responsibility to identify material risks inherent to the Firm,
catalog them in a central repository and review the most
material risks on a regular basis. The IRM function reviews
and challenges the LOB and Corporate's identified risks,
maintains the central repository and provides the
consolidated Firmwide results to the Firmwide Risk
Committee ("FRC") and Board Risk Committee.
Risk identification and ownership
In addition, there are other functions that contribute to the
Firmwide control environment but are not considered part
of a particular line of defense, including Finance, Human
Resources and Legal.
Audit Function is headed by the General Auditor, who
reports to the Audit Committee and administratively to the
CEO.
Internal Audit is an independent function that provides
objective assessment on the adequacy and effectiveness of
Firmwide processes, controls, governance and risk
management as the "third line of defense." The Internal
The IRM function is independent of the businesses and is
the Firm's "second line of defense." The IRM function
independently assesses and challenges the first line of
defense risk management practices. IRM is also responsible
for its own adherence to applicable laws, rules and
regulations and for the implementation of policies and
standards established by IRM with respect to its own
processes.
Management's discussion and analysis
85
JPMorgan Chase & Co./2020 Form 10-K
The Firm relies upon each of its LOBS and Corporate areas
giving rise to risk to operate within the parameters
identified by the IRM function, and within its own
management-identified risk and control standards. Each
LOB and Treasury & CIO, including their aligned Operations,
Technology and Control Management, are the Firm's “first
line of defense" and own the identification of risks, as well
as the design and execution of controls to manage those
risks. The first line of defense is responsible for adherence
to applicable laws, rules and regulations and for the
implementation of the risk management structure (which
may include policy, standards, limits, thresholds and
controls) established by IRM.
Three lines of defense
The Firm's risk governance and oversight framework is
managed on a Firmwide basis. The Firm has an Independent
Risk Management ("IRM") function, which consists of the
Risk Management and Compliance organizations. The Chief
Executive Officer ("CEO") appoints, subject to approval by
the Risk Committee of the Board ("Board Risk Committee"),
the Firm's Chief Risk Officer ("CRO") to lead the IRM
organization and manage the risk governance structure of
the Firm. The framework is subject to approval by the Board
Risk Committee in the form of the Risk Governance and
Oversight Policy. The Firm's CRO oversees and delegates
authorities to LOB CROS, Firmwide Risk Executives ("FRES”),
and the Firm's Chief Compliance Officer ("CCO"), who each
establish Risk Management and Compliance organizations,
set the Firm's risk governance policies and standards, and
define and oversee the implementation of the Firm's risk
governance. The LOB CROS are responsible for risks that
arise in their LOBS, while FRES oversee risk areas that span
across the individual LOBS, functions and regions.
Impacts of Risks are consequences of risks, both
quantitative and qualitative. There may be many
consequences of risks manifesting, including quantitative
impacts such as a reduction in earnings and capital,
liquidity outflows, and fines or penalties, or qualitative
impacts such as reputation damage, loss of clients and
customers, and regulatory and enforcement actions.
Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
Operational risk is the risk associated with an adverse
outcome resulting from inadequate or failed internal
processes or systems; human factors; or external events
impacting the Firm's processes or systems. It includes
compliance, conduct, legal, and estimations and model
risk.
consumer credit risk, wholesale credit risk, and
investment portfolio risk.
•
•
Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
•
Drivers of Risks are factors that cause a risk to exist. Drivers
of risks include the economic environment, regulatory and
government policy, competitor and market evolution,
business decisions, process and judgment error, deliberate
wrongdoing, dysfunctional markets, and natural disasters.
Types of Risks are categories by which risks manifest
themselves. Risks are generally categorized in the following
four risk types:
201,821
(69)
Investment securities portfolio,
net of allowance for credit
losses (period-end) (a)
Available-for-sale securities
(period-end)
83
JPMorgan Chase & Co./2020 Form 10-K
(a) Included tax-equivalent adjustments, driven by tax-exempt income
from municipal bonds, of $241 million, $314 million and $382 million
for the years ended December 31, 2020, 2019 and 2018,
respectively.
The current period income tax benefit was predominantly
driven by a lower level of pre-tax income and changes in the
level and mix of income and expenses subject to U.S.
federal, and state and local taxes. The prior period included
$1.1 billion of tax benefits related to the resolution of
certain tax audits.
Refer to Note 10 and Note 13 for additional information on
the investment securities portfolio and the allowance for
credit losses.
The provision for credit losses relates to the HTM portfolio,
which became subject to the CECL accounting guidance
beginning on January 1, 2020.
Noninterest expense of $1.4 billion was up $305 million
driven by an impairment on a legacy investment.
Noninterest revenue increased reflecting higher net
valuations on certain legacy equity investments and higher
net investment securities gains due to the repositioning of
the investment securities portfolio.
Net revenue was a loss of $1.2 billion, compared with
revenue of $1.2 billion in the prior year, driven by lower net
interest income partially offset by higher noninterest
revenue. The decrease in net interest income was
predominantly driven by lower rates, including the impact
of faster prepayments on mortgage-backed securities, as
well as limited opportunities to deploy funds in response to
significant deposit growth across the LOBS.
Net income was a loss of $1.8 billion compared with income
of $1.1 billion in the prior year.
83
2020 compared with 2019
1,649
38,033
$771,787
38,366
1,657
The Firm's overall appetite for risk is governed by a "Risk
Appetite" framework. The framework and the Firm's risk
appetite are set and approved by the Firm's CEO, Chief
Financial Officer ("CFO") and CRO. Quantitative parameters
and qualitative factors are used to monitor and measure the
Firm's capacity to take risk consistent with its stated risk
appetite. Qualitative factors have been established to
assess select operational risks, and impact to the Firm's
reputation. Risk Appetite results are reported to the Board
Risk Committee.
$1,359,831 $837,618
$ (1,750) $ 1,111 $ (1,241)
(1,026)
215
$ (1,241)
Headcount
Total assets (period-end)
Loans (period-end)
1,597
37,145
Management's discussion and analysis
Treasury and CIO overview
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm's four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
Investment securities portfolio
(average)
$348,876 $ 228,681
$ 386,065
$318,144 $ 235,196
$ 507,936
31,747
34,939
94,569
$203,449
$283,205
$ 413,367
$ 258 $ (395)
$ 795
Investment securities gains/
(losses)
2018
2019
2020
Held-to-maturity securities
(average)
Available-for-sale securities
(average)
As of or for the year ended
December 31, (in millions)
Selected income statement and balance sheet data
The investment securities portfolio primarily consists of U.S.
GSE and government agency and nonagency mortgage-
backed securities, U.S. and non-U.S. government securities,
obligations of U.S. states and municipalities, other ABS and
corporate debt securities. At December 31, 2020, the
investment securities portfolio was $587.9 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and, where not available, based primarily upon
internal risk ratings). Refer to Note 10 for further
information on the Firm's investment securities portfolio
and internal risk ratings.
Treasury and CIO seek to achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. Refer to Note 5 for further
information on derivatives. In addition, Treasury and CIO
manage the Firm's cash position primarily through deposits
at central banks and investments in short-term instruments.
Refer to Liquidity Risk Management on pages 102-108 for
further information on liquidity and funding risk. Refer to
Market Risk Management on pages 135-142 for
information on interest rate, foreign exchange and other
risks.
Held-to-maturity securities, net
of allowance for credit losses
(a)(b)
(period-end) (a
Equity
1,211
Liquidity
(in billions, except where otherwise
noted)
Year ended December 31,
International metrics
Client assets were $3.7 trillion, an increase of 18%. Assets
under management were $2.7 trillion, an increase of 17%
driven by the impact of higher market levels and net inflows
into both long-term and liquidity products.
2020 compared with 2019
Client assets
Management's discussion and analysis
81
JPMorgan Chase & Co./2020 Form 10-K
(c) Loans, deposits and related credit data and quality statistics relate to
the Wealth Management business.
Total net revenue (in millions) (a)
Europe/Middle East/Africa (b)
Asia-Pacific (b)
(b) Quartile ranking sourced from Lipper, Morningstar and Nomura based
on country of domicile. Includes only Asset Management retail open-
ended mutual funds that are ranked by the aforementioned sources.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds.
In the fourth quarter of 2020, the Firm realigned certain wealth
management clients from AWM to CCB. Prior-period amounts have been
revised to conform with the current presentation, including a decrease to
headcount of 2,641 and 2,400 as of December 31, 2019 and 2018,
respectively.
0.18
0.22
0.07
0.42
Nonaccrual loans to period-
end loans
124
304
76
Allowance for loan losses to
nonaccrual loans
(a) Represents the Nomura "star rating" for Japan domiciled funds and
Morningstar for all other domiciled funds. Includes only Asset
Management retail open-ended mutual funds that have a rating.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds.
2020
2019
2018
Total net revenue
Assets by asset class
8,284
8,489
8,837
North America
2018
2019
2020
(in billions)
December 31,
5,143
5,102
5,403
755
724
782
Latin America/Caribbean (b)
Total international net revenue
Client assets
1,538
1,509
1,665
$ 2,956 $ 2,869 $ 2,850
0.22
0.32
- %
0.02 %
2,462
Number of Wealth
Management client advisors
21,520
21,550
20,683
9,000
10,500
10,500
132,123
135,265
161,955
$ 151,632
136,929
$161,863
147,404
166,311
$181,432
Total assets
Selected balance sheet data
(average)c
9,000
133,276
145,794
$203,384 $173,175 $ 161,047
186,608 158,149
198,755 142,740
10,500 10,500
Deposits
Equity
Total assets
Loans
2,419
$14,240 $ 13,591 $ 13,427
2,385
Equity
342
369
636
(0.01)%
Net charge-off/(recovery) rate
Allowance for loan losses to
period-end loans
Total allowance for credit
losses
16
19
38
related commitments
Allowance for lending-
326
350
598
Allowance for loan losses
Allowance for credit losses:
263
29 $
115
785
(14) $
$
Net charge-offs/(recoveries)
Nonaccrual loans
Credit data and quality
statistics (c)
Fixed income
Loans
Deposits
Liquidity
Headcount
641 $
Latin America/Caribbean (b)
510
226
272
330
520 $ 440
622 $
$
(b)
Europe/Middle East/Africa
Asia-Pacific (b)
166
930
628 $
1,081
619
2,328 $
1,273
754
2,716 $
Total assets under management $
Retail
Institutional
689 $
$
Private Banking
Client assets
Assets by client segment
518
147
125
1,958
Net asset flows:
$
Beginning balance
Assets under management
rollforward
Year ended December 31,
(in billions)
Client assets (continued)
Total client assets
Retail
514
Total client assets
950
1,828
2,150
2,534
1,359 $ 1,155
1,106
624
1,311
760
$ 1,581 $
Institutional
Private Banking
791
939
1,118
Total international client assets
1,958
2,328 $
North America
$
139
153
Alternatives
163
192
224
$ 517 $
Europe/Middle East/Africa (b)
Asia-Pacific (b)
515
596
656
Multi-asset
376
463
539 $
Equity
Assets under management
455
591
671
Fixed income
2,716 $
477
135
Latin America/Caribbean (b)
595
1,646
3,089 $ 2,619
$ 3,652 $
1,378
1,905
Total client assets
North America
661
761
Total assets under management
administration/deposits
580
936
Total assets under management
62
51
682
2,716
70
1,958
Custody/brokerage/
Total international assets under
management
811
2,328
2.50 %
3.50 %
2019
2020
Method 2
Method 1
2.50 %
Minimum
capital ratios (e)
The following table presents the Firm's effective GSIB
surcharge for the years ended December 31, 2020 and
2019.
JPMorgan Chase & Co./2020 Form 10-K
94
24
Under the Federal Reserve's GSIB rule, the Firm is required
to assess its GSIB surcharge on an annual basis under two
separately prescribed methods based on data for the
previous fiscal year-end, and is subject to the higher of the
two. The first ("Method 1"), reflects the GSIB surcharge as
prescribed by the Basel Committee's assessment
methodology, and is calculated across five criteria: size,
cross-jurisdictional activity, interconnectedness, complexity
and substitutability. The second ("Method 2"), modifies the
Method 1 requirements to include a measure of short-term
wholesale funding in place of substitutability, and
introduces a GSIB score "multiplication factor".
Certain banking organizations, including the Firm, are
required to hold additional levels of capital to serve as a
"capital conservation buffer". The capital conservation
buffer incorporates a global systemically important bank
("GSIB") surcharge, a discretionary countercyclical capital
buffer and a fixed capital conservation buffer of 2.5% for
Advanced regulatory capital requirements and a variable
SCB requirement, floored at 2.5%, for Standardized
regulatory capital requirements.
3.50 %
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk-weighted
assets.
Fully Phased-In:
The Firm's effective regulatory minimum GSIB surcharge
calculated under Method 2 remains unchanged at 3.5% for
2021. On November 11, 2020, the Financial Stability Board
("FSB") released its annual GSIB list, which published the
Firm's Method 1 GSIB surcharge of 2.0% (down from
2.5%) effective January 1, 2021, based upon data as of
December 31, 2019.
Other regulatory capital
The U.S. federal regulatory capital standards include a
framework for setting a discretionary countercyclical capital
buffer taking into account the macro financial environment
in which large, internationally active banks function. As of
December 31, 2020, the U.S. countercyclical capital buffer
remained at 0%. The Federal Reserve will continue to
review the buffer at least annually. The buffer can be
increased if the Federal Reserve, FDIC and OCC determine
that systemic risks are meaningfully above normal and can
be calibrated up to an additional 2.5% of RWA subject to a
12-month implementation period.
Standardized
December 31,
2019
December 31,
2020(c)(d)
(in millions, except ratios)
The following table presents the Firm's risk-based and leverage-based capital metrics under both the Basel III Standardized
and Advanced approaches.
Management's discussion and analysis
95
JPMorgan Chase & Co./2020 Form 10-K
The Firm's estimated Method 2 surcharge calculated using
data as of December 31, 2020 is 4.0%. Accordingly, based
on the GSIB rule currently in effect, the Firm's effective
regulatory minimum GSIB surcharge is expected to increase
to 4.0% on January 1, 2023 unless the Firm's Method 2
GSIB surcharge calculation based upon data as of December
31, 2021 is lower.
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its IDI subsidiaries also must
maintain minimum capital and leverage ratios in order to be
"well-capitalized" under the regulations issued by the
Federal Reserve and the Prompt Corrective Action ("PCA")
requirements of the FDIC Improvement Act ("FDICIA"),
respectively. Refer to Note 27 for additional information.
Additional information regarding the Firm's capital ratios,
as well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 27. Refer to
the Firm's Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website, for further
information on the Firm's Basel III measures.
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average
on-balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
3.0%. Certain banking organizations, including the Firm,
are also required to hold an additional 2.0% leverage
buffer.
Banking organizations subject to the Basel III Advanced
approach are currently required to have a minimum SLR of
Leverage-based Capital Regulatory Minimums
Supplementary leverage ratio
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt ("eligible LTD"). Refer to TLAC on page 100 for
additional information.
Total Loss-Absorbing Capacity
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer will result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common share repurchases, as well
as certain executive discretionary bonus payments.
The Firm has a target Basel III CET1 capital ratio of 12%.
However, the Firm may remain above that level in order to
satisfy leverage-based capital requirements if deposits
continue to grow due to actions taken by the Federal
Reserve and the U.S. government in response to the
COVID-19 pandemic.
Failure to maintain an SLR equal to or greater than the
regulatory minimum will result in limitations on the amount
of capital that the Firm may distribute such as through
dividends and common share repurchases.
The Firm's Basel III Standardized-risk-based ratios are
currently more binding than the Basel III Advanced-risk-
based ratios.
3.30%
GSIB surcharge
Minimum
requirement
2.50%
2.50%
Capital
10
10.50%
10.50%
11.30%
conservation
12
CET1 capital ratio
14
Basel III Standardized
The following chart presents the Firm's Basel III minimum CET1 capital ratio under the Basel III rules currently in effect.
holdings of capital instruments of financial institutions to
also include TLAC debt instruments issued by systemically
important banking organizations. The final rule will become
effective on April 1, 2021 and is not expected to have a
material impact on the Firm's risk-based capital metrics.
December 31,
TLAC Holdings rule. On October 20, 2020, the federal
banking agencies issued a final rule prescribing the
regulatory capital treatment for holdings of TLAC debt
instruments by certain large banking organizations, such as
the Firm and JPMorgan Chase Bank, N.A. This rule expands
the scope of the existing capital deductions rule around the
Risk-based Capital Regulatory Minimums
as of 12/31/20: 13.1%
and Advanced
2019 3Q 2020
8
6
conservation buffer
Fixed capital
Stress capital
buffer
buffer incl. GSIB & SCB
Basel III Advanced
4Q 2020
Basel III Standardized
4Q 2020
Basel III Standardized
00
0.
4.50%
2
4.50%
4
3.50%
3.50%
3.50%
4.50%
2020(c)(d)
$ 3,353,319
Minimum
7.9 %
7.0 %
4.0 %
7.9 %
7.0 %
$ 2,730,239
$ 3,353,319
4.0 %
$ 2,730,239
Leverage-based capital metrics:
Total capital ratio
12.0
14.0
16.6
17.3
14.8
16.0
Adjusted average assets (a)
17.3
$ 3,401,542
SLR (b)
Management's discussion and analysis
JPMorgan Chase & Co./2020 Form 10-K
96
(e) Represents minimum requirements and regulatory buffers applicable to the Firm. For the period ended December 31, 2019, the CET1, Tier 1, Total, Tier 1
leverage and SLR minimum capital ratios applicable to the Firm were 10.5%, 12.0%, 14.0%, 4.0% and 5.0%, respectively. Refer to Note 27 for
additional information.
(d) As of December 31, 2020, the capital metrics reflect the exclusion of assets purchased from money market mutual fund clients pursuant to nonrecourse
advances provided under the MMLF. Additionally, loans originated under the PPP receive a zero percent risk weight.
(c) As of December 31, 2020, the capital metrics reflect the CECL capital transition provisions.
(b) As of December 31, 2020, total leverage exposure for purposes of calculating the SLR excludes U.S. Treasury securities and deposits at Federal Reserve
Banks, as provided by the interim final rule issued by the Federal Reserve on April 1, 2020.
$ 3,423,431
(a) Adjusted average assets, for purposes of calculating the leverage ratios, includes total quarterly average assets adjusted for on-balance sheet assets that
are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
ΝΑ
ΝΑ
Total leverage exposure (b)
Tier 1 leverage ratio
5.0 %
6.3 %
6.9 %
NA
ΝΑ
NA
Advanced
December 31,
2019
15.3
12.8
234,844
Tier 1 capital ratio
CET1 capital ratio
Total capital
Tier 1 capital
187,753
$
214,432
205,078
187,753
$
205,078
$
CET1 capital
Risk-based capital metrics:
capital ratios (e)
$
15.8
234,844
269,923
14.1
15.0
10.5 %
13.4 %
13.8 %
11.3 %
12.4 %
214,432
13.1 %
1,484,431
1,515,869
1,560,609
Risk-weighted assets
232,112
257,228
242,589
1,397,878
93
Promote the Firm's ability to serve as a source of
strength to its subsidiaries;
Stress Capital Buffer. On March 4, 2020, the Federal
Reserve issued the final rule introducing the SCB framework
for the Basel III Standardized approach that is designed to
more closely integrate the results of the quantitative
assessment in the annual CCAR with the ongoing minimum
capital requirements for BHCs under the U.S. Basel III rules.
The final rule replaces the fixed 2.5% CET1 capital
conservation buffer in the Standardized approach with a
dynamic institution-specific SCB. The final rule does not
apply to the U.S. Basel III Advanced approach capital
requirements. The SCB requirement for BHCS will be
effective on October 1 of each year and is expected to
remain in effect until September 30 of the following year.
Risk governance and oversight functions
Strategic Risk
The following sections discuss the risk governance and
oversight functions in place to manage the risks inherent in
the Firms business activities.
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function may
include one or more drivers, types and/or impacts of risk.
For example, Country Risk Management oversees country
risk which may be a driver of risk or an aggregation of
exposures that could give rise to multiple risk types such as
credit or market risk.
Risk governance and oversight functions
JPMorgan Chase & Co./2020 Form 10-K
88
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm.
Capital risk
The Asset and Liability Committee ("ALCO") is responsible for
overseeing the Firm's asset and liability management
("ALM") activities and the management of liquidity risk,
balance sheet, interest rate risk, and capital risk.
The Firmwide Control Committee ("FCC") is an escalation
committee for senior management to review and discuss
the Firmwide operational risk environment including
identified issues, operational risk metrics and significant
events that have been escalated.
The Firmwide Risk Committee ("FRC”) is the Firm's highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm's businesses and serves as an
escalation point for risk topics and issues raised by
underlying committees and/or FRC members.
The Firm's senior management-level committees that are
primarily responsible for key risk-related functions include:
Management oversight
The Corporate Governance & Nominating Committee
exercises general oversight with respect to the governance
of the Board of Directors. It reviews the qualifications of
and recommends to the Board of Directors proposed
nominees for election to the Board. The Committee
evaluates and recommends to the Board corporate
governance practices applicable to the Firm. It also
appraises the framework for assessing the Board's
performance and self-evaluation.
The Compensation & Management Development Committee
("CMDC") assists the Board in its oversight of the Firm's
compensation principles and practices. The CMDC reviews
and approves the Firm's compensation and qualified
benefits programs. The Committee reviews the performance
of Operating Committee members against their goals, and
approves their compensation awards. In addition, the CEO's
award is subject to ratification by the independent directors
of the Board. The CMDC also reviews the development of
and succession for key executives, and provides oversight of
the Firm's culture, including reviewing updates from
management regarding significant conduct issues and any
related employee actions, including compensation actions.
The Public Responsibility Committee assists the Board in its
oversight of the Firm's positions and practices on public
responsibility matters such as community investment, fair
lending, sustainability, consumer practices and other public
policy issues that reflect the Firm's values and character
and could impact the Firm's reputation among its
stakeholders. The Committee also provides guidance on
these matters to management and the Board, as
appropriate.
Management's discussion and analysis
Line of Business and Regional Risk Committees are
responsible for providing oversight of the governance,
limits, and controls that are in place through the scope of
their activities. These committees review the ways in which
the particular LOB or the business operating in a particular
region could be exposed to adverse outcomes with a focus
on identifying, accepting, escalating and/or requiring
remediation of matters brought to these committees.
Line of Business and Corporate Function Control Committees
oversee the operational risk and control environment of
their respective business or function, inclusive of
Operational Risk, Compliance and Conduct Risks. As part of
that mandate, they are responsible for reviewing indicators
of elevated or emerging risks and other data that may
impact the level of operating risk in a business or function,
addressing key operational risk issues, focusing on
processes with control concerns and overseeing control
remediation.
87
Liquidity risk
Consumer Credit Risk
Legal risk
Conduct risk
Compliance Risk
Operational risk
Country risk
134
121-131
Reputation risk
114-120
102-108
91-101
90
Page
Market risk
Investment portfolio risk
Wholesale credit risk
109
Estimations and Model risk
JPMorgan Chase & Co./2020 Form 10-K
The JPMorgan Chase Bank, N.A. Board of Directors is
responsible for the oversight of management of the bank.
The JPMorgan Chase Bank, N.A. Board accomplishes this
function acting directly and through the principal standing
committees of the Firm's Board of Directors. Risk and
control oversight on behalf of JPMorgan Chase Bank N.A. is
primarily the responsibility of the Risk Committee and the
Audit Committee, respectively, and, with respect to
General
Counsel
Line of Business
CEOs and Select
Business
Heads (a)
Chief
Financial
Officer
Chief Risk
Officer (c)
Chief Executive Officer
Operating Committee
Audit Committee
Chief
Information
Officer
Corporate Governance and
Nominating Committee
Public Responsibility
Committee
Board Risk Committee
Board of Directors
The chart below illustrates the committees of the Board of Directors and key senior management-level committees in the
Firm's risk governance structure. In addition, there are other committees, forums and paths of escalation that support the
oversight of risk which are not shown in the chart below or described in this Form 10-K.
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the FRC, and the Board of Directors, as appropriate.
Risk governance and oversight structure
JPMorgan Chase & Co./2020 Form 10-K
Compensation and Management
Development Committee
compensation and other management-related matters, the
Compensation & Management Development Committee.
The Board Risk Committee assists the Board in its oversight
of management's responsibility to implement a global risk
management framework reasonably designed to identify,
assess and manage the Firm's risks. The Board Risk
Committee's responsibilities include approval of applicable
primary risk policies and review of certain associated
frameworks, analysis and reporting established by
management. Breaches in risk appetite and parameters,
issues that may have a material adverse impact on the Firm,
including capital and liquidity issues, and other significant
risk-related matters are escalated to the Board Risk
Committee, as appropriate.
Head of Corporate
Responsibility and
Chairman of the
Mid-Atlantic Region
Asset and Liability
The Firm's Board of Directors provides oversight of risk. The
Board Risk Committee is the principal committee that
oversees risk matters. The Audit Committee oversees the
control environment, and the Compensation & Management
Development Committee oversees compensation and other
management-related matters. Each committee of the Board
oversees reputational risks and conduct risks within its
scope of responsibility.
Board oversight
The Firm's Operating Committee, which consists of the
Firm's CEO, CRO, CFO, General Counsel, CEOs of the LOBS
and other senior executives, is accountable to and may
refer matters to the Firm's Board of Directors. The
Operating Committee is responsible for escalating to the
Board the information necessary to facilitate the Board's
exercise of its duties.
(c) The Firmwide Risk Committee escalates significant issues directly to the Board Risk Committee as appropriate. The CRO may also escalate directly to
the Board Risk Committee.
(b) The General Auditor reports to the Audit Committee and administratively to the CEO.
(a) Includes the CEO for Consumer Lending, the CEO for Consumer Banking, and select Business Heads; the CEOs for Corporate & Investment Bank and
Consumer & Community Banking are also the Firm's Co-Presidents and Co-Chief Operating Officers.
Internal
Audit
Head of
Human
Resources
(ex-officio member)
Committee
Firmwide Control
Regional Risk
Committees and
Line of Business,
Committee and
Firmwide Valuation
Governance Forum
(c)
Firmwide Risk
Committee
General
Auditor (b)
135-142
The Audit Committee assists the Board in its oversight of
management's responsibility to ensure that there is an
effective system of controls reasonably designed to
safeguard the Firm's assets and income, ensure the
integrity of the Firm's financial statements, and maintain
compliance with the Firm's ethical standards, policies, plans
and procedures, and with laws and regulations. It also
assists the Board in its oversight of the Firm's independent
registered public accounting firm's qualifications,
independence and performance, and of the performance of
the Firm's Internal Audit function.
145-151
The CCAR and other stress testing processes assess the
potential impact of alternative economic and business
scenarios on the Firm's earnings and capital. Economic
scenarios, and the parameters underlying those scenarios,
are defined centrally and applied uniformly across the
businesses. These scenarios are articulated in terms of
macroeconomic factors, which are key drivers of business
results; global market shocks, which generate short-term
but severe trading losses; and idiosyncratic operational risk
events. The scenarios are intended to capture and stress
key vulnerabilities and idiosyncratic risks facing the Firm.
However, when defining a broad range of scenarios, actual
events can be worse. Accordingly, management considers
additional stresses outside these scenarios, as necessary.
These results are reviewed by management and the Board
of Directors.
Internal Capital Adequacy Assessment Process
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm's
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm's ICAAP integrates
stress testing protocols with capital planning.
Refer to Capital actions on page 99 for information on
actions taken by the Firm's Board of Directors following the
2020 CCAR results.
In June 2020, the Federal Reserve determined that changes
in financial markets or the macroeconomic outlook due to
the COVID-19 pandemic could have a material effect on a
firm's risk profile and financial condition and therefore
required all large bank holding companies, including the
Firm, to update and resubmit their capital plans by
November 2, 2020. On December 18, 2020, the Federal
Reserve released its results from the 2020 CCAR Round 2
stress test, which showed that large banks had strong levels
of capital and announced that it would allow all large banks,
including the Firm, to resume share repurchases
commencing in the first quarter of 2021, subject to certain
restrictions for at least the first quarter of 2021 given
considerable economic uncertainty remained. The Federal
Reserve has stated that due to uncertainty about future
economic conditions and the ultimate path of the current
recovery, the SCB will not be reset at this time. The Federal
Reserve will notify firms by March 31, 2021 whether a
revised SCB requirement based on the 2020 CCAR Round 2
stress test will be recalculated ahead of the 2021 annual
CCAR assessment.
On June 29, 2020, the Firm announced that it had
completed the 2020 CCAR stress test process. On August
10, 2020, the Federal Reserve affirmed the Firm's SCB
requirement of 3.3% and the Firm's minimum Standardized
CET1 capital ratio of 11.3% (up from 10.5%). The SCB
requirement became effective on October 1, 2020.
year. Refer to Key Regulatory Developments on pages 93-
94 for additional information.
Management's discussion and analysis
The Firm's contingency capital plan establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm's approach towards capital
management in normal economic conditions and during
stress. The contingency capital plan defines how the Firm
calibrates its targeted capital levels and meets minimum
capital requirements, monitors the ongoing
appropriateness of planned capital distributions, and sets
out the capital contingency actions that are expected to be
taken or considered at various levels of capital depletion
during a period of stress.
91
The Federal Reserve requires large BHCs, including the
Firm, to submit at least annually a capital plan that has
been reviewed and approved by the Board of Directors. The
Federal Reserve uses CCAR and other stress testing
processes to ensure that large BHCs have sufficient capital
during periods of economic and financial stress, and have
robust, forward-looking capital assessment and planning
processes in place that address each BHC's unique risks to
enable it to absorb losses under certain stress scenarios.
Through CCAR, the Federal Reserve evaluates each BHC's
capital adequacy and internal capital adequacy assessment
processes ("ICAAP"), as well as its plans to make capital
distributions, such as dividend payments or stock
repurchases. The Federal Reserve uses results under the
severely adverse scenario from its supervisory stress test to
determine each firm's SCB requirement for the coming
Committees responsible for overseeing the Firm's capital
management include the Capital Governance Committee,
the Treasurer Committee and the Firmwide ALCO. Oversight
of capital management is governed through the CIO,
Treasury and Corporate ("CTC") Risk Committee. In
addition, the Board Risk Committee periodically reviews the
Firm's capital risk tolerance. Refer to Firmwide Risk
Management on pages 85-89 for additional discussion on
the Board Risk Committee and the ALCO.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
Governance
The current capital governance framework requires regular
monitoring of the Firm's capital position and follows
prescribed escalation protocols, both at the Firm and
material legal entity levels.
Capital management is intended to be flexible in order to
react to a range of potential events.
The Firm addresses these objectives through establishing
internal minimum capital requirements and a strong capital
governance framework. The internal minimum capital levels
consider the Firm's regulatory capital requirements as well
as an internal assessment of capital adequacy, in normal
economic cycles and in stress events, when setting its
minimum capital levels.
Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
JPMorgan Chase & Co./2020 Form 10-K
Meet capital distribution objectives; and
Regulatory capital
Basel III Overview
Refer to Regulatory Developments Relating to the COVID-19
Pandemic on pages 52-53 for additional information on
regulatory actions and significant financing programs that
the U.S.government and regulators have introduced to
address the effects of the COVID-19 pandemic.
143-144
The rule also provides that if a PPP loan is pledged as
collateral for a non-recourse loan under the Federal
Reserve's Paycheck Protection Program Lending ("PPPL")
Facility, the PPP loan can be excluded from leverage-based
capital ratios. As of December 31, 2020, the Firm had not
participated in the PPPL Facility.
Supplementary leverage ratio temporary revision. On April 1,
2020, the Federal Reserve issued an interim final rule that
requires, on a temporary basis, the calculation of total
leverage exposure for purposes of calculating the SLR for
bank holding companies, to exclude the on-balance sheet
amounts of U.S. Treasury securities and deposits at Federal
Reserve Banks. These exclusions became effective April 1,
2020, and will remain in effect through March 31, 2021.
On June 1, 2020, the Federal Reserve, OCC and FDIC issued
an interim final rule that provides IDI subsidiaries with an
option to apply this temporary exclusion subject to certain
restrictions. As of December 31, 2020, JPMorgan Chase
Bank, N.A. has not elected to apply this exclusion.
Paycheck Protection Program. On April 13, 2020, the
federal banking agencies issued an interim final rule (issued
as final on September 29, 2020) to neutralize the
regulatory capital effects of participating in the PPP on risk-
based capital ratios by applying a zero percent risk weight
to loans originated under the program. Given that PPP loans
are guaranteed by the SBA, the Firm does not expect to
realize material credit losses on these loans. As of
December 31, 2020, the Firm had approximately $27
billion of loans under the program.
September 29, 2020) to neutralize the effects of
purchasing assets through the program on risk-based and
leverage-based capital ratios. As of December 31, 2020,
the Firm excluded assets purchased from money market
mutual fund clients pursuant to nonrecourse advances
provided under the MMLF in the amount of $187 million
from its RWA and $358 million from adjusted three month
average assets and total leverage exposure.
The impacts of the CECL capital transition provisions have
also been incorporated into Tier 2 capital, adjusted average
assets, and total leverage exposure. Refer to Note 1 for
further information on the CECL accounting guidance.
Money Market Mutual Fund Liquidity Facility ("MMLF"). The
Federal Reserve established the MMLF facility on March 18,
2020, authorized through at least March 31, 2021, to
enhance the liquidity and functioning of money markets.
Under the MMLF, the Federal Reserve Bank of Boston
("FRBB") makes nonrecourse advances to participating
financial institutions to purchase certain types of assets
from eligible money market mutual fund clients. These
assets, which are reflected in other assets on the Firm's
Consolidated balance sheets, are pledged to the FRBB as
collateral. On March 23, 2020, the federal banking
agencies issued an interim final rule (issued as final on
The final rule provides a uniform approach for estimating
the effects of CECL compared to the legacy incurred loss
model during the first two years of the transition period
(the "day 2" transition amount), whereby the Firm may
exclude from CET1 capital 25% of the change in the
allowance for credit losses (excluding allowances on PCD
loans). The cumulative day 2 transition amount as at
December 31, 2021 that is not recognized in CET1 capital,
as well as the $2.7 billion day 1 impact, will be phased into
CET1 capital at 25% per year beginning January 1, 2022.
The Firm has elected to apply the CECL capital transition
provisions, and accordingly, for the year ended December
31, 2020, the capital metrics of the Firm exclude
$5.7 billion, which is the $2.7 billion day 1 impact to
retained earnings and 25% of the $12.2 billion increase in
the allowance for credit losses (excluding allowances on
PCD loans).
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
IDI subsidiaries, including JPMorgan Chase Bank, N.A. The
U.S. capital requirements generally follow the Capital
Accord of the Basel Committee, as amended from time to
time.
Current Expected Credit Losses. Effective January 1, 2020,
the Firm adopted the Financial Instruments - Credit Losses
guidance under U.S. GAAP. As permitted under the U.S.
capital rules issued by the federal banking agencies in
2019, the Firm initially elected to phase-in the January 1,
2020 ("day 1") CECL adoption impact to retained earnings
of $2.7 billion to CET1 capital, at 25% per year in each of
2020 to 2023. As part of their response to the impact of
the COVID-19 pandemic, on March 31, 2020, the federal
banking agencies issued an interim final rule (issued as final
on August 26, 2020) that provided the option to delay the
effects of CECL on regulatory capital for two years, followed
by a three-year transition period (“CECL capital transition
provisions").
The Firm has been impacted by market events as a result of
the COVID-19 pandemic, but remains well-capitalized.
However, the continuation or further deterioration of the
current macroeconomic environment could result in
impacts to the Firm's capital and leverage.
COVID-19 Pandemic
calculate the SLR. Refer to SLR on page 98 for additional
information.
JPMorgan Chase & Co./2020 Form 10-K
92
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III Advanced.
In addition to the RWA calculated under these approaches,
the Firm may supplement such amounts to incorporate
management judgment and feedback from its regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. BHCs and banks, including the
Firm and its IDI subsidiaries, including JPMorgan Chase
Bank, N.A. The minimum amount of regulatory capital that
must be held by BHCs and banks is determined by
calculating risk-weighted assets ("RWA"), which are on-
balance sheet assets and off-balance sheet exposures,
weighted according to risk. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach ("Basel III Standardized"), and an advanced
approach ("Basel III Advanced"). For each of the risk-based
capital ratios, the capital adequacy of the Firm is evaluated
against the lower of the Standardized or Advanced
approaches compared to their respective minimum capital
ratios.
Key Regulatory Developments
regulatory capital requirements;
Contingency capital plan
capital ratios as well as maintain "well-capitalized"
status for the Firm and its insured depository institution
("IDI") subsidiaries at all times under applicable
90
The Firm's balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is also
a component in the management of strategic risk. Refer to
Capital Risk Management on pages 91-101 for further
information on capital risk. Refer to Liquidity Risk
Management on pages 102-108 for further information on
liquidity risk. Refer to Reputation Risk Management on page
109 for further information on reputation risk.
These strategic initiatives, along with IRM's assessment, are
incorporated in the Firm's budget and provided to the
Board for review.
The Firm's strategic planning process, which includes the
development and execution of strategic initiatives, is one
component of managing the Firm's strategic risk. Guided by
the Firm's How We Do Business Principles (the "Principles"),
the Operating Committee and senior management teams in
each LOB and Corporate review and update the strategic
plan periodically. The process includes evaluating the high-
level strategic framework and performance against prior-
year initiatives, assessing the operating environment,
refining existing strategies and developing new strategies.
In addition, IRM conducts a qualitative assessment of the
LOB and Corporate strategic initiatives to assess their
impact on the risk profile of the Firm.
The Operating Committee and the senior leadership of each
LOB and Corporate are responsible for managing the Firm's
most significant strategic risks. Strategic risks are overseen
by IRM through participation in relevant business reviews,
LOB and Corporate senior management meetings, risk and
control committees and other relevant governance forums
and ongoing discussions. The Board of Directors oversees
management's strategic decisions, and the Board Risk
Committee oversees IRM and the Firm's risk management
framework.
Management and oversight
JPMorgan Chase & Co./2020 Form 10-K
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
Management's discussion and analysis
89
JPMorgan Chase & Co./2020 Form 10-K
151
150
149
148
STRATEGIC RISK MANAGEMENT
CAPITAL RISK MANAGEMENT
In the process of developing business plans and strategic
initiatives, LOB and Corporate senior management identify
the associated risks that are incorporated into the Firmwide
Risk Identification process and monitored and assessed as
part of the Firmwide Risk Appetite framework.
•
Capital risk is the risk the Firm has an insufficient level or
composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and under stressed conditions.
•
•
Retain flexibility to take advantage of future investment
opportunities;
Maintain sufficient capital in order to continue to build
and invest in the Firm's businesses through the cycle
and in stressed environments;
Ensure the Firm operates above the minimum regulatory
•
are to:
Treasury & CIO is responsible for capital management.
The primary objectives of the Firm's capital management
Capital management
Performing an independent assessment of the Firm's
capital management activities, including changes made
to the Contingency Capital Plan described below.
In addition, the Basel Independent Review function ("BIR"),
which is a part of the IRM function, conducts independent
assessments of the Firm's regulatory capital framework.
These assessments are intended to ensure compliance with
the applicable regulatory capital rules in support of senior
management's responsibility for managing capital and for
the Board Risk Committee's oversight of management in
executing that responsibility.
Capital Management Oversight's responsibilities include:
Defining, monitoring and reporting capital risk metrics;
Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite;
Developing a process to classify, monitor and report
capital limit breaches; and
•
The Firm has a Capital Management Oversight function
whose primary objective is to provide independent
oversight of capital risk across the Firm.
Capital management oversight
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm's Board of
Directors, CEO and Operating Committee. The Firm's
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm's
capital risk management strategy focuses on maintaining
long-term stability to enable the Firm to build and invest in
market-leading businesses, including in highly stressed
environments. Senior management considers the
implications on the Firm's capital prior to making any
significant decisions that could impact future business
activities. In addition to considering the Firm's earnings
outlook, senior management evaluates all sources and uses
of capital with a view to ensuring the Firm's capital
strength.
•
14.0
10.5
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Corporate
Asset & Wealth Management
78.3
10.5
22.0
$ 50.0 $
24.0
80.0
80.0
83.0
52.0
52.0 $
84.8
22.0
69.8
Common stock
249.3
2019
On March 15, 2020, in response to the economic
disruptions caused by the COVID-19 pandemic, the Firm
temporarily suspended repurchases of its common stock.
Subsequently, the Federal Reserve directed all large banks,
including the Firm, to discontinue net share repurchases
through the end of 2020. On December 18, 2020, the
Federal Reserve announced that all large banks, including
the Firm, could resume share repurchases commencing in
the first quarter of 2021. As directed by the Federal
Reserve, total net repurchases and common stock dividends
in the first quarter of 2021 are restricted and cannot
exceed the average of the Firm's net income for the four
preceding calendar quarters. The Firm's Board of Directors
has authorized a new common share repurchase program
for up to $30 billion.
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2020,
2019 and 2018.
2018
30 %
31 %
40 %
2019
2020
Year ended December 31,
Common dividend payout ratio
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
The Firm's quarterly common stock dividend is currently
$0.90 per share. The Firm's dividends are subject to the
Board of Directors' approval on a quarterly basis.
Refer to Note 21 and Note 26 for information regarding
dividend restrictions.
The Firm's common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm's capital management objectives.
Common stock dividends
Capital actions
JPMorgan Chase & Co./2020 Form 10-K
98
$ 249.3 $ 234.3
Total common stockholders' equity $
2020
The following table presents the components of the Firm's
SLR.
(in billions)
3,353,319
(b)
Total adjusted average assets"
46,499
Less: Regulatory capital
adjustments (a)
214,432
2,777,270
3,399,818
Total average assets
$ 234,844
December 31,
2020
(in millions, except ratio)
December 31,
2019
Tier 1 capital
Three months ended
Supplementary leverage ratio
(c) Movement in portfolio levels (inclusive of rule changes) refers to: changes in book size, composition, credit quality, and market movements for credit risk
RWA; changes in position and market movements for market risk RWA; updates to cumulative losses for operational risk RWA; and deductions to credit risk
RWA for excess eligible credit reserves not eligible for inclusion in Tier 2 capital.
Year ended December 31, (in millions)
Total number of shares of common
stock repurchased
47,031
2,730,239
729,978
693,192
Add: Off-balance sheet exposures (c)
December 31,
Line of business equity (Allocated capital)
The following table presents the capital allocated to each
business segment.
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. As of January 1, 2021, the Firm has changed
its line of business capital allocations primarily as a result of
changes in exposures for each LOB and an increase in the
relative risk weighting toward Standardized RWA. The
assumptions and methodologies used to allocate capital are
periodically assessed and as a result, the capital allocated
to the LOBS may change from time to time.
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
Line of business equity
Refer to Note 27 for JPMorgan Chase Bank, N.A.'s SLR.
(c) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances during the reporting quarter.
January 1,
2021
(b) Adjusted average assets used for the calculation of Tier 1 leverage
ratio.
6.3 %
$ 3,423,431
6.9 %
$ 3,401,542
681,755
SLR
Total leverage exposure
deposits
Less: Exclusion for U.S. Treasuries
and Federal Reserve Bank
(a) For purposes of calculating the SLR, includes total quarterly average
assets adjusted for on-balance sheet assets that are subject to
deduction from Tier 1 capital, predominantly goodwill and other
intangible assets. As of December 31, 2020, includes adjustments for
the CECL capital transition provisions and the exclusion of average
assets purchased from money market mutual fund clients pursuant to
nonrecourse advances provided under the MMLF.
2020
$ 61.2 $
2018
Greater
of
and Method 2 GSIB
Greater of Method 1
4.5%
6% of RWA (a)
long-term debt
Minimum level of eligible
2.0% buffer
Method 1 GSIB
surcharge
of total
leverage
exposure
Greater
of
buffers, including
7.5%
applicable
+
18% of RWA (a)
17.8
of total
leverage
exposure
surcharge
(a) RWA is the greater of Standardized and Advanced compared to their respective
minimum capital ratios.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers will result in
limitations to the amount of capital that the Firm may
distribute, such as through dividends and common share
repurchases.
External long-term debt to RWA
TLAC to leverage exposure
TLAC to RWA
Refer to Part I, Item 1A: Risk Factors on pages 8-32 of the
2020 Form 10-K for information on the financial
consequences to holders of the Firm's debt and equity
securities in a resolution scenario.
7.8
(b) Portfolio runoff for credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
28.3
$
97.9
37.7 $
$
11.3 %
5.3 %
12.4 %
(shortfall)
Surplus/
exposure
Minimum
Requirements
The following table presents the TLAC and external long-
term debt minimum requirements including applicable
regulatory buffers, as of December 31, 2020 and 2019.
4.7 %
2019
$
$
Total Loss-Absorbing Capacity
Other capital requirements
Management's discussion and analysis
99
JPMorgan Chase & Co./2020 Form 10-K
$ 6,397 $ 24,121 $ 19,983
Aggregate purchase price of common
stock repurchases
On May 13, 2020, the Firm issued $3.0 billion of fixed-to-
floating rate subordinated notes due 2031. Refer to Long-
term funding and issuance on page 107 and Note 20 for
additional information.
The Firm has not issued or redeemed any preferred stock
since the first quarter of 2020. Refer to Note 21 for
additional information on the Firm's preferred stock,
including the issuance and redemption of preferred stock.
Subordinated Debt
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2020.
Preferred stock
Refer to Part II, Item 5: Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities on page 34 of the 2020 Form 10-K for
additional information regarding repurchases of the Firm's
equity securities.
-
The authorization to repurchase common shares is utilized
at management's discretion, and the timing of purchases
and the exact amount of common shares that may be
repurchased is subject to various factors, including market
conditions; legal and regulatory considerations affecting the
amount and timing of repurchase activity; the Firm's capital
position (taking into account goodwill and intangibles);
internal capital generation; and alternative investment
opportunities. The repurchase program does not include
specific price targets or timetables; may be suspended by
management at any time; and may be executed through
open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans, which are
written trading plans that the Firm may enter into from
time to time under Rule 10b5-1 of the Securities Exchange
Act of 1934 and which allow the Firm to repurchase its
common shares during periods when it may otherwise not
be repurchasing common shares – for example, during
internal trading blackout periods.
181.5
213.0
50.0
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt.
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:
Minimum external TLAC
The following table presents the eligible external TLAC and
eligible LTD amounts, as well as a representation of the
amounts as a percentage of the Firm's total RWA and total
leverage exposure applying the impact of the CECL capital
transition provisions as of December 31, 2020 and 2019.
62.1
$
10.7 %
25.5 %
11.6 %
27.0 %
$ 161.8
$ 386.4
33.1
$ 181.4
LTD
External
TLAC
December 31, 2019
LTD
December 31, 2020
External
TLAC
% of total
leverage
% of RWA
Surplus/
(shortfall)
(in billions,
except ratio)
Total eligible
amount
$ 421.0
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance
(exclusive of rule changes).
(b)
86,553
Other
Qualifying allowance for credit losses (c)
$
qualifying as Tier 2 capital
Long-term debt and other instruments
December 31, 2019
214,432
234,844 $
Standardized/Advanced Tier 1 capital $
$ 205,078
December 31, 2020
Standardized/Advanced CET1 capital at
1,571
17,325
Change in Standardized/Advanced CET1 capital
323
187,753
26,993
314
297
Less: Other Tier 1 adjustments
Standardized Tier 2 capital
30,063
$
Standardized Total capital
22,384 $ 17,680
257,228 $ 232,112
$
$
(10,477)
(12,695)
Advanced Total capital
Advanced Tier 2 capital
capital (d)
credit losses for Advanced Tier 2
Adjustment in qualifying allowance for
$ 214,432
17,325
3,070
Net issuance of noncumulative perpetual preferred stock
Other
Change in CET1 capital (b)
Standardized/Advanced Tier 1 capital at
13,733
14,314
110
28,157
242,589
269,923 $
$
16,645 $
18,372
62
35,079 $
Preferred stock
205,078
Standardized/Advanced CET1 capital
(11,119)
27,548
2020
Year Ended December 31, (in millions)
Standardized/Advanced CET1 capital at December 31, 2019 $ 187,753
Net income applicable to common equity
Dividends declared on common stock
Net purchase of treasury stock
Add:
The following table presents the changes in Basel III CET1
capital, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2020.
Capital rollforward
Less: Preferred stock
External long-term debt to leverage
Total stockholders' equity
(in millions)
The following table presents reconciliations of total
stockholders' equity to Basel III CET1 capital, Tier 1 capital
and Total capital as of December 31, 2020 and 2019.
Capital components
December 31, December 31,
2020
2019
279,354 $ 261,330
26,993
234,337
30,063
249,291
Common stockholders' equity
$
(5,135)
Certain deferred tax liabilities
(a)
2,453
(3,486)
Other CET1 capital adjustments (b)
(b)
Changes related to other CET1 capital adjustments"
819
904
Other intangible assets
(1,829)
Other
Adjustment related to AOCI (a)
49,248
Goodwill
6,417
Changes related to AOCI
Less:
(128)
Changes in additional paid-in capital
2,381
47,823
(a) Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,
which are netted against goodwill and other intangibles when
calculating CET1 capital.
(b) As of December 31, 2020, the impact of the CECL capital transition
provision was an increase in CET1 capital of $5.7 billion.
(c) Represents the allowance for credit losses eligible for inclusion in Tier
2 capital up to 1.25% of credit risk RWA, including the impact of the
CECL capital transition provision with any excess deducted from RWA.
(d) Represents an adjustment to qualifying allowance for credit losses for
the excess of eligible credit reserves over expected credit losses up to
0.6% of credit risk RWA, including the impact of the CECL capital
transition provision with any excess deducted from RWA.
Movement in portfolio levels (c)
(4,000)
(4,000)
(4,450)
(4,450)
Portfolio runoff (b)
(22,420)
1,397,878
389,278 $
75,652 $
(16,320)
(6,100)
(17,120)
932,948 $
$
1,515,869
75,649 $
(16,320)
(800)
29,249
37,061
66,310
79,482
112,973
385,191 $
(4,087)
(4,087)
96,910 $
1,002,330 $
$
1,560,609
Model & data changes (a)
96,390 $
December 31, 2020
21,258
69,382
44,740
20,741
23,999
Changes in RWA
37,578
$ 1,464,219 $
1,484,431
$ 1,440,220 $
Total RWA
(b) Includes the impact of the CECL capital transition provisions.
(a) Includes cash flow hedges and DVA related to structured notes
recorded in AOCI.
$ 257,228
$ 22,384
4,704
(48)
1,840
2,912
$ 17,680
$ 269,923
$ 35,079
Change in Advanced Tier 2 capital
Advanced Tier 2 capital at December 31, 2020
Advanced Total capital at December 31, 2020
Change in qualifying allowance for credit losses
Other
Change in Standardized Tier 2 capital
Standardized Tier 2 capital at December 31, 2020
Standardized Total capital at December 31, 2020
Advanced Tier 2 capital at December 31, 2019
Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses"
Change in long-term debt and other instruments qualifying
as Tier 2
Standardized Tier 2 capital at December 31, 2019
17
Change in Standardized/Advanced Tier 1 capital
Standardized/Advanced Tier 1 capital at
December 31, 2020
20,412
$ 234,844
Market risk Operational risk
RWA
RWA
Credit risk
RWA
Total RWA
Advanced
Standardized
Market risk
RWA
Credit risk
RWA
Year ended December 31, 2020
(in millions)
The following table presents changes in the components of RWA under Basel III Standardized and Advanced approaches for the
year ended December 31, 2020. The amounts in the rollforward categories are estimates, based on the predominant driver of
the change.
December 31, 2019
RWA rollforward
97
JPMorgan Chase & Co./2020 Form 10-K
(b)
6,922
(48)
4,058
2,912
$ 28,157
Management's discussion and analysis
23.0 %
(f) Refer to Capital Risk Management on pages 91-101, Consolidated statements of changes in stockholders' equity on page 165, Note 21 and Note 22 for
additional information on preferred stock and common stockholders' equity.
9.5
22,977
12,129 $
14,754 $
12,031 $
$
2019
2020
2019
2020
Average
Total short-term unsecured funding
Other borrowed funds
Commercial paper
(in millions)
As of or for the year ended December 31,
Sources of funds (excluding deposits)
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2020 and 2019,
and average balances for the years ended December 31, 2020 and 2019. Refer to the Consolidated Balance Sheets Analysis
on pages 57-58 and Note 20 for additional information.
8,510
Management's discussion and analysis
7,544
10,369
Other borrowed funds
Is 
(b)
8,816
6,536
5,983
4,886
217,807
246,354 $
175,709 $
207,877 $
$
(a)
Securities sold under agreements to repurchase"
Securities loaned (a)
33,346
21,327 $
22,298 $
20,541 $
$
9,198
105
JPMorgan Chase & Co./2020 Form 10-K
Refer to the discussion of the Firm's Business Segment
Results and the Consolidated Balance Sheets Analysis on
pages 65-84 and pages 57-58, respectively, for further
information on deposit and liability balance trends.
135,265
161,955
142,740
253
318
198,755
(a)
(a)
172,666
237,645
515,938
655,095
(a)
(a)
698,378
(a)
851,390 $
$
666
820
$
$ 2,144,257 $ 1,562,431
The Firm believes that average deposit balances are
generally more representative of deposit trends than
period-end deposit balances, over time. However, during
periods of market disruption those trends could be affected.
Average deposits increased for the year ended
December 31, 2020, reflecting significant inflows across
the LOBS primarily driven by the impact of the COVID-19
pandemic and the related effect of certain government
actions. In the wholesale businesses, while the inflows
principally occurred in March as clients sought to remain
liquid as a result of market conditions, balances continued
to increase through the end of 2020. In CCB, the increase
was driven by lower spending and higher cash balances
across both consumer and small business customers, as
well as growth from existing and new accounts.
64 %
47 %
997.6
1,012.9
64 %
$ 1,562.4
69 %
2020
2,144.3
24,667
$
Loans-to-deposits ratio
Loans
Deposits as a % of total liabilities
Deposits
(in billions except ratios)
As of December 31,
(a) In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to the J.P. Morgan Wealth Management business unit
within CCB. In the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm's Wholesale Payments business.
Prior-period amounts have been revised to conform with the current presentation.
Deposits provide a stable source of funding and reduce the
Firm's reliance on the wholesale funding markets. A
significant portion of the Firm's deposits are consumer
deposits and wholesale operating deposits, which are both
considered to be stable sources of liquidity. Wholesale
operating deposits are considered to be stable sources of
liquidity because they are generated from customers that
maintain operating service relationships with the Firm.
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2020 and 2019.
1,906,751 $ 1,523,067
2019
(a)
18,622
26,050
Preferred stock()
48,493
37,056 $
$
39,459
23,606 $
$
Total long-term secured funding
4,643
4,460
4,363
4,540
Other long-term secured funding"
(e)
34,143
27,076
28,635
$
14,123
Common stockholders' equity(f)
30,063 $
249,291 $ 234,337
9.5
JPMorgan Chase & Co./2020 Form 10-K
106
The Firm's sources of short-term unsecured funding consist
of other borrowed funds and issuance of wholesale
commercial paper. The decrease in short-term unsecured
funding at December 31, 2020, from December 31, 2019
and for the average year ended December 31, 2020
compared to the prior year period, was due to lower net
commercial paper issuance primarily for short-term
liquidity management.
The Primary Dealer Credit Facility ("PDCF") was established
by the Federal Reserve on March 20, 2020. Under the
PDCF, the Federal Reserve Bank of New York ("FRBNY")
provides collateralized financing on a term basis to primary
dealers. These financing transactions were reported as
securities sold under agreements to repurchase. The Firm
participated in the PDCF in the first quarter of 2020, and
ceased its participation in May 2020 as the secured
financing market normalized.
As of December 31, 2020, the Firm participated in the
MMLF government facility. The secured nonrecourse
advances under the MMLF are included in other borrowed
funds. Refer to Capital Risk Management on pages 91-101
for additional information on the MMLF.
The balances associated with securities loaned or sold
under agreements to repurchase fluctuate over time due to
investment and financing activities of clients, the Firm's
demand for financing, the ongoing management of the mix
of the Firm's liabilities, including its secured and unsecured
financing (for both the investment securities and market-
making portfolios), and other market and portfolio factors.
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and U.S. GSE and government agency MBS.
Securities sold under agreements to repurchase increased
at December 31, 2020, compared with December 31,
2019, reflecting higher secured financing of AFS investment
securities in Treasury and CIO, as well as trading assets in
CIB, partially offset by a decline in client-driven market-
making activities in CIB, including the Firm's non-
participation in the Federal Reserve's open market
operations.
Short-term funding
(d) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(e) Includes long-term structured notes which are secured.
(c) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(a) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(b) Effective March 2020, includes nonrecourse advances provided under the MMLF.
27,511
29,899 $
236,865 $ 232,907
$
$
26,993
$
FHLB advances
9,707
5,520 $
166,089 $
$
263,602
288,132 $
$
209,537
247,953 $
$
(d)
Subordinated debt
Senior notes
Total short-term secured funding
10,929
11,430
9,223
10,523
Obligations of Firm-administered multi-seller conduits(c)
166,185 $
171,509 $
168,546
21,608
$
6,461
4,943 $
251,420
265,354 $
258,500 $
263,022 $
$
23,812
65,487
74,724
75,325
Credit card securitization (c)
Total long-term unsecured funding
Structured notes"
17,387
20,789
17,591
73,056
2019
$
2019
958,706 $ 723,418
702,215 511,905
184,115
Optimize liquidity sources and uses;
•
As part of the Firm's overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach in order to:
Manage an optimal funding mix and availability of
liquidity sources.
Ensure that the Firm's core businesses and material
legal entities are able to operate in support of client
needs and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and
•
•
The primary objectives of the Firm's liquidity management
are to:
Liquidity management
Monitoring liquidity positions, balance sheet variances
and funding activities;
Approving or escalating for review new or updated
liquidity stress assumptions; and
Monitoring and reporting internal Firmwide and legal
entity liquidity stress tests as well as regulatory defined
liquidity stress tests;
Performing an independent review of liquidity risk
management processes;
Developing a process to classify, monitor and report
limit breaches;
Defining, monitoring and reporting liquidity risk metrics;
Establishing and monitoring limits and indicators,
including liquidity risk appetite;
•
•
•
•
Monitor exposures;
Maintain the appropriate amount of surplus liquidity at
a Firmwide and legal entity level, where relevant.
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm's resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. ("Parent Company") and the Firm's
material legal entities on a regular basis, and other stress
tests are performed in response to specific market events
or concerns. Liquidity stress tests assume all of the Firm's
contractual financial obligations are met and take into
consideration:
Internal stress testing
Committees responsible for liquidity governance include the
Firmwide ALCO as well as LOB and regional ALCOS, the
Treasurer Committee, and the CTC Risk Committee. In
addition, the Board Risk Committee reviews and
recommends to the Board of Directors, for formal approval,
the Firm's liquidity risk tolerances, liquidity strategy, and
liquidity policy. Refer to Firmwide Risk Management on
pages 85-89 for further discussion of ALCO and other risk-
related committees.
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Governance
Managing compliance with regulatory requirements
related to funding and liquidity risk; and
Managing liquidity within the Firm's approved liquidity
risk appetite tolerances and limits;
contingency funding plans;
specific liquidity strategies, policies, reporting and
Defining and monitoring Firmwide and legal entity-
•
•
•
•
Developing internal liquidity stress testing assumptions;
Analyzing and understanding the liquidity characteristics
of the assets and liabilities of the Firm, LOBS and legal
entities, taking into account legal, regulatory, and
operational restrictions;
•
In the context of the Firm's liquidity management, Treasury
and CIO is responsible for:
Identify constraints on the transfer of liquidity between
the Firm's legal entities; and
•
•
The Firm has a Liquidity Risk Oversight function whose
primary objective is to provide oversight of liquidity risk
across the Firm. Liquidity Risk Oversight's responsibilities
include:
$ 27,651 $
Minimum
Actual(a)
Net Capital
(in millions)
December 31, 2020
The following table presents J.P. Morgan Securities' net
capital:
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the
"Alternative Net Capital Requirements" of the Net Capital
Rule.
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
Rule 15c3-1 under the Securities Exchange Act of 1934
(the "Net Capital Rule"). J.P. Morgan Securities is also
registered as a futures commission merchant and is subject
to regulatory capital requirements, including those imposed
by the SEC, Commodity Futures Trading Commission
("CFTC"), Financial Industry Regulatory Authority ("FINRA")
and the National Futures Association ("NFA").
J.P. Morgan Securities
Broker-dealer regulatory capital
JPMorgan Chase & Co./2020 Form 10-K
10
100
Effective January 1, 2021, Method 1 GSIB surcharge is
2.0% (down from 2.5%). As a result, the Firm's TLAC to
RWA requirement will become 22.5%. Refer to Risk-based
Capital Regulatory Minimums on pages 94-95 for further
information on the GSIB surcharge.
2020
4.5
5,024
J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly-owned subsidiary of
JPMorgan Chase Bank, N.A. and has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority ("PRA") and the Financial
Conduct Authority ("FCA"). J.P. Morgan Securities plc is
subject to the European Union Capital Requirements
Regulation and the PRA capital rules, each of which
implement Basel III and thereby subject J.P. Morgan
Securities plc to its requirements. Effective January 1,
2021, J.P. Morgan Securities plc is subject to the amended
EU Capital Requirement Regulation, as adopted in the U.K.
The Bank of England requires, on a transitional basis, that
U.K. banks, including U.K. regulated subsidiaries of overseas
groups, maintain a minimum requirement for own funds
and eligible liabilities ("MREL"). As of December 31, 2020,
J.P. Morgan Securities plc was compliant with the
requirements of the MREL rule.
The following table presents J.P. Morgan Securities plc's
capital metrics:
Liquidity risk oversight
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.
LIQUIDITY RISK MANAGEMENT
Management's discussion and analysis
101
JPMorgan Chase & Co./2020 Form 10-K
8.0 %
4.5 %
•
22.8 %
Estimated
55,156
17.9 %
$
Total capital ratio
CET1 ratio
Total capital
(a) Net capital reflects the exclusion of assets purchased from money
market mutual fund clients pursuant to nonrecourse advances
provided under the MMLF.
(in millions, except ratios)
December 31, 2020
Minimum ratios
•
In addition to its alternative minimum net capital
requirements, J.P. Morgan Securities is required to hold
"tentative net capital" in excess of $1.0 billion and is also
required to notify the SEC in the event that its tentative net
capital is less than $5.0 billion. Tentative net capital is net
capital before deducting market and credit risk charges as
defined by the Net Capital Rule. As of December 31, 2020,
J.P. Morgan Securities maintained tentative net capital in
excess of the minimum and notification requirements.
Estimated non-contractual and contingent cash
outflows, and
The net stable funding ratio (“NSFR") is a liquidity
requirement for large banking organizations that is
intended to measure the adequacy of "available” and
"required" amounts of stable funding over a one-year
horizon. On October 20, 2020, the federal banking agencies
issued a final NSFR rule under which large banking
organizations such as the Firm will be required to maintain
an NSFR of at least 100% on an ongoing basis. The final
NSFR rule will become effective on July 1, 2021, and the
Firm will be required to publicly disclose its quarterly
average NSFR semi-annually beginning in 2023.
NSFR
In addition to the assets reported in the Firm's eligible
HQLA above, the Firm had unencumbered marketable
securities, such as equity and debt securities, that the Firm
believes would be available to raise liquidity. This includes
securities included as part of the excess eligible HQLA at
JPMorgan Chase Bank, N.A. that are not transferable to
non-bank affiliates. The fair value of these securities was
approximately $740 billion and $315 billion as of
December 31, 2020 and 2019, respectively, although the
amount of liquidity that could be raised would be
dependent on prevailing market conditions. The fair value
increased compared to December 31, 2019, due to an
increase in excess eligible HQLA at JPMorgan Chase Bank,
N.A. which was primarily a result of increased deposits.
The Firm also had available borrowing capacity at FHLBS
and the discount window at the Federal Reserve Bank as a
result of collateral pledged by the Firm to such banks of
approximately $307 billion and $322 billion as of
December 31, 2020 and 2019, respectively. This borrowing
capacity excludes the benefit of cash and securities
reported in the Firm's eligible HQLA or other unencumbered
securities that are currently pledged at the Federal Reserve
Bank discount window and other central banks. Available
borrowing capacity decreased from December 31, 2019
primarily due to lower pledged credit card receivable
balances driven by the COVID-19 pandemic and a decrease
in pledged mortgage collateral as a result of paydown and
maturity activity. Although available, the Firm does not view
this borrowing capacity at the Federal Reserve Bank
discount window and the other central banks as a primary
source of liquidity.
Other liquidity sources
Management's discussion and analysis
103
JPMorgan Chase & Co./2020 Form 10-K
The Firm's average LCR fluctuates from period to period,
due to changes in its eligible HQLA and estimated net cash
outflows as a result of ongoing business activity. Refer to
the Firm's U.S. LCR Disclosure reports, which are available
on the Firm's website for a further discussion of the Firm's
LCR.
JPMorgan Chase Bank, N.A.'s average LCR increased during
the three months ended December 31, 2020, compared
with both the three month periods ended September 30,
2020 and December 31, 2019 primarily due to growth in
deposits. Deposits continued to increase in the fourth
quarter primarily driven by the COVID-19 pandemic and the
related effect of certain government actions. The increase
in excess liquidity in JPMorgan Chase Bank, N.A. is excluded
from the Firm's reported LCR under the LCR rule.
The Firm's average LCR decreased during the three months
ended December 31, 2020, compared with the prior year
period primarily due to the relative impact on net cash
outflows from the significant increase in deposits as well as
elevated market activities in the CIB.
The Firm's average LCR decreased during the three months
ended December 31, 2020, compared with the three-month
period ended September 30, 2020, predominantly driven
by a decrease in cash from long-term debt maturities,
including the early termination of certain of the Firm's debt
at the end of the third quarter 2020.
(d) Excludes average excess eligible HQLA at JPMorgan Chase Bank, N.A.
that are not transferable to non-bank affiliates.
(b) Predominantly U.S. Treasuries, U.S. GSE and government agency MBS,
and sovereign bonds net of applicable haircuts under the LCR rule.
(c) Eligible HQLA securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm's Consolidated balance sheets.
(a) Represents cash on deposit at central banks, primarily the Federal
Reserve Banks.
$ 79,483
$ 366,096
$ 401,903
As of December 31, 2020 the Firm estimates that it was
compliant with the 100% minimum NSFR based on its
current understanding of the final rule.
104
JPMorgan Chase & Co./2020 Form 10-K
Funding
$
284,263
Varying levels of access to unsecured and secured
funding markets,
2020
Average
Total Firm
Corporate
Asset & Wealth Management
Net excess eligible
HQLA
Commercial Banking
Consumer & Community Banking
(in millions)
As of or for the year ended December 31,
The table below summarizes, by LOB and Corporate, the period-end and average deposit balances as of and for the years
ended December 31, 2020 and 2019.
Deposits
The Firm funds its global balance sheet through diverse
sources of funding including stable deposits, secured and
unsecured funding in the capital markets and stockholders'
equity. Deposits are the primary funding source for
JPMorgan Chase Bank, N.A. Additionally, JPMorgan Chase
Bank, N.A. may also access funding through short- or long-
term secured borrowings, through the issuance of
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
Sources of funds
Corporate & Investment Bank
116 %
unsecured long-term debt, or from borrowings from the
Parent Company or the IHC. The Firm's non-bank
subsidiaries are primarily funded from long-term unsecured
borrowings and short-term secured borrowings, primarily
securities loaned or sold under repurchase agreements.
Excess funding is invested by Treasury and CIO in the Firm's
investment securities portfolio or deployed in cash or other
short-term liquid investments based on their interest rate
and liquidity risk characteristics.
160 %
Three months ended
Eligible cash (a)
Eligible HQLA
Average amount
(in millions)
The following table summarizes the Firm and JPMorgan
Chase Bank, N.A.'s average LCR for the three months ended
December 31, 2020, September 30, 2020 and
December 31, 2019 based on the Firm's interpretation of
the LCR framework.
Estimated net cash outflows are based on standardized
stress outflow and inflow rates prescribed in the LCR rule,
which are applied to the balances of the Firm's assets,
sources of funds, and obligations. The LCR for both the Firm
and JPMorgan Chase Bank, N.A. is required to be a
minimum of 100%.
Under the LCR rule, the amount of eligible HQLA held by
JPMorgan Chase Bank, N.A. that is in excess of its stand-
alone 100% minimum LCR requirement, and that is not
transferable to non-bank affiliates, must be excluded from
the Firm's reported eligible HQLA.
The LCR rule requires that the Firm and JPMorgan Chase
Bank, N.A. maintain an amount of eligible HQLA that is
sufficient to meet its estimated total net cash outflows over
a prospective 30 calendar-day period of significant stress.
Eligible HQLA, for purposes of calculating the LCR, is the
amount of unencumbered HQLA that satisfy certain
operational considerations as defined in the LCR rule. HQLA
primarily consist of cash and certain high-quality liquid
securities as defined in the LCR rule.
December 31, September 30, December 31,
2020
2020
Liquidity Coverage Ratio
stress when access to normal funding sources may be
disrupted.
JPMorgan Chase & Co./2020 Form 10-K
102
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and its intermediate holding company, JPMorgan Chase
Holdings LLC (the “IHC") provides funding support to the
ongoing operations of the Parent Company and its
subsidiaries. The Firm maintains liquidity at the Parent
Company, IHC, and operating subsidiaries at levels sufficient
to comply with liquidity risk tolerances and minimum
liquidity requirements, and to manage through periods of
157 %
Potential impediments to the availability and
transferability of liquidity between jurisdictions and
material legal entities such as regulatory, legal or other
restrictions.
Liquidity outflow assumptions are modeled across a range
of time horizons and currency dimensions and contemplate
both market and idiosyncratic stresses.
Contingency funding plan
2019
The Firm's Contingency Funding Plan ("CFP") sets out the
strategies for addressing and managing liquidity resource
needs during a liquidity stress event and incorporates
liquidity risk limits, indicators and risk appetite tolerances
that make up Liquidity Escalation Points. The CFP also
identifies the alternative contingent funding and liquidity
resources available to the Firm and its legal entities in a
period of stress.
Eligible securities (b)(c)
$ 75,884
JPMorgan Chase Bank, N.A.:
JPMorgan Chase & Co.:
LCR
$ 82,366
63,022
Net excess eligible
HQLA (d)
$ 469,402
116 %
$ 545,286
$
110 %
$ 455,612
241,447
Total eligible HQLA
Net cash outflows
LCR
(d)
341,990
$ 458,336
211,841
$ 697,059 $ 670,177
$ 634,037 $ 587,811
114 %
$ 203,296
Risk identification and measurement
Independently validating or changing the risk grades
assigned to exposures in the Firm's wholesale credit
portfolio, and assessing the timeliness of risk grade
changes initiated by responsible business units; and
Evaluating the effectiveness of business units' credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, proper
monitoring and management of credit exposures, and
compliance with applicable grading policies and
underwriting guidelines.
• Estimating credit losses and ensuring appropriate credit
risk-based capital management
Credit Risk Management monitors, measures and manages
credit risk throughout the Firm and defines credit risk
policies and procedures. The Firm's credit risk management
governance includes the following activities:
Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
Assigning and managing credit authorities in connection
with the approval of credit exposure
Monitoring, measuring and managing credit risk across
all portfolio segments, including transaction and
exposure approval
Maintaining a credit risk policy framework
•
The Credit Risk Management function monitors, measures,
manages and limits credit risk across the Firm's businesses.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower's credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center
versus centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
•
Managing criticized exposures and delinquent loans and
Based on these factors and the methodology and estimates
described in Note 13 and Note 10, the Firm estimates credit
losses for its exposures. The allowance for loan losses
reflects credit losses related to the consumer and wholesale
held-for-investment loan portfolios, the allowance for
lending-related commitments reflects credit losses related
to the Firm's lending-related commitments and the
allowance for investment securities reflects the credit
losses related to the Firm's HTM and AFS securities. Refer
to Note 13, Note 10 and Critical Accounting Estimates used
by the Firm on pages 152-155 for further information.
In addition, potential and unexpected credit losses are
reflected in the allocation of credit risk capital and
represent the potential volatility of actual losses relative to
the established allowances for loan losses and lending-
related commitments. The analyses for these losses include
stress testing that considers alternative economic scenarios
as described in the Stress testing section below.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are
reviewed and revised periodically as deemed appropriate
by management. Industry and counterparty limits, as
measured in terms of exposure and economic risk appetite,
are subject to stress-based loss constraints. Wrong-way risk
is the risk that exposure to a counterparty is positively
correlated with the impact of a default by the same
counterparty, which could cause exposure to increase at the
same time as the counterparty's capacity to meet its
obligations is decreasing.
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The stress testing
process assesses the potential impact of alternative
economic and business scenarios on estimated credit losses
for the Firm. Economic scenarios and the underlying
parameters are defined centrally, articulated in terms of
macroeconomic factors and applied across the businesses.
The stress test results may indicate credit migration,
changes in delinquency trends and potential losses in the
credit portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
110
JPMorgan Chase & Co./2020 Form 10-K
Risk monitoring and management
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit
to ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the LOBS.
Consumer credit risk is monitored for delinquency and
other trends, including any concentrations at the portfolio
level, as certain of these trends can be modified through
changes in underwriting policies and portfolio guidelines.
Consumer Risk Management evaluates delinquency and
other trends against business expectations, current and
forecasted economic conditions, and industry benchmarks.
Historical and forecasted economic performance and trends
are incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
Management the Firm's wholesale credit risk exposure
accomplished through a number of means, including:
.
Loan underwriting and credit approval process
Loan syndications and participations
• Loan sales and securitizations
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging from
large corporate and institutional clients to individual
consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), and securities financing activities. The Firm is
also exposed to credit risk through its investment securities
portfolio and cash placed with banks.
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
•
Stress testing
Credit risk management
REPUTATION RISK MANAGEMENT
CREDIT AND INVESTMENT RISK MANAGEMENT
Stable
AA
Refer to Note 12 for further discussion of consumer and
wholesale loans.
F1+
Negative
AA
F1+
Negative
(a) On April 18, 2020, Fitch affirmed the credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries but revised the
outlook on the credit ratings from stable to negative given expectations that credit fundamentals will deteriorate as a result of the COVID-19 pandemic.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm's credit
ratings.
108
JPMorgan Chase & Co./2020 Form 10-K
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
Reputation risk is the risk that an action or inaction may
negatively impact perception of the Firm's integrity and
reduce confidence in the Firm's competence by various
constituents, including clients, counterparties, customers,
investors, regulators, employees, communities or the
broader public.
Reputation Risk Management establishes the governance
framework for managing reputation risk across the Firm. As
reputation risk is inherently challenging to identify,
manage, and quantify, a reputation risk management
function is critical.
The Firm's reputation risk management function includes
the following activities:
•
Maintaining a Firmwide Reputation Risk Governance
policy and standards consistent with the reputation risk
framework
Managing the governance infrastructure and processes
that support consistent identification, escalation,
management and monitoring of reputation risk issues
Firmwide
Providing guidance to LOB Reputation Risk Offices
("RRO"), as appropriate
The types of events that give rise to reputation risk are
wide-ranging and could be introduced in various ways,
including by the Firm's employees and the clients,
customers and counterparties the Firm does business with.
These events could result in financial losses, litigation and
regulatory fines, as well as other damages to the Firm.
Governance and oversight
The Reputation Risk Governance policy establishes the
principles for managing reputation risk for the Firm. It is
the responsibility of employees in each LOB and Corporate
to consider the reputation of the Firm when deciding
whether to offer a new product, engage in a transaction or
client relationship, enter a new jurisdiction, initiate a
business process or other matters. Sustainability, social
responsibility and environmental impacts are important
considerations in assessing the Firm's reputation risk, and
are a component of the Firm's reputation risk governance.
Reputation risk issues deemed material are escalated as
appropriate.
JPMorgan Chase & Co./2020 Form 10-K
109
Management's discussion and analysis
Organization and management
Risk reporting
284
1,507
•
7,064
(a)
Loans at fair value
44,474
44,955
Total loans reported
1,012,853
997,620
10,573
647
4,637
Derivative receivables
Receivables from
79,630
49,766
56
customers
47,710
33,706
Total credit-related
assets
1,140,193
1,081,092
10,629
4,667
Assets acquired in loan
A-1
satisfactions
7,873
Loans held-for-sale
945,601 $
$ 960,506 $
Credit derivatives
• Master netting agreements, and
Collateral and other risk-reduction techniques
JPMorgan Chase & Co./2020 Form 10-K
111
Management's discussion and analysis
CREDIT PORTFOLIO
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. The adoption resulted in a change in
the accounting for PCI loans, which are considered PCD
loans under CECL. In conjunction with the adoption of CECL,
the Firm reclassified risk-rated loans and lending-related
commitments from the consumer, excluding credit card
portfolio segment to the wholesale portfolio segment, to
align with the methodology applied when determining the
allowance. Prior-period amounts have been revised to
conform with the current presentation. Refer to Note 1 for
further information.
The Firm has provided various forms of assistance to
customers and clients impacted by the COVID-19 pandemic,
including payment deferrals and covenant modifications.
The majority of the Firm's COVID-19 related loan
modifications have not been considered troubled debt
restructurings ("TDRS") because:
they represent short-term or other insignificant
modifications, whether under the Firm's regular loan
modification assessments or the IA Statement guidance,
or
the Firm has elected to apply the option to suspend the
application of accounting guidance for TDRS provided by
the CARES Act and extended by the Consolidated
Appropriations Act.
To the extent that certain modifications do not meet any of
the above criteria, the Firm accounts for them as TDRs. The
Firm considers expected losses of principal and accrued
interest associated with all COVID-19 related loan
modifications in its allowance for credit losses. Refer to
Business Developments on pages 50-51 for more
information on customer and client assistance granted.
Refer to Notes 12 and 13 for further information on the
Firm's accounting policies on loan modifications and the
allowance for credit losses.
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry, clients,
counterparties and customers, product and geography are
prepared, and the appropriateness of the allowance for
credit losses is reviewed by senior management at least on
a quarterly basis. Through the risk reporting and
governance structure, credit risk trends and limit
exceptions are provided regularly to, and discussed with,
risk committees, senior management and the Board of
Directors.
The effectiveness of the Firm's actions in helping borrowers
recover and in mitigating the Firm's credit losses remains
uncertain in light of the unpredictable nature and duration
of the COVID-19 pandemic. Assistance provided in response
to the COVID-19 pandemic could delay the recognition of
delinquencies, nonaccrual status, and net charge-offs for
those customers and clients who would have otherwise
moved into past due or nonaccrual status. Refer to
Consumer Credit Portfolio on pages 114-120 and Wholesale
Credit Portfolio on pages 121-131 for information on loan
modifications as of December 31, 2020.
112
JPMorgan Chase & Co./2020 Form 10-K
Total credit portfolio
Credit exposure
Nonperforming (f)(g)
2019
8,782 $ 3,983
7
30
December 31,
(in millions)
Loans retained
2020
2019
2020
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. The following
tables do not include loans which the Firm accounts for at
fair value and classifies as trading assets; refer to Notes 2
and 3 for further information regarding these loans. Refer
to Notes 12, 28, and 5 for additional information on the
Firm's loans, lending-related commitments and derivative
receivables, including the Firm's accounting policies.
Refer to Note 10 for information regarding the credit risk
inherent in the Firm's investment securities portfolio; and
refer to Note 11 for information regarding credit risk
inherent in the securities financing portfolio. Refer to
Consumer Credit Portfolio on pages 114-120 and Note 12
for further discussions of the consumer credit environment
and consumer loans. Refer to Wholesale Credit Portfolio on
pages 121-131 and Note 12 for further discussions of the
wholesale credit environment and wholesale loans.
A+
$
P-1
3,000
7,596
$ 37,451 $
5,844
25,711 $
24,185
33,563
24,245 $
35,313
-
Subordinated debt
Structured notes
Total long-term unsecured funding - maturities/redemptions
$
28,719 $ 18,098
135
183
5,340
2,944
34,194 $ 21,225 $
$
7,701 $
5,367
-
30,002
37,703 $
19,271
24,638
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
The Firm can also raise secured long-term funding through securitization of consumer credit card loans and through FHLB
advances. The following table summarizes the securitization issuance and FHLB advances and their respective maturities or
redemptions for the years ended December 31, 2020 and 2019.
Long-term secured funding
Year ended December 31,
(in millions)
Credit card securitization
19,867
26,855
1,750
60 $
Real estate owned
Long-term funding and issuance
Long-term funding provides an additional source of stable funding and liquidity for the Firm. The Firm's long-term funding plan
is driven primarily by expected client activity, liquidity considerations, and regulatory requirements, including TLAC. Long-term
funding objectives include maintaining diversification, maximizing market access and optimizing funding costs. The Firm
evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The significant majority of the Firm's long-term unsecured funding is issued by the Parent Company to provide flexibility in
support of both bank and non-bank subsidiary funding needs. The Parent Company advances substantially all net funding
proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following table summarizes
long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2020 and 2019. Refer to
Note 20 for additional information on long-term debt.
Long-term unsecured funding
Year ended December 31,
(Notional in millions)
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
Subordinated debt
Structured notes (a)
FHLB advances
Total long-term unsecured funding - issuance
Senior notes
2020
2019
2020
2019
Parent Company
Subsidiaries
-
60
1,750
$
1,355
25,500 $ 14,000 $
5,867
Maturities/redemptions
Stable
(a)
Total long-term secured funding
issuer
issuer
Outlook
issuer
Short-term
issuer
Long-term
Outlook
issuer
Short-term
issuer
Outlook
Moody's Investors Service
A2
P-1
Stable
Aa2
P-1
Standard & Poor's
A-
A-2
Fitch Ratings (a)
AA-
F1+
Stable
Negative
A+
A-1
Stable
Stable
Aa3
December 31, 2020
Long-term
Long-term Short-term
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
(a) Includes long-term structured notes which are secured.
Issuance
Maturities/Redemptions
2020
2019
2020
2019
$
1,000 $
$
15,000
1,130
204
$
Other long-term secured funding a
17,130 $
2,525 $
29,509
1,048
33,082 $
6,975
15,817
927
23,719
The Firm's wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. Refer to Note 14 for a further
description of client-driven loan securitizations.
JPMorgan Chase & Co./2020 Form 10-K
107
Management's discussion and analysis
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. The nature
and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors,
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it
maintains sufficient liquidity to withstand a potential
decrease in funding capacity due to ratings downgrades.
Additionally, the Firm's funding requirements for VIES and
other third-party commitments may be adversely affected
by a decline in credit ratings.
The credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries as of December 31, 2020
were as follows:
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.
204 $
ΝΑ
4,848
256
NA
ΝΑ
NA
ΝΑ
144,216
168,924
NA
ΝΑ
4,286
2.93
3.10
658,506
802,722
650,720
819,644
$ 1,178,620 $ 1,177,630 $ 6,467 $ 3,366 $ 4,460 $ 5,212
0.99 %
1.11 %
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in Corporate.
(b) At December 31, 2020 and 2019, excluded operating lease assets of $20.6 billion and $22.8 billion, respectively. These operating lease assets are included
in other assets on the Firm's Consolidated balance sheets. Refer to Note 18 for further information.
(c) Includes scored auto and business banking loans and overdrafts.
(d) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. Given that PPP loans are guaranteed by the SBA, the Firm does
not expect to realize material credit losses on these loans. Refer to Credit Portfolio on pages 112-113 for a further discussion of the PPP.
(e) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period
amounts have been revised to conform with the current presentation.
(f) Includes scored mortgage loans held in CCB and CIB.
(g) Credit card, home equity and certain business banking lending-related commitments represent the total available lines of credit for these products. The Firm
has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain
conditions are met, home equity commitments and certain business banking commitments, the Firm can reduce or cancel these lines of credit by providing
the borrower notice or, in some cases as permitted by law, without notice. Refer to Note 28 for further information.
(h) Includes billed interest and fees.
(i) Also includes commercial card lending-related commitments primarily in CB and CIB.
(j) At December 31, 2020 and 2019, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $874
million and $1.1 billion, respectively. Prior-period amount of mortgage loans 90 or more days past due and insured by U.S. government agencies excluded
from nonaccrual loans has been revised to conform with the current presentation; refer to footnote (e) for additional information. These amounts have been
excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm's policy is generally to exempt credit card loans from being
placed on nonaccrual status, as permitted by regulatory guidance.
NA
NA
784
3.10
318,579
317,817
6.467
3,366
174
364
0.06
0.12
Lending-related commitments (8)
57,319
40,169
Total consumer exposure, excluding credit card
375,898
(k) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm
recognized interest income on each pool of PCI loans as each of the pools was performing.
357,986
Loans retained(h)
Loans held-for-sale
Total credit card loans
Lending-related commitments (g) (i)
Total credit card exposure()
Total consumer credit portfolio()
143,432
168,924
NA
NA
4,286
4,848
2.93
Credit Card
Total consumer, excluding credit card loans
(I) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited
COVID-19 payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore
considered collateral-dependent. Collateral-dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less
costs to sell.
JPMorgan Chase & Co./2020 Form 10-K
457
3,357
Credit card
(f)
264
0.2
90
368
4,384
Total consumer (d) $ 10,747
2.4 %
91 % $ 12,283 $ 28,289
•
Rolling three month payment deferral up to one year; in most
cases, deferred payments will be due at the end of the loan term
Auto: Currently offering one month payment deferral (initially
offered three month payment deferral). Maturity date is
extended by number of months deferred
Business Banking: Three month deferral with automatic
deferment to either maturity (loan) or one year forward (line)
Currently offering deferral of one month minimum payment
(initially offered three month minimum payment deferral).
Interest continues to accrue during the deferral period and is
added to the principal balance
(a) Excludes $13.4 billion, $17.1 billion and $34.0 billion of third-party mortgage loans serviced at December 31, 2020, September 30, 2020 and June 30,
2020, respectively.
(b) The weighted average LTV ratio of residential real estate loans under payment deferral at December 31, 2020 was 57%.
(c) Excludes risk-rated business banking and auto dealer loans held in CCB and auto operating lease assets that were still under payment deferral programs as of
December 31, 2020, September 30, 2020 and June 30, 2020. Auto operating lease asset payment assistance is currently offering one month payment
deferral (initially offered three month payment deferral). Deferrals do not extend the term of the lease and all deferred payments are due at the end of the
lease term.
(d) Includes $3.8 billion, $3.8 billion and $5.7 billion of loans that were accounted for as TDRs prior to payment deferral as of December 31, 2020, September
30, 2020 and June 30, 2020, respectively.
(e) Represents the unpaid principal balance of retained loans which were still under payment deferral programs, divided by the total unpaid principal balance of
the respective loan classes retained loans.
(f) 85% of the balance that exited deferral were current at December 31, 2020.
Of the $10.7 billion of loans still under payment deferral
programs as of December 31, 2020, approximately $4.0
billion were accounted for as TDRs, either because they were
accounted for as TDRs prior to payment deferral, or because
they did not qualify for or the Firm did not elect the option to
suspend TDR accounting guidance provided by the CARES Act
and extended by the Consolidated Appropriations Act. A
portion of the remaining $6.7 billion of loans could become
TDRs in future periods, depending on the nature and timing
of further modifications or payment arrangements offered to
these borrowers. If the remaining $6.7 billion of loans were
considered TDRs, the Firm estimates that it would result in
an increase in standardized RWA of as much as $2.5 billion.
Predominantly all borrowers, including those accounted for
as TDRs, were current upon enrollment in payment deferral
programs and are expected to exit payment deferral
programs in a current status, either because no payments
are contractually due during the deferral period or because
payments originally contractually due during the deferral
period will be due at maturity upon exit. For those borrowers
that are unable to resume making payments in accordance
with the original or modified contractual terms of their
agreements upon exit from deferral programs, they will be
placed on nonaccrual status in line with the Firm's
nonaccrual policy, except for credit cards as permitted by
regulatory guidance, and charged off or down in accordance
with the Firm's charge-off policies. Refer to Note 12 for
additional information on the Firm's nonaccrual and charge-
off policies.
116
JPMorgan Chase & Co./2020 Form 10-K
94
0.5
377
Auto and other (c)
115
Management's discussion and analysis
Consumer assistance
In March 2020, the Firm began providing assistance to
customers in response to the COVID-19 pandemic,
predominantly in the form of payment deferrals.
As of December 31, 2020, the Firm had $10.7 billion of
retained loans under payment deferral programs, which
represented a decrease of approximately $1.5 billion from
September 30, 2020 and $17.5 billion from June 30, 2020.
During the fourth quarter of 2020, there were approximately
$1.4 billion of new enrollments in payment deferral
December 31, 2020
September
30, 2020
programs predominantly in residential real estate and credit
card. Predominantly all borrowers that exited payment
deferral programs are current. The Firm continues to
monitor the credit risk associated with loans subject to
payment deferrals throughout the deferral period and on an
ongoing basis after the borrowers are required to resume
making regularly scheduled payments and considers
expected losses of principal and accrued interest on these
loans in its allowance for credit losses.
June 30,
2020
Percent of
(in millions, except
ratios)
Percent of
accounts who
Loan
balance
(m) Average consumer loans held-for-sale and loans at fair value were $18.3 billion and $20.4 billion for the years ended December 31, 2020 and 2019,
respectively. Prior-period amounts have been revised to conform with the current presentation; refer to footnote (e) for additional information. These
amounts were excluded when calculating net charge-off/(recovery) rates.
loan class
balance (e)
deferral and are
Loan
balance
Loan
balance
current
Type of assistance
Residential real
(a)(b)
$ 10,106
4.5 %
95 %
estate
$ 11,458 $ 20,548
exited payment
NA
ΝΑ
NA
(13,052)
ΝΑ
ΝΑ
Paycheck Protection Program
The PPP, established by the CARES Act and implemented by
the SBA, provided the Firm with delegated authority to
process and originate PPP loans. When certain criteria are
met, PPP loans are subject to forgiveness and the Firm will
receive payment of the forgiveness amount from the SBA.
PPP loans have a contractual term of two or five years and
provide borrowers with an automatic payment deferral of
principal and interest. Given that PPP loans are guaranteed
by the SBA, the Firm does not expect to realize material
credit losses on these loans. PPP processing fees are
deferred and accreted into interest income over the
contractual life of the loans, but may be accelerated upon
forgiveness or prepayment. The impact on interest income
related to PPP loans was not material for the year ended
December 31, 2020.
The Firm was in the early stages of the PPP loan forgiveness
process at December 31, 2020.
At December 31, 2020, the Firm had approximately $27
billion of loans under the PPP, of which $19 billion are in
the consumer portfolio and $8 billion are in the wholesale
portfolio.
Year ended December 31,
(in millions, except ratios)
Net charge-offs
Average retained loans
Net charge-off rates
2020
2019
$
5,259 $
958,303
0.55 %
5,629
941,919
0.60%
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans,
which resulted in a corresponding reclassification of certain off-
balance sheet commitments. Prior-period amounts have been revised
to conform with the current presentation.
(b) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
(c) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. Refer to Credit
derivatives on page 131 and Note 5 for additional information.
(d) Prior-period amount has been revised to conform with the current
presentation.
(e) In the fourth quarter of 2020, the Firm refined its approach for
disclosing additional collateral held by the Firm that may be used as
security when the fair value of the client's exposure is in the Firm's
favor. Prior-period amounts have been revised to conform with the
current presentation.
(f) At December 31, 2020 and 2019, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $874 million and $1.1 billion, respectively,
and real estate owned ("REO") insured by U.S. government agencies of
$9 million and $41 million, respectively. Prior-period amount of
mortgage loans 90 or more days past due and insured by U.S.
government agencies excluded from nonperforming assets has been
revised to conform with the current presentation; refer to footnote (a)
for additional information. These amounts have been excluded based
upon the government guarantee. In addition, the Firm's policy is
generally to exempt credit card loans from being placed on nonaccrual
status as permitted by regulatory guidance.
(g) At December 31, 2020, nonperforming loans included $1.6 billion of
PCD loans on nonaccrual status. Prior to the adoption of CECL,
nonaccrual loans excluded PCI loans as the Firm recognized interest
income on each pool of PCI loans as each of the pools was performing.
JPMorgan Chase & Co./2020 Form 10-K
113
(14,806)
derivatives (e)
held against
other cash collateral
344
Other
ΝΑ
NA
21
43
Total assets acquired in
loan satisfactions
NA
Lending-related
commitments (a)
1,165,688
1,108,399
Management's discussion and analysis
Total credit portfolio
in credit portfolio
management
activities(c)(d)
ΝΑ
277
387
$ 2,305,881 $ 2,189,491 $
577
11,483 $
474
5,528
$
(22,239) $ (18,530) $
-
$
Liquid securities and
Credit derivatives used
NA
CONSUMER CREDIT PORTFOLIO
In 2020, the allowance for credit losses increased, reflecting
the deterioration in and uncertainty around the future
macroeconomic environment as a result of the impact of the
COVID-19 pandemic. Net charge-offs for the year ended
December 31, 2020 decreased when compared to December
31, 2019, benefiting from payment assistance and
government stimulus. The potential for increased infection
rates and related lock downs, as well as the duration and
effectiveness of government and other consumer relief
measures remains uncertain which could have a longer term
impact on delinquency rates and net charge-offs.
(0.04)%
(d)
0.88
Total loans retained
302,127
294,999
5,464
2,926
174
364
0.06
0.12
Loans held-for-sale
1,305
3,002
2
ΝΑ
NA
NA
NA
Loans at fair valuee
(e)(f)
15,147
19,816
1,003
438
NA
(0.07)%
0.51
338 $ 456
(164) $ (92)
$
114
JPMorgan Chase & Co./2020 Form 10-K
The following table presents consumer credit-related information with respect to the scored credit portfolio held in CCB, AWM,
CIB and Corporate.
Consumer credit portfolio
As of or for the year ended December 31,
(in millions, except ratios)
Consumer, excluding credit card
Credit exposure
Nonaccrual loans (i)(k) (1)
Net charge-offs/
(recoveries)
Net charge-off
(recovery) rate"
(m)
2020
The Firm's retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, scored auto
and business banking loans, as well as associated lending-
related commitments. The Firm's focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the residential
real estate portfolio, securitized or sold to U.S. government
agencies and U.S. government-sponsored enterprises; other
types of consumer loans are typically retained on the
balance sheet. Refer to Note 12 for further information on
the consumer loan portfolio. Refer to Note 28 for further
information on lending-related commitments.
2019
2019
2020
2019
2020
2019
Residential real estate (a)
Auto and other (b)(c)(d)
$
225,302 $
76,825
243,317 $ 5,313 $
51,682
151 $
2,780
146
2020
(13)
19
Current
Total
Total %
Noninvestment-
grade
79,630
$
$ 379,273
Investment-
grade
Total
$ 183,969 $ 197,905 $ 133,073 $ 514,947
After 5
years
5 years
1 year
through
1 year or
less
Derivative receivables
Loans retained
(in millions, except ratios)
December 31, 2020
Ratings profile
Maturity profile(s)
The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of
December 31, 2020 and 2019. The Firm generally considers internal ratings with qualitative characteristics equivalent to
BBB-/Baa3 or higher as investment grade, and takes into consideration collateral and structural support when determining
the internal risk rating for each credit facility. Refer to Note 12 for further information on internal risk ratings.
2020 could become TDRS in future periods, depending on
the nature and timing of further modifications or payment
arrangements offered to these borrowers. If the $1.6 billion
of loans under payment deferral were considered TDRs, the
Firm estimates that it would result in an increase in
standardized RWA of as much as $500 million. Loans under
assistance continue to be risk-rated in accordance with the
Firm's overall credit risk management framework. As of
December 31, 2020, predominantly all of these loans were
considered performing.
Wholesale credit exposure - maturity and ratings profile
In addition, the Firm granted assistance in the form of
covenant modifications. These types of assistance, both
payment deferrals and covenant modifications, are
generally not reported as TDRs, either because the
modifications were insignificant or they qualified for the
option to suspend the application of accounting guidance
for TDRs as provided by the CARES Act and extended by the
Consolidated Appropriations Act. A portion of the $1.6
billion of loans under payment deferral as December 31,
(a) Represents the balance of the retained loans which were still under payment deferral, divided by the respective industry total retained loans balance.
16,775
6,274 $
309
of IG
135,674
$ 514,947
74 %
JPMorgan Chase & Co./2020 Form 10-K
$ (22,239) 80%
(4,379)
$
$ (6,190) $ (13,223) $ (2,826) $ (22,239) $ (17,860)
$1,112,455
$ 1,112,455
122
Credit derivatives used in credit portfolio
management activities (ex
cash collateral held against derivatives
Total exposure - net of liquid securities and other
35,111
47,710
70
71
45 % $
60
25,883
137,169
298,726
38,941
312,694
730,908
(14,806)
(14,806)
64,824
449,863
1,029,634
35,111
47,710
Loans held-for-sale and loans at fair value (c)(d)
Receivables from customers
28,769
17,734
179,576
17,599
315,179
530,683
116,950
319,375
Subtotal
18,456
Total derivative receivables, net of collateral
Lending-related commitments (c)
Less: Liquid securities and other cash collateral
held against derivatives (b)
79,630
64,824
449,863
1,029,634
99
0.32 %
0.08
Industrials
Automotive
Consumer & Retail
5,211
$
4,385
36 % $
Loan balance
Loan balance
IG percentage of loan
balance in payment
deferral
June 30, 2020
September 30, 2020
have paid down their loans, and the Firm has not
experienced significant new payment deferral requests. The
Firm continues to monitor the credit risk associated with
loans subject to deferrals throughout the deferral period
and on an ongoing basis after the borrowers are required to
resume making regularly scheduled payments and
considers expected losses of principal and accrued interest
on these loans in its allowance for credit losses.
Healthcare
0.46 %
December 31, 2020
550
$
Loan balance
Transportation
Entities
Individuals and Individual
Real Estate
Industry
(in millions, except ratios)
As of December 31, 2020, the Firm had approximately $1.6
billion of retained loans still under payment deferral, which
has decreased approximately $4.6 billion from the third
quarter, and $15.1 billion from the second quarter.
Predominantly all clients that exited deferral are current or
In March 2020, the Firm began providing assistance to
clients in response to the COVID-19 pandemic,
predominantly in the form of payment deferrals and
covenant modifications.
Wholesale assistance
Percent of total
industry loan balance (a)
December 31, 2019
All Other industries
$
147
1,623
300
100
0.04
7
335
91
0.09
19
8,827
15
0.13
22
Total wholesale
690
2
0.21
82
294
346
92
5.99
394
809
691
4
0.37
402
413
(in millions, except ratios)
Loans retained (a)
Derivative receivables
Investment-
Credit
Telecommunications
Technology, Media &
Consumer & Retail
Individuals and Individual Entities (b)
Real Estate
(in millions)
December 31, 2020
As of or for the year ended
Liquid securities
Noninvestment-grade
27,770
exposure (f)(g) grade)
36,435
Selected metrics
Wholesale credit exposure - industries (a)
The table below summarizes by industry the Firm's exposures as of December 31, 2020 and 2019. The industry of risk
category is generally based on the client or counterparty's primary business activity. Refer to Note 4 for additional information
on industry concentrations.
Management's discussion and analysis
JPMorgan Chase & Co./2020 Form 10-K
123
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
of the special mention, substandard and doubtful
categories. Total criticized exposure excluding loans held-
for-sale and loans at fair value, was $41.6 billion at
December 31, 2020, compared with $15.1 billion at
December 31, 2019, representing approximately 4.0% and
1.5% of total wholesale credit exposure, respectively. The
increase in total criticized exposure was largely driven by
downgrades in Consumer & Retail, Oil & Gas and Real Estate
due to impacts from the COVID-19 pandemic, and to a
lesser extent, net portfolio activity in Technology, Media &
Telecommunications. Predominantly all of the $41.6 billion
was performing and largely undrawn.
industries with actual or potential credit concerns.
its industry exposures, and pays particular attention to
The Firm focuses on the management and diversification of
Wholesale credit exposure - industry exposures
maturity. Derivative contracts that are in a receivable position at December 31, 2020, may become payable prior to maturity based on their cash flow
profile or changes in market conditions.
(g) The maturity profile of retained loans, lending-related commitments and derivative receivables is generally based on remaining contractual
72,150
(f) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used
in credit portfolio management activities are executed with investment-grade counterparties.
Noncriticized
30 days or
more past
due and
55
203
381
8,852
41,624
57,580
108,437
(17)
1,570
689
227
14,688
107,266
$ 148,498 $ 116,124 $
122,870
94 $
374 $
504 $
4,294 $
27,576 $
against
derivative
receivables(k)
(i)
Credit
derivative
hedges
Net charge-
offs/
(recoveries)
accruing
loans
Criticized
nonperforming
Criticized
performing
and other cash
collateral held
(110) $
Management's discussion and analysis
(d) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(e) These derivatives do not qualify for hedge accounting under U.S. GAAP.
(a) Prior-period amounts have been revised to conform with the current presentation.
(b) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair
value of the client's exposure is in the Firm's favor. Prior-period amounts have been revised to conform with the current presentation.
Subtotal
7,136
87,577
(13,052)
(13,052)
(a)(c)
Lending-related commitments"
Total derivative receivables, net of collateral
Less: Liquid securities and other cash collateral held
against derivatives (b)
49,766
49,766
75 %
$ 481,678
118,234
253,719
$
Total %
of IG
Total
grade
Noninvestment-
Investment-
grade
Ratings profile
$ 159,006 $ 186,256 $ 136,416 $ 481,678
Total
After 5
years
1 year
through
5 years
less
1 year or
Maturity profile(s)
$ 363,444
(c) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current
presentation.
7,569
312,939
506,764
36,714
$ 998,809
90 %
$ (18,530)
(1,806)
(5,412) $ (10,031) $ (3,087) $ (18,530) $ (16,724) $
$
$ 998,809
(a)(e)(f)
management activities"
Credit derivatives used in credit portfolio
cash collateral held against derivatives
Total exposure - net of liquid securities and other
33,706
22,009
33,706
29,201
29,201
Loans held-for-sale and loans at fair value (c) (d)
74
71
80
36,714
417,510
935,902
7,298
120,808
246,340
296,702
689,562
935,902
417,510
16,994
175,419
29,416
Receivables from customers
(381)
121
(f) Loans that were modified in response to the COVID-19 pandemic
continue to be risk-rated in accordance with the Firm's overall credit
risk management framework. As of December 31, 2020,
predominantly all of these loans were considered performing.
$
2020
JPMorgan Chase & Co./2020 Form 10-K
118
(e) Prior-period amount has been revised to conform with the current
presentation.
(d) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD
loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI
loans as the Firm recognized interest income on each pool of PCI loans
as each of the pools was performing.
(c) Generally excludes loans under payment deferral programs offered in
response to the COVID-19 pandemic. Includes loans to customers that
have exited COVID-19 payment deferral programs and are 90 or more
days past due, predominantly all of which were also at least 150 days
past due and therefore considered collateral-dependent. Collateral-
dependent loans are charged down to the lower of amortized cost or
fair value of the underlying collateral less costs to sell.
(b) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
(a) At December 31, 2020 and 2019, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $874 million and $1.1 billion, respectively,
and REO insured by U.S. government agencies of $9 million and $41
million, respectively. Prior-period amount of mortgage loans 90 or
more days past due and insured by U.S. government agencies excluded
from nonperforming assets has been revised to conform with the
current presentation; refer to footnote (b) for additional information.
These amounts have been excluded based upon the government
guarantee.
Auto and other: The auto and other loan portfolio
predominantly consists of prime-quality scored auto and
business banking loans, as well as overdrafts. The portfolio
increased when compared with December 31, 2019,
predominantly due to PPP loan originations of $21.9 billion
in Business Banking of which $19.2 billion remained
outstanding at December 31, 2020 as well as from growth
in the auto portfolio from loan originations, partially offset
by paydowns and charge-offs or liquidation of delinquent
loans. The 30+ delinquency rate decreased to 0.60% at
December 31, 2020, from 1.31% at December 31, 2019,
primarily due to payment assistance and government
stimulus, as well as PPP loan originations as these loans are
all considered current. The scored auto portfolio net
charge-off rates were 0.25% and 0.44% for the years
ended December 31, 2020 and 2019, respectively. Auto
charge-offs for the year ended December 31, 2020
(d) Amount represents the unpaid principal balance of modified PCI loans
at December 31, 2019, which were moved to retained loans upon the
adoption of CECL.
(c) At December 31, 2020, nonaccrual loans included $1.3 billion of PCD
loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI
loans as the Firm recognized interest income on each pool of PCI loans
as each of the pools was performing.
(b) At December 31, 2020 and 2019, nonaccrual loans included $3.0
billion and $1.9 billion, respectively, of TDRS for which the borrowers
were less than 90 days past due. Refer to Note 12 for additional
information about loans modified in a TDR that are on nonaccrual
status.
(a) At December 31, 2020 and 2019, $7 million and $14 million,
respectively, of loans modified subsequent to repurchase from Ginnie
Mae in accordance with the standards of the appropriate government
agency (i.e., Federal Housing Administration ("FHA"), U.S. Department
of Veterans Affairs ("VA"), Rural Housing Service of the U.S.
Department of Agriculture ("RHS")) are not included in the table
above. When such loans perform subsequent to modification in
accordance with Ginnie Mae guidelines, they are generally sold back
into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure. Refer to Note 14 for additional
information about sales of loans in securitization transactions with
Ginnie Mae.
$
(b)(c)
Nonaccrual retained loans (b
PCI loans
2,332
(d)
3,619
$ 6,619 $
253
152
Total assets acquired in loan satisfactions
Total nonperforming assets
December 31, December 31,
2020
2019
5,926
12,372
ΝΑ
3,899
3,366
$
3,853
PCD loans, upon adoption of CECL
Principal payments and other (b)
970
432
30-149 days past due
Reductions:
16,036 $ 18,571
$
December 31, December 31,
2020
2019
(in millions, except ratios)
Loan delinquency(a)
The following tables provide credit-related information for
PCD loans, which were accounted for as PCI loans prior to
the adoption of CECL. PCI loans are considered PCD loans
under CECL and are subject to the Firm's nonaccrual and
charge-off policies. PCD loans are now reported in the
consumer, excluding credit card portfolio's residential real
estate class. Refer to Note 1 for further information.
Purchased credit deteriorated ("PCD") loans
2019
Additions:
15,406
Beginning balance
Year ended December 31,
Nonaccrual loan activity (a)
The following table presents changes in consumer,
excluding credit card, nonaccrual loans for the years ended
December 31, 2020 and 2019.
Nonaccrual loans
2,174
5,892
Total additions
2,174
5,184
(c)
Other additions
ΝΑ
708
(in millions)
$
24
21
Average current estimated loan-to-value ("LTV") ratios
have declined consistent with recent improvements in home
prices, customer pay-downs, and charge-offs or liquidations
of higher LTV loans.
At December 31, 2020, $146.6 billion, or 65% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies, were
concentrated in California, New York, Florida, Texas and
Illinois, compared with $157.9 billion, or 65%, at
December 31, 2019.
Geographic composition and current estimated loan-to-
value ratio of residential real estate loans
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
Total government guaranteed loans (a) $
3,226
1,778 $
1,090
874
704
235
1,432
669 $
Refer to Note 12 for information on the geographic
composition and current estimated LTVs of the Firm's
residential real estate loans.
$
2020
December 31,
90 or more days past due
30-89 days past due
(in millions)
Current
The following table provides a summary of the Firm's
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, predominantly loans held-for-
sale and loans at fair value. The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government-insured loans and considers this exposure in
estimating the allowance for loan losses.
At December 31, 2020 and 2019, the carrying value of
interest-only residential mortgage loans were $25.6 billion
and $22.5 billion, respectively. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers, predominantly
in AWM. The net charge-off rate for the year ended
December 31, 2020 was consistent with the rate of the
broader residential mortgage portfolio as the performance
of this portfolio is generally in line with the performance of
the broader residential mortgage portfolio.
The carrying value of home equity lines of credit
outstanding was $23.7 billion at December 31, 2020. This
amount included $8.6 billion of HELOCS that have recast
from interest-only to fully amortizing payments or have
been modified and $7.7 billion of interest-only balloon
HELOCS, which primarily mature after 2030. The Firm
manages the risk of HELOCS during their revolving period by
closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile.
Residential real estate: The residential real estate
portfolio, including loans held-for-sale and loans at fair
value, predominantly consists of prime mortgage loans and
home equity lines of credit. The portfolio decreased from
December 31, 2019 driven by paydowns largely offset by
originations of prime mortgage loans that have been
retained on the balance sheet. The 30+ delinquency rate
decreased to 0.98% at December 31, 2020, from 1.35% at
December 31, 2019, primarily due to payment assistance
and government stimulus. Nonaccrual loans increased from
December 31, 2019 due primarily to loans placed on
nonaccrual status related to the impact of the COVID-19
pandemic as well as the adoption of CECL, as PCD loans
became subject to nonaccrual treatment. Net recoveries for
the year ended December 31, 2020 were higher when
compared with the prior year as the current year benefited
from a recovery on a loan sale.
The following discussions provide information concerning
individual loan products. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies, loan modifications and other credit
quality indicators.
Loan balances were flat from December 31, 2019 as PPP
loan originations in Business Banking were offset by lower
residential real estate loans, reflecting paydowns.
Portfolio analysis
Consumer, excluding credit card
December 31,
2019
983
JPMorgan Chase & Co./2020 Form 10-K
Management's discussion and analysis
Other
(658)
229
131
(a)
Retained loans a
(in millions)
Real estate owned (e)
Assets acquired in loan satisfactions
Total nonaccrual loans
3,366
146
3,220
117
$
Auto and other
(b)(c)(d)
Residential real estate"
2019
2020
December 31, (in millions)
Nonaccrual loans
Nonperforming assets (a)
The following table presents information as of
December 31, 2020 and 2019, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets
vehicle collateral values.
benefited from payment assistance programs and high
The following table presents information relating to
modified retained residential real estate loans for which
concessions have been granted to borrowers experiencing
financial difficulty, which include both TDRS and modified
loans accounted for as PCI loans prior to the adoption of
CECL. The following table does not include loans with short-
term or other insignificant modifications that are not
considered concessions and, therefore, are not TDRs, or
loans for which the Firm has elected to apply the option to
suspend the application of accounting guidance for TDRs as
provided by the CARES Act and extended by the
Consolidated Appropriations Act. Refer to Note 12 for
further information on modifications for the years ended
December 31, 2020 and 2019.
Modified residential real estate loans
$ 6,316
151
6,467
1,167
150 or more days past due (b)
573
ΝΑ
NA
Real estate owned
Other
(c)
Total wholesale credit-
related assets
Assets acquired in loan
satisfactions
1,301
594,351 4,162
677,398
33,706
47,710
1,271
30
209
504
125
25,139
510,879 4,106
56
79,630
Derivative receivables
Receivables from
(b)
customers
550,058
29,327
5
284
4,062
5,784
$ 514,947 $ 481,678 $ 3,318 $ 1,057
2019
2020
(f)
Nonperforming
49,766
2019
115
ΝΑ
(d) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. Refer to Credit
derivatives on page 131 and Note 5 for additional information.
(e) In the fourth quarter of 2020, the Firm refined its approach for
disclosing additional collateral held by the Firm that may be used as
security when the fair value of the client's exposure is in the Firm's
favor. Prior-period amounts have been revised to conform with the
current presentation.
(c) Prior-period amounts have been revised to conform with the current
presentation.
(b) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans,
which resulted in a corresponding reclassification of certain off-
balance sheet commitments. Prior-period amounts have been revised
to conform with the current presentation.
ΝΑ
ΝΑ
(13,052)
(14,806)
$
$ (22,239) $ (18,530) $
$1,127,261 $1,011,861 $ 4,864 $ 1,909
474
577
NA
(e)
Credit derivatives used
in credit portfolio
management
activities(c)(d)
Total wholesale credit
portfolio
417,510
449,863
(a)
commitments
Lending-related
134
125
ΝΑ
ΝΑ
Total assets acquired in
loan satisfactions
19
Liquid securities and
other cash collateral
held against
derivatives
JPMorgan Chase & Co./2020 Form 10-K
2020
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value (a)
Loans - reported
$
Ending balance
(487)
3,101
Net changes
8.80 %
ΝΑ
5.90 %
1,609
$
Nonaccrual loans (c)
2,661
2,791
Total reductions
retained PCD loans
6,467
372
% of 30+ days past due to total
Foreclosures and other liquidations
751
1,024
Returned to performing status
20,363
17,041 $
$
Total PCD loans
371
390
Charge-offs
822
394
Credit exposure
$
(in millions, except ratios)
Wholesale credit portfolio
In 2020, the impacts of the COVID-19 pandemic resulted in
broad-based credit deterioration and an increase in the
allowance for credit losses. As of December 31, 2020, the
investment-grade percentage of the portfolio decreased
from 74% to 71%, and criticized exposure increased $26.5
billion from $15.1 billion to $41.6 billion. The increase in
criticized exposure was largely driven by downgrades in
Consumer & Retail, Oil & Gas and Real Estate, and to a
lesser extent, net portfolio activity in Technology, Media &
Telecommunications. The continuation or worsening of the
effects of the COVID-19 pandemic on the macroeconomic
environment could result in further impacts to credit quality
metrics, including investment-grade percentages, as well as
to criticized and nonperforming exposures and charge-offs.
As of December 31, 2020 retained loans were up $33.3
billion predominantly driven by AWM and CIB, and lending-
related commitments were up $32.4 billion, predominantly
driven by CIB and CB.
The Firm's wholesale credit portfolio includes exposure held
in CIB, CB, AWM and Corporate, as well as risk-rated
business banking and auto dealer exposures held in CCB for
which the wholesale methodology is applied when
determining the allowance for credit losses.
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm's
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk. The wholesale portfolio is
actively managed, in part by conducting ongoing, in-depth
reviews of client credit quality and transaction structure
inclusive of collateral where applicable, and of industry,
product and client concentrations. Refer to the industry
discussion on pages 123-127 for further information.
WHOLESALE CREDIT PORTFOLIO
JPMorgan Chase & Co./2020 Form 10-K
120
At December 31, 2020, the Firm had $1.4 billion of credit
card loans outstanding that have been modified in TDRS,
which does not include loans with short-term or other
insignificant modifications that are not considered TDRS,
compared to $1.5 billion at December 31, 2019. Refer to
Note 12 for additional information about loan modification
programs for borrowers.
Modifications of credit card loans
Geographic and FICO composition of credit card loans
At December 31, 2020, $65.0 billion, or 45% of the total
retained credit card loan portfolio, was concentrated in
California, Texas, New York, Florida and Illinois, compared
with $77.5 billion, or 46%, at December 31, 2019. Refer to
Note 12 for additional information on the geographic and
FICO composition of the Firm's credit card loans.
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm's allowance for loan losses includes the
estimated uncollectible portion of accrued and billed
interest and fee income. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies.
Total credit card loans decreased from December 31, 2019
reflecting a decline in sales volume that began in March as a
result of the impact of the COVID-19 pandemic. The
December 31, 2020 30+ and 90+ day delinquency rates of
1.68% and 0.92%, respectively, decreased compared to
the December 31, 2019 30+ and 90+ day delinquency
rates of 1.87% and 0.95%, respectively. The delinquency
rates were positively impacted by borrowers who received
payment assistance and government stimulus. Net charge-
offs decreased for the year ended December 31, 2020
compared with the prior year reflecting lower charge-offs
and higher recoveries primarily benefiting from payment
assistance and government stimulus.
Credit card
3,366
Management's discussion and analysis
JPMorgan Chase & Co./2020 Form 10-K
(c) Includes loans to customers that have exited COVID-19 payment
deferral programs and are 90 or more days past due, predominantly
all of which were also at least 150 days past due and therefore
considered collateral-dependent.
(b) Includes loans to customers that have exited COVID-19 payment
deferral programs and are 150 or more days past due and therefore
considered collateral-dependent. Collateral dependent loans are
charged down to the lower of amortized cost or fair value of the
underlying collateral less costs to sell.
(a) At December 31, 2020, loans under payment deferral programs
offered in response to the COVID-19 pandemic which are still within
their deferral period and performing according to their modified terms
are generally not considered delinquent.
Refer to Note 12 for further information about the
consumer credit portfolio, including information about
delinquencies, loan modifications and other credit quality
indicators.
Active and suspended foreclosure: Refer to Note 12 for
information on loans that were in the process of active or
suspended foreclosure.
(c) Includes loans to customers that have exited COVID-19 payment
deferral programs and are 90 or more days past due, predominantly
all of which were also at least 150 days past due and therefore
considered collateral-dependent. Collateral-dependent loans are
charged down to the lower of amortized cost or fair value of the
underlying collateral less costs to sell.
(b) Other reductions includes loan sales.
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
Twelve months ended
December 31, 2020
74
0.39 %
Net charge-off rate
$
Net charge-offs
119
(5)
233
207
125
Management's discussion and analysis
Presented below is additional detail on certain of the Firm's largest industry exposures and/or certain industries which present
potential heightened credit concerns.
Real Estate
Real Estate exposure was $148.5 billion as of December 31, 2020, of which $85.6 billion was multifamily lending as shown in
the table below. During the year ended December 31, 2020, the following changes were primarily driven by impacts from the
COVID-19 pandemic:
•
the investment-grade portion of the Real Estate portfolio decreased from 81% to 78%.
the drawn percentage of this portfolio increased from 78% to 80%
criticized exposure increased by $3.3 billion from $1.5 billion to $4.8 billion
(in millions, except ratios)
Multifamily(a)
Office
Other Income Producing Properties (b)
Retail
Services and Non Income Producing
JPMorgan Chase & Co./2020 Form 10-K
Industrial
Total Real Estate Exposure (c)
(in millions, except ratios)
Multifamily (a)
Office
Other Income Producing Properties (b)
Retail
Services and Non Income Producing
Industrial
Lodging
Total Real Estate Exposure
(a) Multifamily exposure is largely in California.
December 31, 2020
Loans and
Lending-related
Commitments
Lodging
(d)
(k) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair
value of the client's exposure is in the Firm's favor. Prior-period amounts have been revised to conform with the current presentation.
(i) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
79,598
73,453
5,722
412
11
4
4
$ 948,954 $ 701,894 $
231,920 $
13,579 $
1,561 $
1,022 $
(5,333)
415 $ (18,530) $
(j) Prior-period amount has been revised to conform with the current presentation.
(933)
29,201
33,706
$ 1,011,861
All other(d)
Subtotal
Loans held-for-sale and loans at
fair value
Receivables from customers
Total(e)
(a) The industry rankings presented in the table as of December 31, 2019, are based on the industry rankings of the corresponding exposures at
December 31, 2020, not actual rankings of such exposures at December 31, 2019.
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment
companies and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2020 and 2019, noted above, the
Firm held: $7.2 billion and $6.5 billion, respectively, of trading assets; $20.4 billion and $29.8 billion, respectively, of AFS securities; and $12.8 billion
and $4.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPES and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2020 and
90% and 10%, respectively, at December 31, 2019.
(e) Excludes cash placed with banks of $516.9 billion and $254.0 billion, at December 31, 2020 and 2019, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current
presentation.
(h) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic.
(13,052)
(j)
Derivative
Receivables
%
Investment-
grade
9,108
76
73
3,084
16
3,100
24
57
147,113
1,385
148,498
78
80
69
December 31, 2019
Derivative
Commitments
Receivables
Credit
exposure
% Investment-
grade
(e)
% Drawn
$
86,381
$
58
$
86,439
Loans and
Lending-related
Credit
exposure
9,039
62
% Drawn
n(e)
$
85,368
$
183
$
85,551
85 %
92 %
16,372
475
16,847
47
76
13,435
421
13,856
76
55
10,573
199
10,772
60
69
9,242
22
9,264
70
91 %
(4)
3,969
808
6
(834)
(1,419)
Automotive
35,118
24,255
10,246
615
2
8
1
(194)
15,031
Oil & Gas
22,244
17,823
995
579
98
(429)
(6)
State & Municipal Govt (c)
30,095
29,586
509
33
7
41,641
(16)
34,941
Banks & Finance Cos
Asset Managers
54,304
47,569
6,716
6
13
18
(4,410)
Industrials
62,483
39,434
21,673
1,157
50,786
219
48
(746)
(1)
Healthcare
50,824
36,988
12,544
1,141
151
108
14
(405)
(144)
172
152
Utilities
22,213
(37)
(37)
15,586
7,095
7,789
661
41
2
(1)
(33)
(2)
12,348
9,458
8
2,867
4
3
(36)
(1,790)
Securities Firms
Financial Markets Infrastructure
7,381
6,010
1,344
27
(48)
(3,088)
4,121
19
34,843
30
353
12,316
7,738
13
Chemicals & Plastics
17,499
12,033
5,243
221
32
2
39
(414)
(34)
74
5
(13)
Central Govt
14,865
14,524
341
(9,018)
(850)
Transportation
Metals & Mining
Insurance
14,497
8,734
5,336
(10)
92 %
301
231
Metals & Mining
Transportation
(982)
(8,364)
373
16,652
17,025
Central Govt
(4)
། ཙེཏྠུÇ །
(83)
6
29
16,232
822
10,622
17,176
Chemicals & Plastics
(402)
(41)
(238)
(434)
(1,648)
(555)
(191)
(378)
(61)
(658)
5,703
(4,685)
7,549
2,137
Loans held-for-sale and loans at fair
value
Subtotal
All other(d)
Financial Markets Infrastructure
Securities Firms
(1,771)
-
7
1
3
2,960
10,177
13,141
6,340
Insurance
(141)
16
8
181
704
8,699
5,958
15,542
(26)
(83)
117
30
206
(13)
Receivables from customers
ཌ ➢ ཎྜ ཀྐ ལླ ༅ | S
54
Banks & Finance Cos
104
96
177
1,684
13,356
44,901
60,118
Healthcare
278
225
1,852
26,881
54,032
37,512
Industrials
19
21
85
8,885
57,582
66,573
Asset Managers
(56)
(934)
73
10
15,734
66,470
14
35,115
1,045
571
7,048
22,451
30,124
Utilities
41
5
2
574
37,705
38,286
State & Municipal Govt(c)
249
17,820
11
4,952
14,969
18,456
39,159
Oil & Gas
152
59
2,149
15,575
25,548
43,331
20
52
782
8,048
Automotive
1,927
78
(b) Other Income Producing Properties consists of clients with diversified property types or other property types outside of multifamily, office, retail,
industrial and lodging with less material exposures.
(c) Real Estate exposure is approximately 80% secured; unsecured exposure is approximately 78% investment-grade.
(d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current
presentation.
(e) Represents drawn exposure as a percentage of credit exposure.
126
JPMorgan Chase & Co./2020 Form 10-K
27
27
(5)
(235)
124
118
81
215
33
388
37
$
(100)
13 $
104 $
58 $
as (k)
against
derivative
receivables
Credit
derivative
(i)
hedges"
Net charge-
offs/
(recoveries)
loans
(287)
Liquid securities
and other cash
collateral held
150,919
150,300
15,965
6,116
80
70
14,372
181
14,553
48
45
11,347
87
11,434
83
619
68
27
9,941
57
47
24
8,866
74
75
3,702
19
3,721
51
38
9,922
30 days or
more past
due and
accruing
8,842
84,650
124
$ 1,127,261
Total(e)
35,111
47,710
(14,806)
799 $ (22,239) $
2,922 $
37,622 $
258,019 $
$ 1,044,440 $ 744,848 $
(1,889)
(9,429)
(9)
JPMorgan Chase & Co./2020 Form 10-K
83
504
15,185
100,713
(10)
66
6,449
6,515
(3,423)
(49)
18
4
1
Criticized
nonperforming
374
Selected metrics
3,951 $
As of or for the year ended
Noncriticized (8) performing
Criticized
136
2,953
21,066
35,878
60,033
2,261
Noninvestment-grade
58,704
106,986
192
11,617
93,181
105,027
45,806
27,779 $
1,457 $
December 31, 2019
Real Estate
Individuals and Individual Entities (b)
Consumer & Retail
Telecommunications
Technology, Media &
Investment-
grade)
$ 150,919 $ 121,625 $
Credit
exposure (f)(g)
(in millions)
(in millions, except ratios)
129
64,824 $
Investment-grade
Noninvestment-grade
December 31,
Ratings profile of derivative receivables
Management's discussion and analysis
$
(a) In the fourth quarter of 2020, the Firm refined its approach for
disclosing additional collateral held by the Firm that may be used as
security when the fair value of the client's exposure is in the Firm's
favor. Prior-period amounts have been revised to conform with the
current presentation.
34,877
58,802 $
(1,837)
(6,022)
Total
held against derivative receivables (a)
Total, net of collateral
Other collateral
36,714
JPMorgan Chase & Co./2020 Form 10-K
$
6,753
2020(a)
% of exposure net
The fair value of the Firm's derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm's AVG to a
counterparty and the counterparty's credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as the
risk that exposure to a counterparty is positively correlated
with the impact of a default by the same counterparty,
which could cause exposure to increase at the same time as
the counterparty's capacity to meet its obligations is
decreasing. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with a particular counterparty's AVG.
The Firm risk manages exposure to changes in CVA by
entering into credit derivative contracts, as well as interest
rate, foreign exchange, equity and commodity derivative
contracts.
DRE exposure is a measure that expresses the risk of
derivative exposure, including the benefit of collateral, on a
basis intended to be equivalent to the risk of loan
exposures. DRE is a less extreme measure of potential
credit loss than Peak and is used as an input for
aggregating derivative credit risk exposures with loans and
other credit risk.
$
Peak represents a conservative measure of potential
derivative exposure, including the benefit of collateral, to a
counterparty calculated in a manner that is broadly
equivalent to a 97.5% confidence level over the life of the
transaction. Peak is the primary measure used by the Firm
for setting credit limits for derivative contracts, senior
management reporting and derivatives exposure
management.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
The Firm also holds additional collateral (primarily cash, G7
government securities, other liquid government agency and
guaranteed securities, and corporate debt and equity
securities) delivered by clients at the initiation of
transactions, as well as collateral related to contracts that
have a non-daily call frequency and collateral that the Firm
has agreed to return but has not yet settled as of the
reporting date. Although this collateral does not reduce the
balances and is not included in the table above, it is
available as security against potential exposure that could
arise should the fair value of the client's derivative
contracts move in the Firm's favor. Refer to Note 5 for
additional information on the Firm's use of collateral
agreements.
(a) In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security when the fair
value of the client's exposure is in the Firm's favor. Prior-period amounts have been revised to conform with the current presentation.
100 %
$
34,877
100 % $
80 %
20
7,026
27,851
63% $
37
21,789
58,802
37,013
% of exposure net
of collateral
Exposure net of
collateral
of collateral
2019(a)
Exposure net of
collateral
(13,052)
3,918
Liquid securities and other cash collateral
(a)
held against derivative receivables
Total, net of liquid securities and other
cash collateral
2,835
Net changes
2,868
Total reductions
206
137
Sales
652
569
(316)
Returned to performing status
922
Gross charge-offs
1,585
2,290
Paydowns and other
Reductions:
$ 1,271 $ 1,587
The below graph shows exposure profiles to the Firm's
current derivatives portfolio over the next 10 years as
calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
2,552
425
(14,806)
Ending balance
(a) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans.
Prior-period amounts have been revised to conform with the current
presentation.
49,766
79,630 $
$
2019
2020
Total, net of cash collateral
December 31, (in millions)
Derivative receivables
the credit risk of the derivative counterparty. For exchange-
traded derivatives ("ETD"), such as futures and options, and
cleared over-the-counter ("OTC-cleared") derivatives, the
Firm can also be exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit risk
exposures arising from derivative contracts through the use
of legally enforceable master netting arrangements and
collateral agreements. The percentage of the Firm's over-the-
counter derivative transactions subject to collateral
agreements - excluding foreign exchange spot trades, which
are not typically covered by collateral agreements due to
their short maturity and centrally cleared trades that are
settled daily was approximately 88% and 90% at
December 31, 2020 and 2019, respectively. Refer to Note 5
for additional information on the Firm's use of collateral
agreements. Refer to Note 5 for a further discussion of
derivative contracts, counterparties and settlement types.
The fair value of derivative receivables reported on the
Consolidated balance sheets were $79.6 billion and $49.8
billion at December 31, 2020 and 2019, respectively, with
increases in CIB resulting from market movements. Derivative
receivables represent the fair value of the derivative
contracts after giving effect to legally enforceable master
netting agreements and the related cash collateral held by
the Firm. In addition, the Firm held liquid securities and other
cash collateral that the Firm believes is legally enforceable
and may be used as security when the fair value of the client's
exposure is in the Firm's favor. Liquid securities represents
high quality liquid assets as defined in the LCR rule. In
management's view, the appropriate measure of current
credit risk should also take into consideration other collateral,
which generally represents securities that do not qualify as
high quality liquid assets under the LCR rule, but that the Firm
believes is legally enforceable. The collateral amounts for
each counterparty are limited to the net derivative
receivables for the counterparty. The following tables
summarize the net derivative receivables and the internal
ratings profile for the periods presented.
$ 4,106 $ 1,271
-
Derivative contracts
The Firm provides clearing services for clients entering into
certain securities and derivative contracts. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to share
in losses incurred by CCPs. Where possible, the Firm seeks to
mitigate its credit risk to its clients through the collection of
adequate margin at inception and throughout the life of the
transactions and can also cease the provision of clearing
services if clients do not adhere to their obligations under the
clearing agreement. Refer to Note 28 for a further discussion
of clearing services.
Clearing services
Receivables from customers reflect held-for-investment
margin loans to brokerage clients in CIB, CCB and AWM that
are collateralized by assets maintained in the clients'
brokerage accounts (e.g., cash on deposit, liquid and readily
marketable debt or equity securities). Because of this
collateralization, no allowance for credit losses is generally
held against these receivables. To manage its credit risk the
Firm establishes margin requirements and monitors the
required margin levels on an ongoing basis, and requires
clients to deposit additional cash or other collateral, or to
reduce positions, when appropriate. These receivables are
reported within accrued interest and accounts receivable on
the Firm's Consolidated balance sheets.
Receivables from Customers
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients. The
contractual amounts of these financial instruments represent
the maximum possible credit risk should the clients draw
down on these commitments or when the Firm fulfills its
obligations under these guarantees, and the clients
subsequently fail to perform according to the terms of these
contracts. Most of these commitments and guarantees have
historically been refinanced, extended, cancelled, or expired
without being drawn upon or a default occurring. As a result,
the Firm does not believe that the total contractual amount of
these wholesale lending-related commitments is
representative of the Firm's expected future credit exposure
or funding requirements. Refer to Note 28 for further
information on wholesale lending-related commitments.
Lending-related commitments
JPMorgan Chase & Co./2020 Form 10-K
128
Derivatives enable clients and counterparties to manage risks
including credit risk and risks arising from fluctuations in
interest rates, foreign exchange, equities, and commodities.
The Firm makes markets in derivatives in order to meet these
needs and uses derivatives to manage certain risks associated
with net open risk positions from its market-making activities,
including the counterparty credit risk arising from derivative
receivables. The Firm also uses derivative instruments to
manage its own credit risk and other market risk exposure.
The nature of the counterparty and the settlement
mechanism of the derivative affect the credit risk to which the
Firm is exposed. For OTC derivatives the Firm is exposed to
Exposure profile of derivatives measures
prospect that government and other consumer relief
measures set to expire may not be extended, the Firm has
placed significant weighting on its adverse scenarios. These
scenarios incorporate more punitive macroeconomic factors
than the central case assumptions, resulting in weighted
average U.S. unemployment rates remaining elevated
throughout 2021 and 2022, ending the fourth quarter of
2022 at approximately 6%, and in U.S. GDP ending 2022
approximately 0.9% higher than fourth quarter 2019
actual pre-pandemic levels.
(in billions)
U.S. unemployment rate
Cumulative change in U.S.
real GDP from
12/31/2019
4.0 %
3.8 %
2Q21
4Q20(b)
2Q20
3.7 %
(a)
Assumptions at January 1, 2020
The Firm's central case assumptions reflected U.S.
unemployment rates and U.S. real GDP as follows:
0.9 %
Due to elevated uncertainty in the near term outlook, driven
by the potential for increased infection rates and related
lock downs resulting from the pandemic, as well as the
Discussion of changes in the allowance during 2020
The increase in the allowance for loan losses and lending-
related commitments was primarily driven by an increase in
the provision for credit losses, reflecting the deterioration
in and uncertainty around the future macroeconomic
environment as a result of the impact of the COVID-19
pandemic.
The adoption of CECL on January 1, 2020, resulted in a
$4.3 billion addition to the allowance for credit losses.
• a net $4.7 billion addition in wholesale, across the LOBS,
impacting multiple industries.
• a net $7.4 billion addition in consumer, predominantly in
the credit card portfolio, and
The allowance for credit losses increased compared with
December 31, 2019, primarily reflecting the deterioration
and uncertainty in the macroeconomic environment, in
particular in the first half of 2020, as a result of the impact
of the COVID-19 pandemic, consisting of:
the allowance for credit losses on investment securities,
which covers the Firm's HTM and AFS securities and is
recognized within Investment Securities on the
Consolidated balance sheets.
the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
The Firm's allowance for credit losses comprises:
•
As of December 31, 2020, the Firm's central case reflected
U.S. unemployment rates of approximately 7% through the
second quarter of 2021 and remaining above 5% until the
second half of 2022. This compared with relatively low
levels of unemployment of approximately 4% throughout
2020 and 2021 in the Firm's January 1, 2020 central case.
Further, while the Firm's January 1, 2020 central case U.S.
GDP forecast reflected a 1.7% expansion in 2020, actual
U.S. GDP contracted approximately 2.5% in 2020. As of
December 31, 2020, the Firm's central case assumptions
reflect a return to pre-pandemic GDP levels in the fourth
quarter of 2021.
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. The adoption of this guidance
established a single allowance framework for all financial
assets measured at amortized cost and certain off-balance
sheet credit exposures. This framework requires that
management's estimate reflects credit losses over the
instrument's remaining expected life and considers
expected future changes in macroeconomic conditions.
Refer to Note 1 for further information.
1.7 %
Assumptions at December 31, 2020
4Q21
5.7 %
(in millions, except ratios)
Allowance for loan losses
2019
Year ended December 31,
2019
2020(d)
Allowance for credit losses and related information
The adoption of the CECL accounting guidance resulted in a change in the accounting for PCI loans, which are considered PCD
loans under CECL. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related
commitments from the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the
methodology applied when determining the allowance. Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 1 for further information.
JPMorgan Chase & Co./2020 Form 10-K
2.4 %
132
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods. Refer to Note 13 and Note 10 for a description of
the policies, methodologies and judgments used to
determine the Firm's allowances for credit losses on loans,
lending-related commitments, and investment securities.
Refer to Critical Accounting Estimates Used by the Firm on
pages 152-155 for further information on the allowance for
credit losses and related management judgments.
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) 4Q20 actual U.S. unemployment rate (quarterly average) was 6.8%.
4Q20 actual cumulative change in U.S. real GDP from 4Q19 was
(2.5%).
2.0 %
0.6 %
5.1 %
2Q22
(1.9)%
2Q21
6.8 %
U.S. unemployment rate (a)
Cumulative change in U.S.
real GDP from
12/31/2019
Refer to Consumer Credit Portfolio on pages 114-120,
Wholesale Credit Portfolio on pages 121-131 and Note 12
for additional information on the consumer and wholesale
credit portfolios.
December 31, 2020
ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase & Co./2020 Form 10-K
DRE
AVG
years
10
years
year years
5
2
1
Peak
T
0
Finally, AVG is a measure of the expected fair value of the
Firm's derivative exposure, including the benefit of
collateral, at future time periods. AVG over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capital
and CVA, as further described below.
20
40
60
80
100
120
140
L
Management's discussion and analysis
130
Credit derivatives
131
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm. Refer to Credit derivatives in
Note 5 for a detailed description of credit derivatives.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
(b) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
(a) Prior-period amount has been revised to conform with the current
presentation.
$ 22,239 $ 18,530
3,877 $ 2,047
18,362
16,483
$
2019
JPMorgan Chase & Co./2020 Form 10-K
2020
Credit derivatives used in credit portfolio
management activities
(a)
Loans and lending-related commitments
Derivative receivables
December 31, (in millions)
Credit derivatives used to manage:
Credit derivatives used in credit portfolio management
activities
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities.
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and lending-related
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, "credit portfolio
management activities”). Information on credit portfolio
management activities is provided in the table below.
Credit portfolio management activities
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user, to manage the Firm's own credit risk associated
with various exposures.
Notional amount of
protection
purchased and sold (b)
2020
Credit
exposure
Beginning balance
% Drawn
(d)
% Investment-
grade
Receivables
Commitments
Derivative
Lending-related
Loans and
December 31, 2019
36
53
108,437
2,802
105,635
43
18
7,681
241
7,440
$
29,290
$
294
10,930
105,562
35
65
13,253
109
13,144
37
51
24,491
36
249
36
67
28,581
625
27,956
37 %
54 %
29,584
$
24,242
59
13,115
178
Commitments
Loans and
Lending-related
December 31, 2020
Total Consumer & Retail
Leisure (b)
Consumer Hard Goods
Business and Consumer Services
Food and Beverage
Retail (a)
Derivative
Receivables
(in millions, except ratios)
Leisure (b)
Consumer Hard Goods
Business and Consumer Services
Food and Beverage
(in millions, except ratios)
Retail (a)
the investment-grade portion of the Consumer & Retail portfolio decreased from 55% to 53%
the drawn percentage of this portfolio increased from 35% to 36%
criticized exposure increased by $6.7 billion from $2.5 billion to $9.2 billion
Consumer & Retail exposure was $108.4 billion as of December 31, 2020, and predominantly included Retail, Food and
Beverage, and Business and Consumer Services as shown in the table below. During the year ended December 31, 2020, the
following changes were primarily driven by impacts from the COVID-19 pandemic:
Consumer & Retail
Beginning balance at January 1,
Total Consumer & Retail (c)
147
Credit
%
Investment-
grade
12,937
41
52
25,359
599
24,760
33
62
28,909
exposure
897
(d)
% Drawn"
33 %
52 %
33,373
$
887
$
32,486
$
28,012
11,077
21
19
JPMorgan Chase & Co./2020 Form 10-K
(c) Represents drawn exposure as a percent of credit exposure.
(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Secured lending was $13.2 billion and $15.7 billion at December 31, 2020 and 2019, respectively, approximately half of which is reserve-based lending
to the Exploration & Production sub-sector; unsecured exposure is largely investment-grade.
31
53
41,641
852
40,789
(b)
127
Total Oil & Gas
73
38 %
% Drawn
(c)
% Investment-
grade
38 %
23,189
18,452
$
646
206
$
23
22,543
18,246
Management's discussion and analysis
In its wholesale businesses, the Firm provides loans to a
variety of clients, ranging from large corporate and
institutional clients to high-net-worth individuals. Refer to
Note 12 for a further discussion on loans, including
information about delinquencies, loan modifications and
other credit quality indicators.
0.09 %
0.16 %
415
799
(57)
(155)
472
954
$ 472,628
Loans
$ 509,907
2020
Gross recoveries collected
Net charge-offs/(recoveries)
Net charge-off/(recovery) rate
Average loans retained
Gross charge-offs
Year ended December 31,
(in millions, except ratios)
Loans - reported
Wholesale net charge-offs/(recoveries)
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2020 and 2019. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Year ended December 31, (in millions)
Wholesale nonaccrual loan activity
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2020 and
2019. The increase was driven by downgrades across
multiple industries on client credit deterioration, with the
largest concentration in Real Estate, predominantly within
retail and lodging.
2019
Additions (a)
Other Oil & Gas (a)
Exploration & Production ("E&P") and Oil field Services
Exploration & Production ("E&P") and Oil field Services
Credit
exposure
Derivative
Receivables
Commitments
(in millions, except ratios)
%
Loans and
Lending-related
December 31, 2020
the investment-grade portion of the Oil & Gas portfolio decreased from 53% to 47%
criticized exposure increased by $4.1 billion from $1.6 billion to $5.7 billion
$
•
Oil & Gas exposure was $39.2 billion as of December 31, 2020, including $19.3 billion of Exploration & Production and Oil
field Services as shown in the table below. During the year ended December 31, 2020, the following changes were driven by
lower oil prices and impacts from the COVID-19 pandemic:
Oil & Gas
(d) Represents drawn exposure as a percent of credit exposure.
(c) Approximately 80% of the noninvestment-grade portfolio is secured.
(a) Retail consists of Home Improvement & Specialty Retailers, Restaurants, Supermarkets, Discount & Drug Stores, Specialty Apparel and Department Stores.
(b) Leisure consists of Gaming, Arts & Culture, Travel Services and Sports & Recreation. As of December 31, 2020 approximately 75% of the noninvestment-
grade Leisure portfolio is secured.
35
55
106,986
1,424
•
$
18,228
Other Oil & Gas (a)
Credit
exposure
Derivative
Receivables
Commitments
(in millions, except ratios)
Lending-related
Loans and
December 31, 2019
29
47
$
21
37 %
% Drawn (c)
Investment-
grade
32 %
19,276
19,883
39,159
$
1,048
595
1,643
37,516
Total Oil & Gas (b)
19,288
62
Cumulative effect of a change in accounting
12 $
Gross charge-offs
•
There is no single measure to capture market risk and
therefore Market Risk Management uses various metrics,
both statistical and nonstatistical, to assess risk including:
Measures used to capture market risk
Risk measurement
Defining, approving and monitoring of limits
Performing stress testing and qualitative risk
assessments
Maintaining a market risk policy framework
Independently measuring, monitoring and controlling
LOB, Corporate, and Firmwide market risk
•
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
Market Risk Management
Market risk is the risk associated with the effect of changes
in market factors, such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
MARKET RISK MANAGEMENT
JPMorgan Chase & Co./2020 Form 10-K
134
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the
overall size of the portfolios. The Firm also conducts stress
testing on these portfolios using specific scenarios that
estimate losses based on significant market moves and/or
other risk events.
The Firm's approach to managing principal risk is consistent
with the Firm's risk governance structure. A Firmwide risk
policy framework exists for all principal investing activities
and includes approval by executives who are independent
from the investing businesses, as appropriate.
Governance and oversight
As of December 31, 2020 and 2019, the aggregate
carrying values of the principal investment portfolios were
$27.5 billion and $24.2 billion, respectively, which included
tax-oriented investments (e.g., alternative energy and
affordable housing investments) of $21.3 billion and $18.2
billion, respectively, and private equity, various debt and
equity instruments, and real assets of $6.2 billion and $6.0
billion, respectively.
Principal investments are typically privately held non-
traded financial instruments representing ownership or
other forms of junior capital and span multiple asset
classes. These investments are made by dedicated investing
businesses or as part of a broader business strategy. In
general, principal investments include tax-oriented
investments and investments made to enhance or
accelerate the Firm's business strategies. The Firm's
investments will continue to evolve in line with its
strategies, including the Firm's commitment to support
underserved communities and minority-owned businesses.
The Firm's principal investments are managed by the LOBS
and Corporate and are reflected within their respective
financial results. The aggregate carrying values of the
principal investment portfolios have not been significantly
affected by recent market events as a result of the
COVID-19 pandemic. However, the duration and severity of
adverse macroeconomic conditions could subject certain
principal investments to impairments, write-downs, or other
negative impacts.
Principal investment risk
Value-at-risk (VAR)
• Stress testing
•
•
•
CIB
CCB
LOBS and
Corporate
In addition to the predominant business activities, each LOB and Corporate may engage in principal investing activities. To the
extent principal investments are deemed market risk sensitive, they are reflected in relevant risk measures and captured in the
table below. Refer to Investment Portfolio Risk Management on page 134 for additional discussion on principal investments.
The following table summarizes the predominant business activities and related market risks, as well as positions which give
rise to market risk and certain measures used to capture those risks, for each LOB and Corporate.
Management's discussion and analysis
135
JPMorgan Chase & Co./2020 Form 10-K
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
Market Risk Management periodically reviews the Firm's
existing market risk measures to identify opportunities for
enhancement, and to the extent appropriate, will calibrate
those measures accordingly over time. This is increasingly
important in periods of sustained, heightened market
volatility.
Models used to measure market risk are inherently
imprecise and are limited in their ability to measure certain
Market Risk Management continues to actively monitor the
impact of the COVID-19 pandemic on market risk exposures
by leveraging existing risk measures and controls.
COVID-19 Pandemic
Market Risk Management sets limits and regularly reviews
and updates them as appropriate. Senior management is
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. Limits that have not been
reviewed within specified time periods by Market Risk
Management are reported to senior management. The LOBS
and Corporate are responsible for adhering to established
limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with appropriate
members of the Firm to determine the suitable course of
action required to return the applicable positions to
compliance, which may include a reduction in risk in order
to remedy the breach or granting a temporary increase in
limits to accommodate an expected increase in client
activity and/or market volatility. Certain Firm, Corporate or
LOB-level limit breaches are escalated as appropriate.
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, Market Risk
Management takes into consideration factors such as
market volatility, product liquidity, accommodation of client
business, and management experience. Market Risk
Management maintains different levels of limits. Firm level
limits include VaR and stress limits. Similarly, LOB and
Corporate limits include VaR and stress limits and may be
supplemented by certain nonstatistical risk measures such
as profit and loss drawdowns. Limits may also be set within
the LOBS and Corporate, as well as at the legal entity level.
Risk monitoring and control
Other sensitivity-based measures
Earnings-at-risk
Profit and loss drawdowns
risks or to predict losses. This imprecision may be
heightened when sudden or severe shifts in market
conditions occur, such as those observed at the onset of the
COVID-19 pandemic. For additional discussion on model
uncertainty refer to Estimations and Model Risk
Management on page 151.
Investment securities risks are governed by the Firm's Risk
Appetite framework, and reviewed at the CTC Risk
Committee with regular updates to the Board Risk
Committee.
Investment securities risk includes the exposure associated
with a default in the payment of principal and interest. This
risk is mitigated given that the investment securities
portfolio held by Treasury and CIO is predominantly
invested in high-quality securities. At December 31, 2020,
the Treasury and CIO investment securities portfolio, net of
allowance for credit losses, was $587.9 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and where not available, based primarily upon
internal risk ratings). Refer to Corporate segment results on
pages 83-84 and Note 10 for further information on the
investment securities portfolio and internal risk ratings.
Refer to Market Risk Management on pages 135-142 for
further information on the market risk inherent in the
portfolio. Refer to Liquidity Risk Management on pages
102-108 for further information on related liquidity risk.
Governance and oversight
Investment securities risk
329
464
NM
87
323
208
NM
principle
1.39 %
Allowance for loan losses to retained nonaccrual
loans excluding credit card
1.02 %
0.86 %
2.95 %
1.34 %
12.41 %
1.20 %
Allowance for loan losses to retained loans
Allowance for loan losses to retained nonaccrual
loans (c)
Credit ratios
$945,601
941,919
$481,678
472,628
3.36 %
Predominant business
activities
Net charge-off rates
NM
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
or from principal investments. The investment securities
portfolio is predominantly held by Treasury and CIO in
connection with the Firm's balance sheet or asset-liability
management objectives. Principal investments are
predominantly privately-held non-traded financial
instruments and are managed in the LOBS and Corporate.
Investments are typically intended to be held over extended
periods and, accordingly, the Firm has no expectation for
short-term realized gains with respect to these investments.
INVESTMENT PORTFOLIO RISK MANAGEMENT
Management's discussion and analysis
133
JPMorgan Chase & Co./2020 Form 10-K
(b) Includes modified PCD loans and loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that
have been placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loan losses modified or reasonably
expected to be modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(c) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
(d) Excludes HTM securities, which had an allowance for credit losses of $78 million and a provision for credit losses of $68 million as of and for the year
ended December 31, 2020.
(a) Prior to the adoption of CECL, write-offs of PCI loans were recorded against the allowance for loan losses when actual losses for a pool exceeded estimated
losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan was recognized when the underlying
loan was removed from a pool.
0.60
0.09
67
0.06
3.10
464
NM
0.12
0.55
0.16
2.93
87
120
208
187
•
Services mortgage
loans
Originates loans and
takes deposits
Structural non-USD
foreign exchange risks
Structural interest rate
risk from the Firm's
traditional banking
activities
foreign exchange risks
interest rate and
Interest rate risk and
prepayment risk
Risk from adverse
movements in market
factors (e.g., market
prices, rates and credit
spreads)
•
capital, structural
liquidity, funding,
Debt securities held in
advance of distribution to
clients, classified as trading
assets debt instruments
•
•
Corporate
Originates loans and
takes deposits
alongside third-party
investors
capital invested
mutual funds and
products such as
investments in
•
Manages the Firm's
Provides initial capital
Derivative positions
measured at fair value
through noninterest
revenue in earnings
Marketable equity
investments
Retained loan portfolio
Deposits
JPMorgan Chase & Co./2020 Form 10-K
136
Foreign exchange exposure
related to Firm-issued non-
USD long-term debt ("LTD")
and related hedges
Privately held equity and
other investments
measured at fair value
vehicles managed by AWM
(i.e., co-investments)
distributed collective
typically in privately
third-party investors,
Capital invested alongside
•
derivatives
compensation and related
Certain deferred
derivatives
hedges, classified as
Initial seed capital
investments and related
(a) Reflects structured notes in Risk Management VaR and the DVA on structured notes in other sensitivity-based measures.
(b) The AWM and CB contributions to Firmwide average VaR were not material for the year ended December 31, 2020 and 2019.
•
•
Deposits with banks
Investment securities
portfolio and related
interest rate hedges
Long-term debt and
related interest rate
hedges
hedges, classified as
$294,999 $168,924
312,972 156,319
•
Retained loan portfolio
Deposits
Fair value option elected
liabilities
Interest-only and mortgage-
backed securities, classified
as trading assets debt
instruments, and related
hedges, classified as
derivatives
loans and MSRs, classified
as derivatives
commitments, warehouse
Hedges of mortgage
•
•
• MSRS
Mortgage commitments,
classified as derivatives
Warehouse loans that are
fair value option elected,
classified as loans - debt
instruments
Trading assets/liabilities -
.
.
Basis and correlation risk
from changes in the way
asset values move
relative to one another
Interest rate risk and
prepayment risk
Risk of loss from adverse
movements in market
prices and implied
volatilities across interest
rate, foreign exchange,
credit, commodity and
equity instruments
Risk from changes in the
probability of newly
originated mortgage
commitments closing
Interest rate risk and
prepayment risk
Related market risks
•
•
Originates loans and
takes deposits
Makes markets and
services clients across
fixed income, foreign
exchange, equities and
commodities
Positions included in Risk
Management VaR
AWM
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
•
•
Marketable equity
investments
Interest rate risk and
prepayment risk
Marketable equity
investments
associated hedges
•
Originates loans and
takes deposits
•
CB
Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
Fair value option elected
liabilities a
(a
)
Privately held equity and
other investments
measured at fair value; and
certain asset-backed fair
value option elected loans
Derivatives FVA and fair
value option elected
liabilities DVA
Positions included in other
sensitivity-based measures
Fair value option elected
liabilities DVA (a)
Deposits
.
Retained loan portfolio
Retained loan portfolio
Deposits
•
earnings-at-risk
Positions included in
Derivative CVA and
•
$ 960,506
958,303
67
$302,127 $143,432
302,005 146,391
1
1
Other
5.449
479
5.348
(378)
16,291
4,431
10,886
974
Provision for loan losses
151
151
ΝΑ
NA
NA
ΝΑ
Write-offs of PCI loans (a)
(1)
(1)
11
9
$
$ 1,191
1,179
$
$
12
$
Beginning balance at January 1,
Allowance for lending-related commitments
5,629
$ 13,123
$
$514,947
509,907
$ 28,328
6,892
$
$ 17,800
3,636
$
Ending balance at December 31,
4,902
415
4,848
366
ΝΑ
4,172
(1,642)
5,517
297
$ 4,827 $ 13,445
$ 5,184
$ 3,434
$ 13,123
ΝΑ
5,683 $ 4,902
$ 2,538
Total
Wholesale
Credit card
Consumer,
excluding
credit card
Total
Credit card Wholesale
Consumer,
excluding
credit card
Gross recoveries collected
$
12 $
ΝΑ
805
5,259
799
4,286
174
Net charge-offs
(1,181)
(57)
(588)
(536)
ΝΑ
(1,577)
(791)
(631)
6,810
472
5,436
902
6,836
954
5,077
(155)
-
$ 2,538 $ 5,683
principle
$
$ 114
114
2,108
187
$
$
$
Cumulative effect of a change in accounting
2,538 $ 5,683 $ 4,902
$
$
$ 3,636 $ 17,800 $ 6,892
847
11,289
987
987
ΝΑ
NA
ΝΑ
ΝΑ
$
477 $ 295
5,206
4,607
$ 28,328
1,476
$ 102
2,295
Retained loans, average
Retained loans, end of period
Memo:
$ 14,314
$ 6,081
$ 2,550 $ 5,683
$ 1,191
$ 1,179
$
$
$ 2,409
$ 30,737
$ 3,823 $ 17,800
Total allowance for credit losses
$ 2,222
187 $
$
Total allowance for lending-related
commitments
102
1,089
1,077
12
$ 9,114
$
$ 13,123
$
(1)
(1)
-
Other
136
NA
ΝΑ
ΝΑ
$ 1,055
-
1,043
-- 136
75
1,079
ΝΑ
98
(35)
42
133
Provision for lending-related commitments
$
Ending balance at December 31,
1,121
187 $
$
$ 682 $ 1,308
6,210
27,020
633
17,167
(7) $
3,643
Portfolio-based
Asset-specific
Impairment methodology
Total allowance for loan losses
PCI
Portfolio-based
$
Impairment methodology
$ 1,179 $ 1,191
$
12
$
2,409
$
2,222
Asset-specific (b)
$
The operational risk areas or issues identified through
monitoring and testing are escalated to the LOBS and
Corporate to be remediated through action plans, as
needed, to mitigate operational risk. Operational Risk and
Management of Operational Risk
The results of risk assessments performed by Operational
Risk and Compliance are leveraged as one of the key
criteria in the independent monitoring and testing of the
LOBS and Corporate's compliance with laws and regulation.
Through monitoring and testing, Operational Risk and
Compliance independently identify areas of operational risk
and tests the effectiveness of controls within the LOBS and
Corporate.
Refer to Capital Risk Management section, on pages 91-101
for information related to operational risk RWA, and CCAR.
Operational Risk Monitoring and testing
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and other stress
testing processes.
In addition, operational risk measurement includes
operational risk-based capital and operational risk loss
projections under both baseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach ("LDA")
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the
Firm's operational risk-based capital methodology, which
uses the Advanced Measurement Approach ("AMA"),
incorporates internal and external losses as well as
management's view of tail risk captured through
operational risk scenario analysis, and evaluation of key
business environment and internal control metrics. The
Firm does not reflect the impact of insurance in its AMA
estimate of operational risk capital.
The Firm's CCOR Management policy establishes the CCOR
Management Framework for the Firm. The CCOR
Management Framework is articulated in the Risk
Governance and Oversight Policy which is reviewed and
approved by the Board Risk Committee periodically.
Operational Risk identification
Operational Risk Measurement
The Firm utilizes a structured risk and control self-
assessment process that is executed by the LOBS and
Corporate. As part of this process, the LOBS and Corporate
evaluate the effectiveness of their control environment to
assess where controls have failed, and to determine where
remediation efforts may be required. The Firm's
Operational Risk and Compliance organization
("Operational Risk and Compliance") provides oversight of
these activities and may also perform independent
assessments of significant operational risk events and areas
of concentrated or emerging risk.
The Firm's Global Chief Compliance Officer ("CCO") and FRE
for Operational Risk is responsible for defining the CCOR
Management Framework and establishing minimum
standards for its execution. Operational Risk Officers
("OROS") report to both the LOB CROS and to the FRE for
Operational Risk, and are independent of the respective
businesses or functions they oversee.
The LOBS and Corporate are responsible for the
management of operational risk. The Control Management
Organization, which consists of control managers within
each LOB and Corporate, is responsible for the day-to-day
execution of the CCOR Framework and the evaluation of the
effectiveness of their control environments to determine
where targeted remediation efforts may be required.
JPMorgan Chase & Co./2020 Form 10-K
Operational Risk and Compliance performs independent risk
assessments of the Firm's operational risks, which includes
assessing the effectiveness of the control environment and
reporting the results to senior management.
145
threats. The Firm actively participates in discussions of
cybersecurity risks with law enforcement, government
officials, peer and industry groups, and has significantly
increased efforts to educate employees and certain clients
on the topic of cybersecurity risks.
Compliance may advise the LOBS and Corporate in the
development and implementation of action plans.
Operational Risk Reporting
Escalation of risks is a fundamental expectation for
employees at the Firm. Risks identified by Operational Risk
and Compliance are escalated to the appropriate LOB and
Corporate Control Committees, as needed. Operational Risk
and Compliance has established standards to ensure that
consistent operational risk reporting and operational risk
reports are produced on a Firmwide basis as well as by the
LOBS and Corporate. Reporting includes the evaluation of
key risk indicators and key performance indicators against
established thresholds as well as the assessment of
different types of operational risk against stated risk
appetite. The standards reinforce escalation protocols to
senior management and to the Board of Directors.
COVID-19 Pandemic
Under the CCOR Management Framework, Operational Risk
and Compliance monitors and assesses COVID-19 related
legal and regulatory developments associated with the
Firm's financial products and services offered to clients and
customers as part of the existing change management
process. The Firm will continue to review and assess the
impact of the pandemic on operational risk and implement
adequate measures as needed.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories such as Compliance risk,
Conduct risk, Legal risk, and Estimations and Model risk as
well as other operational risks, can lead to losses which are
captured through the Firm's operational risk measurement
processes. Refer to pages 148, 149, 150 and 151,
respectively for more information on Compliance, Conduct,
Legal, and Estimations and Model risk. Details on other
select examples of operational risks are provided below.
Cybersecurity risk
Cybersecurity risk is the risk of the Firm's exposure to harm
or loss resulting from misuse or abuse of technology by
malicious actors. Cybersecurity risk is an important and
continuously evolving focus for the Firm. Significant
resources are devoted to protecting and enhancing the
security of computer systems, software, networks and other
technology assets. The Firm's security efforts are designed
to protect against, among other things, cybersecurity
attacks by unauthorized parties attempting to obtain access
to confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
Ongoing business expansions may expose the Firm to
potential new threats as well as expanded regulatory
scrutiny including the introduction of new cybersecurity
requirements. The Firm continues to make significant
investments in enhancing its cyber defense capabilities and
to strengthen its partnerships with the appropriate
government and law enforcement agencies and other
businesses in order to understand the full spectrum of
cybersecurity risks in the operating environment, enhance
defenses and improve resiliency against cybersecurity
146
Third parties with which the Firm does business or that
facilitate the Firm's business activities (e.g., vendors, supply
chain, exchanges, clearing houses, central depositories, and
financial intermediaries) are also sources of cybersecurity
risk to the Firm. Third party cybersecurity incidents such as
system breakdowns or failures, misconduct by the
employees of such parties, or cyberattacks could affect
their ability to deliver a product or service to the Firm or
result in lost or compromised information of the Firm or its
clients. Clients are also sources of cybersecurity risk to the
Firm, particularly when their activities and systems are
beyond the Firm's own security and control systems. As a
result, the Firm engages in regular and ongoing discussions
with certain vendors and clients regarding cybersecurity
risks and opportunities to improve security. However,
where cybersecurity incidents occur as a result of client
failures to maintain the security of their own systems and
processes, clients are responsible for losses incurred.
To protect the confidentiality, integrity and availability of
the Firm's infrastructure, resources and information, the
Firm maintains a cybersecurity program designed to
prevent, detect, and respond to cyberattacks. The Audit
Committee is updated periodically on the Firm's
Information Security Program, recommended changes,
cybersecurity policies and practices, ongoing efforts to
improve security, as well as its efforts regarding significant
cybersecurity events. In addition, the Firm has a
cybersecurity incident response plan ("IRP") designed to
enable the Firm to respond to attempted cybersecurity
incidents, coordinate such responses with law enforcement
and other government agencies, and notify clients and
customers, as applicable. Among other key focus areas, the
IRP is designed to mitigate the risk of insider trading
connected to a cybersecurity incident, and includes various
escalation points. Due to the impact of COVID-19, the Firm
increased the use of remote access and also video
conferencing solutions provided by third parties to facilitate
remote work. As a result the Firm took additional
precautionary measures to mitigate cybersecurity risks.
The Cybersecurity and Technology Control functions are
responsible for governance and oversight of the Firm's
Information Security Program. In partnership with the
Firm's LOBS and Corporate, the Cybersecurity and
Technology Control organization identifies information
security risk issues and oversees programs for the
technological protection of the Firm's information resources
including applications, infrastructure as well as confidential
and personal information related to the Firm's customers.
The Cybersecurity and Technology organization consists of
business aligned information security managers that are
supported within the organization by the following products
that execute the Information Security Program for the Firm:
Cyber Defense & Fraud
JPMorgan Chase & Co./2020 Form 10-K
Operational Risk Governance
Management's discussion and analysis
The Firm's Compliance, Conduct, and Operational Risk
("CCOR") Management Framework is designed to enable
the Firm to govern, identify, measure, monitor and test,
manage and report on the Firm's operational risk.
(b)
Operational risk is the risk of an adverse outcome resulting
from inadequate or failed internal processes or systems;
human factors; or external events impacting the Firm's
processes or systems; Operational Risk includes
compliance, conduct, legal, and estimations and model risk.
Operational risk is inherent in the Firm's activities and can
manifest itself in various ways, including fraudulent acts,
business interruptions, cyber attacks, inappropriate
employee behavior, failure to comply with applicable laws
and regulations or failure of vendors to perform in
accordance with their agreements. Operational Risk
Management attempts to manage operational risk at
appropriate levels in light of the Firm's financial position,
the characteristics of its businesses, and the markets and
regulatory environments in which it operates.
$ 164
(b)
$ 43
(b)
$
30
$ 65
(a) Diversification benefit represents the difference between the portfolio VaR and the sum of its individual components. This reflects the non-additive nature
of VaR due to imperfect correlation across LOBS, Corporate, and risk types.
(b) The maximum and minimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification
benefit is not meaningful.
(c) Maximum Corporate and other LOB VAR was higher than the prior year, due to increases in the fourth quarter of 2020 driven by a private equity position
that became publicly traded at the end of the third quarter of 2020.
Generally, average VaR and maximum VaR across risk types
and LOBS were higher due to increased volatility that
occurred at the onset of the COVID-19 pandemic, which
remains in the one-year historical look-back period. As a
result average total VaR increased by $52 million for the
year-ended December 31, 2020 when compared with the
prior year driven by the fixed income and commodities risk
types.
Effective January 1, 2020, the Firm refined the scope of
VaR to exclude positions related to the risk management of
interest rate exposure from changes in the Firm's own
credit spread on fair value option elected liabilities, and
included these positions in other sensitivity-based
measures. Additionally, effective July 1, 2020, the Firm
refined the scope of VaR to exclude certain asset-backed
fair value option elected loans, and included them in other
sensitivity-based measures to more effectively measure the
risk from these loans. In the absence of these refinements,
the average Total VaR and each of the components would
have been higher by the amounts reported in the following
table:
138
(in millions)
CIB fixed income VaR
CIB trading VaR
CIB VaR
Total VaR
Amount by which reported average VaR
would have been higher for the year ended
December 31, 2020
$
9
7
9
8
JPMorgan Chase & Co./2020 Form 10-K
$ millions
VaR backtesting
The Firm performs daily VaR model backtesting, which compares the daily Risk Management VaR results with the daily gains
and losses that are utilized for VaR backtesting purposes. The gains and losses in the chart below do not reflect the Firm's
revenue results as they exclude select components of total net revenue, such as those associated with the execution of new
transactions (i.e., intraday client-driven trading and intraday risk management activities), fees, commissions, certain valuation
adjustments and net interest income. These excluded components of total net revenue may more than offset backtesting gains
and losses on a particular day. The definition of backtesting gains and losses above is consistent with the requirements for
backtesting under Basel III capital rules.
The following chart compares Firmwide daily backtesting gains and losses with the Firm's Risk Management VaR for the year
ended December 31, 2020. The results in the chart below differ from the results of backtesting disclosed in the Market Risk
section of the Firm's Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to the
Firm's covered positions.
32
$
$ 95
(b)
(b)
(b)
NM
NM
(4)
(a)
(b)
NM
NM
(b)
(b)
20
10
82
For the year ended December 31, 2020, the Firm posted backtesting gains on 162 of the 260 days, and observed 10 VaR
backtesting exceptions, which were predominantly driven by volatility at the onset of the COVID-19 pandemic that was
materially higher than the levels realized in the historical data used for the VaR calculation. Firmwide backtesting loss days can
differ from the loss days for which Fixed Income Markets and Equity Markets posted losses, as disclosed in CIB Markets
revenue, as the population of positions which compose each metric are different and due to the exclusion of select components
of total net revenue in backtesting gains and losses as described above. For more information on CIB Markets revenue, refer to
pages 74-75.
(b)
11
8
17
(17)
(a)
(b)
NM
NM (b)
(a)
(10)
NM (b)
(b)
NM
(b)
(b)
Daily Risk Management VaR Backtesting Results
Year ended December 31, 2020
Backtesting Gains and Losses
The Firm's stress testing framework is utilized in calculating
the Firm's CCAR and other stress test results, which are
reported to the Board of Directors. In addition, stress
testing results are incorporated into the Firm's Risk
Appetite framework, and are reported periodically to the
Board Risk Committee.
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. A profit and
loss drawdown is a decline in revenue from its year-to-date
peak level.
Earnings-at-risk
The effect of interest rate exposure on the Firm's reported
net income is important as interest rate risk represents one
of the Firm's significant market risks. Interest rate risk
arises not only from trading activities but also from the
Firm's traditional banking activities, which include
extension of loans and credit facilities, taking deposits and
issuing debt as well as from the investment securities
portfolio. Refer to the table on page 136 for a summary by
LOB and Corporate, identifying positions included in
earnings-at-risk.
The CTC Risk Committee establishes the Firm's structural
interest rate risk policy and related limits, which are subject
to approval by the Board Risk Committee. Treasury and CIO,
working in partnership with the LOBS, calculates the Firm's
structural interest rate risk profile and reviews it with
senior management, including the CTC Risk Committee. In
addition, oversight of structural interest rate risk is
managed through a dedicated risk function reporting to the
CTC CRO. This risk function is responsible for providing
independent oversight and governance around assumptions
and establishing and monitoring limits for structural
interest rate risk. The Firm manages structural interest rate
risk generally through its investment securities portfolio
and interest rate derivatives.
Structural interest rate risk can occur due to a variety of
factors, including:
•
•
•
.
Differences in timing among the maturity or repricing of
assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are maturing or repricing
at the same time
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
Stress scenarios are governed by an overall stress
framework and are subject to the standards outlined in the
Firm's policies related to model risk management.
Significant changes to the framework are reviewed as
appropriate.
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
One way the Firm evaluates its structural interest rate risk
is through earnings-at-risk. Earnings-at-risk estimates the
Firm's interest rate exposure for a given interest rate
scenario. It is presented as a sensitivity to a baseline, which
includes net interest income and certain interest rate
sensitive fees. The baseline uses market interest rates and
in the case of deposits, pricing assumptions. The Firm
conducts simulations of changes to this baseline for interest
rate-sensitive assets and liabilities denominated in U.S.
dollars and other currencies ("non-U.S. dollar" currencies).
These simulations primarily include retained loans,
deposits, deposits with banks, investment securities, long-
term debt and any related interest rate hedges, and funds
transfer pricing of positions in risk management VaR and
other sensitivity-based measures as described on page 136.
140
JPMorgan Chase & Co./2020 Form 10-K
Earnings-at-risk scenarios estimate the potential change to
a net interest income baseline, over the following 12
months utilizing multiple assumptions. These scenarios
include a parallel shift involving changes to both short-term
and long-term rates by an equal amount; a steeper yield
curve involving holding short-term rates constant and
increasing long-term rates; and a flatter yield curve
involving increasing short-term rates and holding long-term
rates constant. These scenarios consider many different
factors, including:
The impact on exposures as a result of instantaneous
changes in interest rates from baseline rates.
Forecasted balance sheet, as well as modeled
prepayment and reinvestment behavior, but do not
include assumptions about actions that could be taken by
the Firm or its clients and customers in response to any
such instantaneous rate changes. Mortgage prepayment
assumptions are based on the interest rates used in the
scenarios compared with underlying contractual rates,
the time since origination, and other factors which are
updated periodically based on historical experience.
The pricing sensitivity of deposits, known as deposit
betas, represent the amount by which deposit rates paid
could change upon a given change in market interest
rates over the cycle. The deposit rates paid in these
scenarios may differ from actual deposit rates paid, due
to repricing lags and other factors.
The Firm's earnings-at-risk scenarios are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's balance sheet, changes in market
conditions, improvements in the Firm's simulation and
other factors. While a relevant measure of the Firm's
interest rate exposure, the earnings at risk analysis does
not represent a forecast of the Firm's net interest income
(Refer to Outlook on page 49 for additional information).
The Firm's U.S. dollar sensitivities are presented in the table
below.
December 31,
(in billions)
Parallel shift:
+100 bps shift in rates
Steeper yield curve:
+100 bps shift in long-term rates
Flatter yield curve:
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, Firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of
interest, contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products.
(a)
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported on a regular basis to senior management of
the Firm, as appropriate.
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm's vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
Risk Management VaR (1-day, 95% Confidence level)
350
300
250
200
150
100
50
0
-50
-100
-150
-200
-250
The Firm's stress framework covers market risk sensitive
positions in the LOBS and Corporate. The framework is used
to calculate multiple magnitudes of potential stress for both
market rallies and market sell-offs, assuming significant
changes in market factors such as credit spreads, equity
prices, interest rates, currency rates and commodity prices,
and combines them in multiple ways to capture an array of
hypothetical economic and market scenarios.
-300
-400
-450
-500
-550
First Quarter
2020
JPMorgan Chase & Co./2020 Form 10-K
|
Second Quarter
2020
Third Quarter
2020
Fourth Quarter
2020
139
Management's discussion and analysis
Other risk measures
Stress testing
-350
(4)
13
9
Total VaR
2020
2019
Avg.
Min
Max
Avg.
Min
Max
$
98
$ 35
$ 156
$
Diversification benefit to CIB and other VaR
40
31
$
50
10
4
18
7
4
15
24
13
41
20
13
$
31
Other VaR
Corporate and other LOB VaR
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in
the current market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a daily
measure of risk that is closely aligned to risk management
decisions made by the LOBS and Corporate and, along with
other market risk measures, provides the appropriate
information needed to respond to risk events.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.
Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR "backtesting exceptions," defined
as losses greater than that predicted by VaR estimates, an
average of five times every 100 trading days. The number
of VaR backtesting exceptions observed can differ from the
statistically expected number of backtesting exceptions if
the current level of market volatility is materially different
from the level of market volatility during the 12 months of
historical data used in the VaR calculation.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual risk factors and/or product types. To capture
material market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and
incorporate numerous risk factors and inputs to simulate
daily changes in market values over the historical period;
inputs are selected based on the risk profile of each
portfolio, as sensitivities and historical time series used to
generate daily market values may be different across
product types or risk management systems. The VaR model
results across all portfolios are aggregated at the Firm
level.
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors,
VaR measures are inherently limited in their ability to
measure certain risks and to predict losses, particularly
those associated with market illiquidity and sudden or
severe shifts in market conditions.
For certain products, specific risk parameters are not
captured in Var due to the lack of liquidity and availability
of appropriate historical data. The Firm uses proxies to
estimate the VaR for these and other products when daily
time series are not available. It is likely that using an actual
price-based time series for these products, if available,
would affect the VaR results presented. The Firm therefore
considers other nonstatistical measures such as stress
testing, in addition to VaR, to capture and manage its
market risk positions.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ. Refer to Valuation process in Note 2 for
further information on the Firm's valuation process. As VaR
model calculations require daily data and a consistent
source for valuation, it may not be practical to use the data
collected in the VCG monthly valuation process for VaR
model calculations.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling
techniques and measurements, and other factors. Such
changes may affect historical comparisons of VaR results.
Refer to Estimations and Model Risk Management on page
151 for information regarding model reviews and
approvals.
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR”), which
used to derive the Firm's regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III, which
may be different than the positions included in the Firm's
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm's Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
JPMorgan Chase & Co./2020 Form 10-K
137
Management's discussion and analysis
Diversification benefit to other VaR
Refer to JPMorgan Chase's Basel III Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm's website,
for additional information on Regulatory VaR and the other components of market risk regulatory capital for the Firm (e.g.,
VaR-based measure, stressed VaR-based measure and the respective backtesting).
Total VaR
As of or for the year ended December 31,
(in millions)
CIB trading VaR by risk type
Fixed income
Foreign exchange
Equities
Commodities and other
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaR
Diversification benefit to CIB VaR
CIB VaR
Operational Risk Management Framework
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level. VaR can vary
significantly as positions change, market volatility fluctuates, and diversification benefits change.
+100 bps shift in short-term rates
28
47
(b)
(a)
NM
NM
(5)
NM
(b)
(b)
NM
(b)
(b)
(b)
(b)
92
(b)
31
42
29
63
5
1
12
5
1
11
19
9
(c)
82
10
162
7
(a)
7
8
6
12
(a)
(b)
(b)
(a)
(b)
(b)
(67)
NM
NM
(33)
NM
(17)
NM
(b)
(b)
(b)
93
32
160
42
29
61
16
3
28
5
3
(b)
2020
CCB VaR
$
13.4
4.6
0.8
18.8
18.1
Switzerland
14.7
0.5
3.5
18.7
18.3
Australia
9.9
5.7
France
0.3
11.7
Canada
13.4
0.9
0.2
14.5
13.2
Luxembourg
11.1
1.3
12.4
12.9
Brazil
4.2
15.9
6.6
19.2
1.6
Country exposure and stress are measured and reported
regularly, and used by Country Risk Management to identify
trends, and monitor high usages and breaches against
limits.
For country risk management purposes, the Firm may
report exposure to jurisdictions that are not fully
autonomous, including Special Administrative Regions
("SAR") and dependent territories, separately from the
independent sovereign states with which they are
associated.
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2020, and
their comparative exposures as of December 31, 2019. The
selection of countries represents the Firm's largest total
exposures by individual country, based on the Firm's
internal country risk management approach, and does not
represent the Firm's view of any actual or potentially
adverse credit conditions. Country exposures may fluctuate
from period to period due to client activity and market
flows.
The overall increase in top 20 exposures was largely driven
by client activity and growth in client deposits, relative to
the period ending December 31, 2019. This resulted in an
increase in cash placements with the central banks of
Germany and the United Kingdom.
Top 20 country exposures (excluding the U.S.) (a)
December 31,
(in billions)
China
2020
2019 (f)
Lending
and
deposits
Trading and
investing
Other(e)
Total
exposure
Total
exposure
21.2
Germany
United Kingdom
Japan
5.8 $
0.6 $ 127.2 $ 51.6
57.2
9.4
1.8
68.4
42.4
36.7
8.6
0.3
45.6
43.8
9.7
9.9
$ 120.8 $
Risk reporting
10.8
India
5.1
Spain
4.1
1.6
0.1
5.8
5.8
Saudi Arabia
4.9
5.8
5.2
Mexico
3.9
1.0
6.2
4.9
Sweden
5.4
(1.1)
4.3
1.1
40
(a) Country exposures presented in the table reflect 90% and 87% of
total Firmwide non-U.S. exposure, where exposure is attributed to an
individual country, at December 31, 2020 and 2019, respectively.
(b) In the fourth quarter of 2020, Country Risk Management determined
that the exposure for certain commodities contracts corresponds to an
EU-wide risk and should not be attributed to the individual country of
registration, previously the Netherlands. As such, the exposure is no
longer included and the prior-period amount has been revised to
conform with the current presentation.
(c) Lending and deposits includes loans and accrued interest receivable,
lending-related commitments (net of eligible collateral and the
allowance for credit losses), deposits with banks (including central
banks), acceptances, other monetary assets, and issued letters of
credit net of participations. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(d) Includes market-making inventory, Investment securities, and
counterparty exposure on derivative and securities financings net of
eligible collateral and hedging. Includes exposure from single
reference entity ("single-name"), index and other multiple reference
entity transactions for which one or more of the underlying reference
entities is in a country listed in the above table.
(e) Predominantly includes physical commodity inventory.
(f) The country rankings presented in the table as of December 31, 2019,
are based on the country rankings of the corresponding exposures at
December 31, 2020, not actual rankings of such exposures at
December 31, 2019.
144
JPMorgan Chase & Co./2020 Form 10-K
OPERATIONAL RISK MANAGEMENT
2019
4.7
7.2
0.6
3.7
3.9
5.1
1.5
10.5
11.3
South Korea
5.4
4.3
0.4
10.1
6.4
Italy
4.7
4.7
1.9
0.3
6.8
Singapore
4.0
2.7
2.0
8.7
6.8
Netherlands (b)
5.4
0.1
2.2
7.7
5.8
Hong Kong SAR
9.7
Country Risk Management continues to monitor the impact
of the COVID-19 pandemic, leveraging existing stress
testing, exposure reporting and controls, as well as tailored
analysis, to assess the extent to which individual countries
may be adversely impacted.
0.9
Stress testing is an important component of the Firm's
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries or
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
Activity
Debt and equity(a)
Asset Management activities
Other debt and equity
Description
Consists of seed capital and related hedges;
fund co-investments (D); and certain
';
deferred compensation and related
hedges (c)
Consists of certain asset-backed fair value
option elected loans, privately held equity
and other investments held at fair value
Sensitivity measure
2020
2019
10% decline in market
value
$
Year ended December 31,
Gain/(loss) (in millions)
(48) $
10% decline in market
value
(919)
(867)
(e)
Funding activities
Non-USD LTD cross-currency basis
Non-USD LTD hedges foreign currency
("FX") exposure
Derivatives - funding spread risk
Fair value option elected liabilities -
funding spread risk
Fair value option elected liabilities -
interest rate sensitivity
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD(d)
Primarily represents the foreign exchange
revaluation on the fair value of the
derivative hedges"
(
d)
Impact of changes in the spread related to
derivatives FVA
Impact of changes in the spread related to
fair value option elected liabilities DVA (d)
(68)
Interest rate sensitivity on fair value option
liabilities resulting from a change in the
(d)
Firm's own credit spread"
The table below represents the potential impact to net revenue, OCI or noninterest expense for market risk sensitive
instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are
reported net of the positions being hedged. The sensitivities disclosed in the table below may not be representative of the
actual gain or loss that would have been realized at December 31, 2020 and 2019, as the movement in market parameters
across maturities may vary and are not intended to imply management's expectation of future changes in these sensitivities.
Other sensitivity-based measures
6.9
COVID-19 Pandemic
$
0.3
2.4
4.5
1.2
(0.9)
The change in the Firm's U.S. dollar sensitivities as of
December 31, 2020 compared to December 31, 2019
reflected updates to the Firm's baseline for lower short-
term and long-term rates as well as the impact of changes
in the Firm's balance sheet. In addition, during the fourth
quarter of 2020 as part of the Firm's continuous evaluation
and periodic enhancement to its earnings-at-risk
calculations, the Firm updated the deposit rates paid betas
for consumer deposit products based upon observed pricing
during the most recent economic cycle. In the absence of
this update, the Firm's U.S. dollar sensitivities as of
December 31, 2020 would have been lower by $2.0 billion
to the +100bps shift in short-term and parallel rate
scenarios.
The Firm's sensitivity to rates is primarily a result of assets
repricing at a faster pace than deposits.
Based upon current and implied market rates as of
December 31, 2020, scenarios reflecting lower rates could
result in negative interest rates. The U.S. has never
experienced an interest rate environment where the
Federal Reserve has a negative interest rate policy. While
the impact of negative interest rates on the Firm's earnings-
at-risk would vary by scenario, a parallel shift downward of
up to 100bps would negatively impact net interest income.
In a negative interest rate environment, the modeling
assumptions used for certain assets and liabilities require
additional management judgment and therefore, the actual
outcomes may differ from these assumptions.
The Firm's non-U.S. dollar sensitivities are presented in the
table below.
(in billions)
Parallel shift:
The Firm quantifies the market risk of certain debt and equity and funding activities by assessing the potential impact on net
revenue, other comprehensive income ("OCI") and noninterest expense due to changes in relevant market variables. Refer to
the table Predominant business activities that give rise to market risk on page 136 for additional information on the positions
captured in other sensitivity-based measures.
2020
JPMorgan Chase & Co./2020 Form 10-K
+100 bps shift in rates
Flatter yield curve:
+100 bps shift in short-term rates
$
0.9 $
0.5
0.8
0.5
The results of the non-U.S. dollar interest rate scenario
involving a steeper yield curve with long-term rates rising
by 100 basis points and short-term rates staying at current
levels were not material to the Firm's earnings-at-risk at
December 31, 2020 and 2019.
141
Management's discussion and analysis
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm's assets or liabilities or
future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and
revenue, the investment securities portfolio and non-U.S. dollar-denominated debt issuance. Treasury and CIO, working in
partnership with the LOBS, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these
risks using derivatives.
2019
Interest rate sensitivity related to risk
management of changes in the Firm's own
credit spread on fair value option
(b)
liabilities
December 31,
(16)
consistent with a comprehensive country risk framework
Assigning sovereign ratings, assessing country risks and
establishing risk tolerance relative to a country
Measuring and monitoring country risk exposure and
stress across the Firm
Managing and approving country limits and reporting
trends and limit breaches to senior management
Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
• Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country.
Under the Firm's internal country risk management
approach, attribution of exposure to an individual country is
based on the country where the largest proportion of the
assets of the counterparty, issuer, obligor or guarantor are
located or where the largest proportion of its revenue is
derived, which may be different than the domicile (i.e. legal
residence) or country of incorporation.
Individual country exposures reflect an aggregation of the
Firm's risk to an immediate default, with zero recovery, of
the counterparties, issuers, obligors or guarantors
attributed to that country. Activities which result in
contingent or indirect exposure to a country are not
included in the country exposure measure (for example,
providing clearing services or secondary exposure to
collateral on securities financing receivables).
Assumptions are sometimes required in determining the
measurement and allocation of country exposure,
particularly in the case of certain non-linear or index
products, or where the nature of the counterparty, issuer,
obligor or guarantor is not suitable for attribution to an
individual country. The use of different measurement
approaches or assumptions could affect the amount of
reported country exposure.
Under the Firm's internal country risk measurement
framework:
•
•
Maintaining policies, procedures and standards
•
•
•
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
Deposits are measured as the cash balances placed with
central and commercial banks
Securities financing exposures are measured at their
receivable balance, net of eligible collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the eligible collateral received
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm's market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. Refer to Cross-border outstandings on page
318 of the 2020 Form 10-K for further information on the
FFIEC's reporting methodology.
JPMorgan Chase & Co./2020 Form 10-K
143
Stress testing
1 basis point parallel
Management's discussion and analysis
•
•
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
•
tightening of cross currency
•
basis
(17)
10% depreciation of
currency
13
15
(4)
(5)
1 basis point parallel
increase in spread
33
29
1 basis point parallel
increase in spread
(3)
(2)
1 basis point parallel
increase in spread
3
1 basis point parallel
increase in spread
Country Risk Management is an independent risk
management function that assesses, manages and monitors
country risk originated across the Firm.
Organization and management
The Firm, through its LOBS and Corporate, may be exposed
to country risk resulting from financial, economic, political
or other significant developments which adversely affect
the value of the Firm's exposures related to a particular
country or set of countries. The Country Risk Management
group actively monitors the various portfolios which may be
impacted by these developments and measures the extent
to which the Firm's exposures are diversified given the
Firm's strategy and risk tolerance relative to a country.
COUNTRY RISK MANAGEMENT
142
(e) Prior-period amount has been revised to conform with the current presentation. In the absence of the scope refinement, Other debt and equity would have
been $(203) million and $(192) million for the periods ending December 31, 2020 and 2019, respectively. Refer to Total VaR on page 138 for additional
information.
JPMorgan Chase & Co./2020 Form 10-K
The Firm's country risk management function includes the
following activities:
2
•
(b) Impact recognized through net revenue.
(c) In the second quarter of 2020, the Firm refined the approach for risk management of certain deferred compensation, which is recognized through
noninterest expense. As a result, certain deferred compensation and related hedges are now included in other sensitivity-based measures.
(d) Impact recognized through OCI.
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
6.
Remain open to learning how to become a better leader.
Page 24
III. Banks' Enormous Competitive Threats – from Virtually Every Angle
Page 28
Page 29
Page 23
Banks are playing an increasingly smaller role in the financial system.
2. The growth in shadow and fintech banking calls for level playing field
regulation.
1.
Page 27
Page 22
5.
Page 22
Before conducting an important analysis, assess all relevant factors
involved.
4.
3. Understand when analysis is necessary and when it impedes change.
Page 21
Examine raw data and focus on real numbers.
3.
2.
1.
Page 21
Enforce a good decision-making process.
Always deal with reality.
Al, the cloud and digital are transforming how we do business.
2.
4.
2.
Page 35
Bold action by the Fed and the U.S. government effectively reversed financial panic.
Page 21
1.
Page 35
V. COVID-19 and the Economy
Page 34
4. While we disbanded Haven, we will continue to build on what we learned.
Page 33
New accounting requirements affect reserve reporting but not how we run our
business.
3.
Page 32
Brexit was finally accomplished – but uncertainties linger.
Page 32
Cyber risk remains a significant threat.
1.
Page 32
IV. Specific Issues Facing Our Company
10
10
Page 31
5. JPMorgan Chase is aggressively adapting to new challenges.
Page 31
Fintech and Big Tech are here ... big time!
Page 30
II. Lessons from Leadership
$1.6T²
3. Being a responsible community citizen nationally, or globally, is more
critical and more complex.
$1.2T¹
RWA
2020 Basel III
Advanced is $1.5T,
including $385B
$3.4T
+$1.2T
$2.2T
Total assets
risk RWA³
of operational
$202B
excluding $385B
13.8%, or 18.7%,
Advanced is
13.1%²
+610 bps
7.0%¹
2020 Basel III
2020
2008
common equity
+$118B
$84B
CET1
Banks entered this recent crisis in great shape and were part of the solution
coming out.
Tangible
+$0.4T
of operational
risk RWA³
Liquidity
~$300B
Page 14
Being a responsible community citizen locally is critical, and it is easy to
understand why.
2.
Page 13
Businesses must earn the trust of their customers and communities by
acting ethically and morally.
1.
Page 13
I. The Corporate Citizen: The Purpose of a Corporation
Within this letter, I discuss the following:
9
Ultimately, the basis of our success is our people. They are the ones who serve our
customers and communities, build the technology, make the strategic decisions,
manage the risks, determine our investments and drive innovation. Whatever your
view is of the world's complexity and the risks and opportunities ahead, having a
great team of people – with guts and brains and enormous capabilities who can
navigate personally challenging circumstances while dedicating themselves to
professional excellence - is what ensures our prosperity, now and in the future.
If you look deeper, you will find that our success and accomplishments are founded
on our commitment to our shareholders. Shareholder value can be built only if you
maintain a healthy and vibrant company, which means doing a good job taking care
of your customers, employees and communities. Conversely, how can you have a
healthy company if you neglect any of these stakeholders? As we have learned in
2020, there are myriad ways an institution can demonstrate its compassion for its
employees and its communities while still upholding shareholder value.
Page 14
>$450B of cash,
~$400B of UST,
and $250B of US
agency securities;
reported HQLA is
$697B4
LCR Liquidity coverage ratio
HQLA High-quality liquid assets include cash on deposit at central banks and high-quality liquid securities as defined in the LCR rule (predominantly
U.S. Treasuries, U.S. government-sponsored enterprises and government agency mortgage-backed securities, and sovereign bonds)
Liquidity = HQLA plus unencumbered marketable securities, includes excess liquidity at JPMorgan Chase Bank, N.A.
CET1 = Common equity Tier 1 ratio. Refer to Regulatory capital on pages 92-98 for additional information
RWA Risk-weighted assets
4 Represents quarterly average HQLA included in the liquidity coverage ratio. Total reported eligible HQLA
excludes average excess eligible HQLA at JPMorgan Chase Bank, N.A. that are not transferable to nonbank
affiliates. Refer to Liquidity coverage ratio on page 103 for additional information.
T = Trillions
bps = basis points
B = Billions
$1,437B
+~$1,137B
3 Operational risk RWA is a component of RWA under the Basel III Advanced measure.
2 Reflects the Basel III Standardized measure, which is the firm's current binding constraint.
1 CET1 and RWA reflect the Tier 1 common ratio and risk weighted assets under the Basel I measures.
UST = United States Treasuries
Page 35
the last section of this letter, I detail certain
policy issues, which – if forcefully and
effectively addressed - would be great for
America and the world at large. We engage
at this level because companies (like ours)
have an extraordinary capability to help. We
help not just with funding but with devel-
oping strong public policy, which can have
a greater impact on society than the collec-
tive effect of companies that are respon-
sible community citizens locally. This year,
for example, our PolicyCenter published
research based on the actual experiences of
our customers and communities, showing
how new policies could drive a more inclu-
sive economic recovery and help small
businesses. JPMorgan Chase has always
recognized that long-term business success
depends on community success, and that is
Page 38
We provided critical development financing
and attracted additional investment, such
as funding through our new development
finance institution (DFI) to support sustainable
development. In 2020, the DFI mobilized
We provided more than $18 billion in credit to
small businesses around the country, as well
as more than $32 billion in funding ($28 billion
excluding Small Business Administration (SBA)
safe harbor refunds) under the SBA's Paycheck
Protection Program (PPP). For example, we
helped Kids Klub Child Development Centers -
which offer preschool, daycare and after-school
programming - revamp their centers to enable
care for essential workers' children.
We committed more than $45 billion in lending
and investments to support community
development, affordable housing and small
business growth in underserved communities
across the United States. This included Eden
Housing, a nonprofit that provides low-income
residents with safe, modern and affordable
housing in California's Bay Area.
15
We raised $103 billion in credit and capital for
nonprofit and U.S. government entities, including
states, cities, hospitals and universities. This
included funding for NewYork-Presbyterian
Health System which saw a significant increase
in patients as a result of COVID-19 - to help them
acquire vital medical supplies and equipment
and to bring on additional staff.
We raised $1.1 trillion in capital for corporations
and non-U.S.government entities and offered
$865 billion in credit for corporations. For
example, we helped Meals on Wheels build a
new 36,000-square-foot commercial kitchen
and food production facility to help maintain
good nutritional health of older adults with
limited financial resources.
We provided consumers with $226 billion in
credit to help them afford some of their most
important purchases, including new homes and
vehicles. This included more than $32 billion to
help customers in underserved communities
purchase a new home.
We extended credit and raised capital totaling
$2.3 trillion for consumers and clients of all
sizes around the world, including some of the
industries and communities most affected by
the pandemic's economic fallout. This includes
critical financing for companies such as Boeing
and its 145,000 employees. J.P. Morgan helped
them raise $25 billion to help fund their ongoing
operations as the pandemic led to less air travel.
•
Helping Clients and Customers in 2020
•
We go to great lengths to be there for our clients, customers, employees and communities. Moreover,
this unwavering commitment has been a hallmark of our company since its founding. During this time of
corporate self-reflection, it's important to understand and reaffirm the magnitude of our contributions.
Executing Our Corporate Purpose
Importantly, these civic efforts are supported
by senior leadership and are managed by
some of our best people (these initiatives are
not an afterthought and are sustainable). For
our part, we are making significant, long-
term, data-driven business and philanthropic
investments. And while we try to be creative,
we analyze everything, including philan-
thropy, based on measurable results.
Our effort is substantial and permanent and has
support throughout the company.
that address our greatest challenges, but their
work often flies under the radar. We must
elevate these thoughtful ideas and find ways
to share them with others facing similar situ-
ations, enabling more communities to benefit
from proven, localized solutions. After busi-
nesses have had success with some of these
efforts locally, they can be adopted across the
country and, in fact, around the world.
We also believe that businesses' extraordi-
nary capabilities are even more powerful
when put to use in collaboration with
governments' capabilities, particularly when
seeking to solve our biggest economic and
societal ills at the local level. As Washington,
D.C., and central governments around the
world struggle with partisan gridlock and
an inability to get big things done, local
communities are coming up with some of
the best ideas to make civic society work for
more people. Mayors, governors, educators,
major employers, entrepreneurs, community
leaders and nonprofits are making serious
progress developing innovative approaches
one of the reasons for our enduring achieve-
ment. When everyone has a fair shot at
participating and sharing - in the rewards
of growth, the economy will be stronger, and
our society will be better.
I. THE CORPORATE CITIZEN: THE PURPOSE OF A CORPORATION
14
JPMorgan Chase takes an active role in
large-scale public policy issues. We are
fully engaged in trying to solve some of
the world's biggest issues - climate change,
poverty, economic development and racial
inequality and the accompanying features
that follow describe the extensive efforts we
are making. With well-designed policies, we
think these problems can all be solved. In
Most people consider corporate responsi-
bility to be merely enhanced philanthropy.
This is understandable. But it is far harder
to understand what being a responsible
community citizen means in terms of macro
corporate responsibility. While we are
devoted to philanthropy - we spend $330
million a year on these efforts - corporate
responsibility is far more than that.
3. Being a responsible community citizen nationally, or globally, is more critical and
more complex.
When JPMorgan Chase enters a community,
we take great pride in being a responsible
citizen at the local level – just like the local
bakery. We lend to and support local busi-
nesses. We help customers with banking,
lending and saving. And our local corpo-
rate responsibility efforts and philanthropic
programs (examples of which are described
in the following features in this section) help
make these communities stronger.
make the community a better place is both
the moral thing to do and a driver of better
commercial outcomes for the town.
$140 billion toward these goals - helping, for
example, with Uzbekistan's first local currency
issuance in international markets to finance
the country's health, education and transport
sectors and with the Republic of Georgia's
debut green bond to support that country's
access to water, power and sanitation.
If you live in a small town and run a corner
bakery, it is very easy to understand the
value of being a responsible community
citizen. Most businesses on "Main Street'
keep the sidewalk in front of their store
clean so people don't slip and fall. They often
participate in the community by supporting
local sports teams or religious institutions.
A bakery or a restaurant will often donate
surplus food at the end of the day to a local
homeless shelter. Most businesses under-
stand that everyone doing their part to
Helping Communities
•
Helping 1 million people open low-cost
checking or savings accounts: Chase will open
16 new community branches in traditionally
underserved neighborhoods and hire 150
community managers by 2022. Branches in
Chicago, Dallas, Minneapolis and New York
(Harlem) have already been redesigned under
this new model. This model has expanded
outreach to local small businesses - and to
consumers with financial education - and serves
as a hub for overall community engagement.
Another 100 new branches are being opened in
low- to moderate-income communities across
the United States as part of the firm's market
expansion initiative. We want to build trust in
the communities we serve and become our
customers' primary bank. We offer Secure
Banking - a low-cost, no overdraft checking
account - for those new to banking, those who
have had trouble getting or keeping a bank
account, and for Black and Latinx unbanked and
underbanked households, thereby expanding
access to traditional banking.
at December 31,
Improve financial health and access to banking in Black and Latinx communities
Expanding our business with Black and Latinx
suppliers: The firm's internal Buy Black and
Latinx Portal, led by Advancing Black Pathways,
encourages our lines of business to purchase
goods and services from diverse businesses.
This year-long campaign is designed to support
the firm's commitment to spend $750 million
with Black- and Latinx-owned suppliers over the
next five years.
Investing in middle-market businesses:
The firm is co-investing up to $200 million
alongside Ariel Alternatives and Project Black,
an initiative that aims to close the racial wealth
gap by investing in middle-market businesses
that are minority-owned - or will become
minority-owned - to develop a new class of
Black and Latinx entrepreneurs.
Helping small businesses thrive: A $350
million, five-year global commitment
underscores our dedication to grow Black-,
Latinx- and women-owned businesses among
other underserved small businesses, help
address the racial wealth divide and create
a more inclusive recovery from the COVID-19
pandemic. This ambitious endeavor combines
low-cost loans, equity investments and
philanthropy and will help reduce barriers to
capital for underserved small businesses to
support their immediate needs and long-term
growth. As part of this commitment, the firm
is investing $42.5 million in low-cost loans and
philanthropy to expand the Entrepreneurs of
Color Fund to more cities in the United States,
in collaboration with Local Initiatives Support
Corporation and a network of community
development financial institutions (CDFI).
Grow Black- and Latinx-owned businesses
17
Expanding affordable housing in underserved
communities: The firm's inaugural $1 billion
social bond builds on its strategy to use its
business expertise to create opportunity
for underserved communities. The bond's
co-managers solely comprise minority- and
women-owned businesses, as well as service-
disabled, veteran-owned firms.
•
Helping Black and Latinx families buy
homes and refinance loans: Our Home
Lending business has committed to helping an
additional 40,000 Black and Latinx families
buy a home over the next five years, with the
firm dedicating $8 billion in mortgages for
this purpose. The firm is committing up to $4
billion in refinancing loans to help an additional
20,000 Black and Latinx households achieve
lower mortgage payments. In addition, the
firm is working to improve key home lending
products and offerings: A $5,000 grant, for
example, will help cover closing costs and down
payments for people buying a home in 6,700
minority communities in the United States.
Promote and expand affordable housing and homeownership for underserved communities
•
JPMorgan Chase introduced The Path Forward in October 2020, committing $30 billion over the next five
years to address the key drivers of the racial wealth divide, reduce systemic racism against Black and
Latinx people, and support employees. The firm has made tangible progress to date.
Our $30 Billion Path Forward Commitment
background - roughly 10% of our new hires in
the United States. And through the JPMorgan
Chase PolicyCenter, we are advancing federal
and state policies that help qualified workers
with an arrest or conviction record compete
for employment in federal agencies and with
federal contractors. We are reforming Federal
Deposit Insurance Corporation (FDIC) hiring
rules and setting up automatic record clearing
for eligible offenses to help individuals move on
from their record. We also supported a measure
signed into federal law in 2020 restoring access
to Pell Grants for incarcerated individuals,
which allows them to pursue postsecondary
education in prison and increase employment
opportunities after their release.
As part of our strategy to diversify our talent
pipeline, we have implemented a range of
changes to expand opportunities for individuals
with a criminal background. In 2020, we hired
approximately 2,100 people with a criminal
We have taken extensive steps to support our
employees, who are our greatest strength.
We offer 300 accredited skills and education
programs and have helped 15,000 employees
(to date) assess their skills, which may lead
to opportunities for career mobility at the
firm. And we have been increasing wages for
thousands of employees, including branch and
customer service employees, to between $16
and $20 an hour, depending on where they
work in the United States, while providing an
annual benefits package worth about $13,000.
•
Supporting Employees
16
We are dedicated to addressing climate change
and sustainability around the world. In 2020,
the firm committed to finance and facilitate
$200 billion to drive action on climate change
and advance sustainable development,
including renewable energy, cleaner water
and waste management; improve access
to housing, education and healthcare; and
promote infrastructure, innovation and growth
around the globe.
We have committed employee time and talent
to tackling communities' greatest challenges.
In 2020, employees participated in nearly
50 Service Corps programs to help local
nonprofits; mentored hundreds of Black and
Latinx young men as part of The Fellowship
Initiative; and supported local organizations
focused on racial equity.
We designed branches, products, services
and digital solutions to help clients and
customers better manage their financial daily
lives, with particular focus on underserved
communities and families. Examples include
low-cost, low-fee accounts, such as Chase
Secure BankingSM, and financial tools, such
as Chase Credit Journey and Chase Autosave.
In 2020, we continued to open new branches
in new markets across the United States with
30% opening in low- to moderate-income
communities by 2023.
We raised $12 billion in capital and credit to
help finance infrastructure projects across
the United States. This included $1.3 billion
in credit assistance to New York City's
Metropolitan Transportation Authority to help
deal with the serious impacts of COVID-19 on
the city's transportation system and $800
million in capital for Michigan's Department of
Transportation to help rebuild the state's roads
and bridges.
We have supported and continue to support a
range of community initiatives - from assisting
underserved small businesses outside of Paris
to facilitating skills training for high-growth
jobs in India to helping residents of Harlem
increase savings and reduce debt. In 2020, we
provided more than $500 million in low-cost
loans, equity and philanthropic grants to
address immediate needs brought on by the
COVID-19 crisis, drive an inclusive recovery
and advance racial equity. These efforts will
help 1.3 million individuals receive financial
coaching, enable 172,000 people to enroll in
jobs and skills training programs, assist 64,000
underserved small businesses and create or
preserve 43,000 affordable housing units.
3. The confusing interplay of monetary, fiscal and regulatory policy continues
through recessions.
2. Being a responsible community citizen locally is critical, and it is easy to understand why.
when I hear about a company, or a hedge
fund, causing loans and a company to default
so they can trigger credit default swap
hedges - it's completely unethical.
Business Roundtable's Statement on the
11
Page 63
America's global role and engagement are indispensable to the health and
well-being of America.
5.
Page 55
We need to take specific action steps.
4.
Page 54
for healthy growth.
We need a comprehensive, multi-year national Marshall Plan, and we must strive
3.
Page 50
Why did - and didn't – these failures happen?
2.
Page 49
Laying out the problems is painful.
1.
Page 47
American Exceptionalism, Competitiveness and Leadership: Challenged by
China, COVID-19 and Our Own Competence
VI. Public Policy
Page 45
5. The pandemic accelerated remote working capabilities, which will likely
carry forward.
Page 42
4. The regulatory system needs to keep up with the changing world - and finish
Dodd-Frank to get it right.
Purpose of a Corporation
We must always strive, particularly in tough
times, to earn the trust of our customers and
communities.
In August 2019, Business Roundtable released the below Statement on the
Purpose of a Corporation, signed by 181 CEOS, including Jamie Dimon, then
chair of the association. This statement repositioned the definition of corporate
success as serving shareholders principally to endorsing a modern standard
of corporate responsibility: to serve all stakeholders - customers, employees,
suppliers, communities and shareholders.
Businesses play a vital role in the economy by creating jobs, fostering
innovation and providing essential goods and services. Businesses make and
sell consumer products; manufacture equipment and vehicles; support the
national defense; grow and produce food; provide health care; generate and
deliver energy; and offer financial, communications and other services that
underpin economic growth.
customers down or enforce rules that a
customer may not like (for example, cove-
nants). This makes open and transparent
dealings even more important. When I hear
examples of people doing something that
is wrong because they could be paid more,
it makes my blood boil - and I don't want
them working here. And I can't believe it
I. THE CORPORATE CITIZEN: THE PURPOSE OF A CORPORATION
13
Banks, in particular, have to be rigorous
about standards. Unlike many companies
that will simply sell you a product if you
can pay for it, banks must necessarily turn
Great companies are strict about having fair
dealings with their customers. I have always
loved that Home Depot's company policy
is not to raise lumber prices in the imme-
diate aftermath of a hurricane, regardless
of whether it can. (I want to remind readers
that banks essentially did not raise the price
of credit when they renewed loans during
the financial crisis.) Pricing to customers
should be what's fair - not what a company
can get away with.
To a good company, its reputation is every-
thing. That reputation is earned day in and
day out with every interaction with customers
and communities. This is not to say that
companies (and people) do not make mistakes
- of course they do. Often a reputation is
earned by how you deal with those mistakes.
While all businesses are different, there are
some fundamentals: good products, fair and
transparent pricing, thoughtful and respon-
sive service, and continuous innovation.
Great companies constantly set high stan-
dards, acknowledge their mistakes and prop-
erly discipline or dismiss bad actors.
1. Businesses must earn the trust of their customers and communities by acting ethically
and morally.
wake up each morning, they worry about all
of the things that they need to do right to
build a successful company. A company is
like a team. We must do many things well
to succeed, and, ultimately, that leads to
creating shareholder value.
Obviously, companies have fiduciary respon-
sibilities. However, legal and fiduciary
language does not represent how most CEOs
and boards actually run their companies.
We should not be buttonholed by the debate
about whether there are "fiduciary" reasons
to think of "shareholder value" narrowly
and to the exclusion of those who work at
the company, our clients and communi-
ties. When most CEOs and board members
The problem with the American public's
impression of "shareholder value" is that too
many people interpret it to mean short-term,
rapacious profit taking – which, ironically,
is the last thing that leads to building real,
long-term shareholder value. And when they
hear the word "fiduciary," they think we are
standing behind our lawyers.
To be healthy and vibrant – and to create long-
term shareholder value - a company must be
financially successful over the long run.
_
It is vital that we do all of these things,
as the failure to perform any one of them
with excellence could lead to the failure
of all. Over the years, we have extensively
described the efforts we make to take care
of our customers and our employees. The
purpose of this section is to describe our
corporate responsibility efforts in more detail
and explain their importance.
We need to build and maintain a healthy
and vibrant company, over the long run,
to be able to deal with the uncertainties of
life, to invest, to innovate and to grow. To
be healthy and vibrant, a company must do
many things well: It must do a great job for
customers; attract, develop and retain talented
employees; and serve its communities.
THE PURPOSE OF A CORPORATION
I. THE CORPORATE CITIZEN:
12
Released: August 19, 2019
Each of our stakeholders is essential. We commit to deliver value to all of them,
for the future success of our companies, our communities and our country.
Generating long-term value for shareholders, who provide the capital
that allows companies to invest, grow and innovate. We are committed to
transparency and effective engagement with shareholders.
Supporting the communities in which we work. We respect the people in
our communities and protect the environment by embracing sustainable
practices across our businesses.
Dealing fairly and ethically with our suppliers. We are dedicated to serving
as good partners to the other companies, large and small, that help us
meet our missions.
Delivering value to our customers. We will further the tradition of American
companies leading the way in meeting or exceeding customer expectations.
Investing in our employees. This starts with compensating them fairly and
providing important benefits. It also includes supporting them through
training and education that help develop new skills for a rapidly changing
world. We foster diversity and inclusion, dignity and respect.
•
While each of our individual companies serves its own corporate purpose, we
share a fundamental commitment to all of our stakeholders. We commit to:
Americans deserve an economy that allows each person to succeed through
hard work and creativity and to lead a life of meaning and dignity. We believe
the free-market system is the best means of generating good jobs, a strong
and sustainable economy, innovation, a healthy environment and economic
opportunity for all.
Our Fortress Balance Sheet
18
Strengthening diverse-led financial
institutions: To promote financial institutions in
underserved neighborhoods, we are providing
additional access to capital, connections to
institutional investors through new products
and services, specialty support for Black-led
commercial projects, and mentorship and
training opportunities. In October 2020, the
firm committed to investing $50 million in
Black- and Latinx-led minority depository
institutions and CDFIs. With $40 million of that
investment already committed or deployed to
Louisiana-based Liberty Bank, North Carolina-
based M&F Bank, New York-based Carver
Federal Savings Bank and Los Angeles-based
Broadway Federal Bank, the total investment
has been increased to $75 million, which could
generate access to as much as $750 million
in community lending. In addition, the firm's
new Empower money market share class will
allow these institutions to develop new revenue
streams by serving institutional clients.
Insurance
$
18.4
(a)
Level 3 assets at fair value as a
percentage of total Firm assets
Level 3 assets at fair value as a
percentage of total Firm assets at fair
value (a)
0.5%
1.5%
(a) For purposes of the table above, the derivative receivables total
reflects the impact of netting adjustments; however, the $7.7 billion of
derivative receivables classified as level 3 does not reflect the netting
adjustment as such netting is not relevant to a presentation based on
the transparency of inputs to the valuation of an asset. The level 3
balances would be reduced if netting were applied, including the
netting benefit associated with cash collateral.
Valuation
Details of the Firm's processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
JPMorgan Chase & Co./2020 Form 10-K
153
Management's discussion and analysis
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, the lack of observability of certain significant
inputs requires management to assess all relevant empirical
data in deriving valuation inputs including, for example,
transaction details, yield curves, interest rates, prepayment
speed, default rates, volatilities, correlations, prices (such
as commodity, equity or debt prices), valuations of
comparable instruments, foreign exchange rates and credit
curves. Refer to Note 2 for a further discussion of the
valuation of level 3 instruments, including unobservable
inputs used.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for portfolios
that meet specified criteria, the size of the net open risk
position. The judgments made are typically affected by the
type of product and its specific contractual terms, and the
level of liquidity for the product or within the market as a
whole. In periods of heightened market volatility and
uncertainty judgments are further affected by the wider
variation of reasonable valuation estimates, particularly for
positions that are less liquid. Refer to Note 2 for a further
discussion of valuation adjustments applied by the Firm.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies or
assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. Refer to Note 2 for a detailed discussion of the Firm's
valuation process and hierarchy, and its determination of
fair value for individual financial instruments.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The
Firm's process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
For the year ended December 31, 2020, the Firm reviewed
current economic conditions, including the potential
impacts of the COVID-19 pandemic on business
performance, estimated market cost of equity, as well as
actual business results and projections of business
performance for all its reporting units. The Firm has
concluded that the goodwill allocated to its reporting units
was not impaired as of December 31, 2020. The fair values
of these reporting units exceeded their carrying values by at
least 15% and did not indicate a significant risk of goodwill
impairment based on current projections and valuations.
The projections for all of the Firm's reporting units are
consistent with management's current business outlook
assumptions in the short term, and the Firm's best
estimates of long-term growth and return on equity in the
longer term. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Refer to Note 15 for additional information on goodwill,
including the goodwill impairment assessment as of
December 31, 2020.
Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do the points expire, and the points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the
estimated cost of rewards points earned and expected to be
redeemed by cardholders. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $7.7 billion
and $6.4 billion at December 31, 2020 and 2019,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets.
The rewards liability is sensitive to redemption rate ("RR")
and cost per point ("CPP") assumptions. The RR assumption
is used to estimate the number of points earned by
customers that will be redeemed over the life of the
account. The CPP assumption is used to estimate the cost of
future point redemptions. These assumptions are evaluated
periodically considering historical actuals and cardholder
redemption behavior and updates to them will impact the
rewards liability. As of December 31, 2020, a combined
increase of 25 basis points in RR and 1 basis point in CPP
would increase the rewards liability by approximately $215
million.
Income taxes
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
154
1,246.8
3,386.1
$
$
Total assets measured at fair value
Total Firm assets
Trading debt and equity instruments
Derivative receivables (a)
$
423.5
$
2.6
79.6
7.7
Total trading assets
503.1
10.3
AFS securities
388.2
Loans
44.5
2.3
MSRS
3.3
Other
304.1
0.5
Total assets measured at fair value on
a recurring basis
1,243.2
16.4
Total assets measured at fair value on a
nonrecurring basis
3.6
2.0
JPMorgan Chase & Co./2020 Form 10-K
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
laws, legal interpretations, and business strategies. It is
possible that revisions in the Firm's estimate of income
taxes may materially affect the Firm's results of operations
in any reporting period.
The Firm's provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management's
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain tax attributes, including net
operating loss ("NOL”) carryforwards and foreign tax credit
("FTC") carryforwards. The Firm performs regular reviews
to ascertain whether its deferred tax assets are realizable.
These reviews include management's estimates and
assumptions regarding future taxable income, which also
incorporates various tax planning strategies, including
strategies that may be available to utilize NOLS before they
expire. In connection with these reviews, if it is determined
that a deferred tax asset is not realizable, a valuation
allowance is established. The valuation allowance may be
reversed in a subsequent reporting period if the Firm
determines that, based on revised estimates of future
taxable income or changes in tax planning strategies, it is
more likely than not that all or part of the deferred tax
asset will become realizable. As of December 31, 2020,
management has determined it is more likely than not that
the Firm will realize its deferred tax assets, net of the
existing valuation allowance.
•
.
securities to incorporate an allowance, which will allow
for reversals of credit impairments in the event that the
credit of an issuer improves.
Requires a cumulative-effect adjustment to retained
earnings as of the beginning of the reporting period of
adoption.
Requires recognition of an impairment loss when the
estimated fair value of a reporting unit falls below its
carrying value.
Eliminates the requirement that an impairment loss be
recognized only if the estimated implied fair value of
the goodwill is below its carrying value.
Provides optional expedients and exceptions to current
accounting guidance when financial instruments, hedge
accounting relationships, and other transactions are
amended due to reference rate reform.
Provides an election to account for certain contract
amendments related to reference rate reform as
modifications rather than extinguishments without the
requirement to assess the significance of the
amendments.
Allows for changes in critical terms of a hedge
accounting relationship without automatic termination
of that relationship. Provides various practical
expedients and elections designed to allow hedge
accounting to continue uninterrupted during the
transition period.
Provides a one-time election to transfer securities out
of the held-to-maturity classification if certain criteria
are met.
• The January 2021 update provides an election to
account for derivatives modified to change the rate
used for discounting, margining, or contract price
alignment (collectively "discounting transition") as
modifications.
•
Effects on financial statements
•
Adopted January 1, 2020.
•
•
.
•
Refer to Note 1 for further information.
Adopted January 1, 2020.
No impact upon adoption as the guidance was applied
prospectively.
Refer to Note 15 for further information.
Issued and effective March 12, 2020. The January 7,
2021 update was effective when issued.
The Firm elected to apply certain of the practical
expedients related to contract modifications and hedge
accounting relationships, and discounting transition
beginning in the third quarter of 2020. The discounting
transition election was applied retrospectively. The
main purpose of the practical expedients is to ease the
administrative burden of accounting for contracts
impacted by reference rate reform, and these elections
did not have a material impact on the Consolidated
Financial Statements.
156
JPMorgan Chase & Co./2020 Form 10-K
•
Trading assets:
•
Requires inclusion of expected recoveries, limited to
the cumulative amount of prior writeoffs, when
estimating the allowance for credit losses for in scope
financial assets (including collateral-dependent assets).
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase's
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which the
reassessment occurs.
Refer to Note 25 for additional information on income
taxes.
Litigation reserves
Refer to Note 30 for a description of the significant
estimates and judgments associated with establishing
litigation reserves.
JPMorgan Chase & Co./2020 Form 10-K
155
Management's discussion and analysis
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board ("FASB") Standards Adopted since January 1, 2020
Standard
Financial
Instruments -
Credit Losses
("CECL")
Issued June 2016
Goodwill
Issued January
2017
Reference Rate
Reform
Issued March
2020 and
updated January
2021
Summary of guidance
•
Establishes a single allowance framework for all
financial assets measured at amortized cost and certain
off-balance sheet credit exposures. This framework
requires that management's estimate reflects credit
losses over the instrument's remaining expected life
and considers expected future changes in
macroeconomic conditions.
• Eliminates existing guidance for PCI loans, and requires
recognition of the nonaccretable difference as an
increase to the allowance for expected credit losses on
financial assets purchased with more than insignificant
credit deterioration since origination, with a
corresponding increase in the amortized cost of the
related loans.
•
• Amends existing impairment guidance for AFS
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and
maintains a wholly-owned captive insurer, Park Assurance
Company. Insurance may also be required by third parties
with whom the Firm does business.
53.0
$
The Firm has a Code of Conduct (the "Code") that sets forth
the Firm's expectation that employees will conduct
themselves with integrity at all times and provides the
principles that govern employee conduct with clients,
customers, shareholders and one another, as well as with
the markets and communities in which the Firm does
business. The Code requires employees to promptly report
any potential or actual violation of the Code, any internal
Firm policy, or any law or regulation applicable to the
Firm's business. It also requires employees to report any
illegal conduct, or conduct that violates the underlying
principles of the Code, by any of the Firm's employees,
clients, customers, suppliers, contract workers, business
partners, or agents. All newly hired employees are assigned
Code training and current employees are periodically
assigned Code training on an ongoing basis. Employees are
required to affirm their compliance with the Code
periodically.
Employees can report any potential or actual violations of
the Code through the JPMC Conduct Hotline by phone or the
internet. The Hotline is anonymous, except in certain non-
U.S. jurisdictions where laws prohibit anonymous reporting,
and is available at all times globally, with translation
services. It is administered by an outside service provider.
The Code prohibits retaliation against anyone who raises an
issue or concern in good faith. Periodically, the Audit
Committee receives reports on the Code of Conduct
program.
148
JPMorgan Chase & Co./2020 Form 10-K
CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the risk
that any action or inaction by an employee or employees
could lead to unfair client or customer outcomes, impact
the integrity of the markets in which the Firm operates, or
compromise the Firm's reputation.
Overview
Each LOB and Corporate is accountable for identifying and
managing its conduct risk to provide appropriate
engagement, ownership and sustainability of a culture
consistent with the Firm's How We Do Business Principles
(the “Principles”). The Principles serve as a guide for how
employees are expected to conduct themselves. With the
Principles serving as a guide, the Firm's Code sets out the
Firm's expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with the laws
everywhere the Firm operates. Refer to Compliance Risk
Management on page 148 for further discussion of the
Code.
Governance and oversight
The Conduct Risk Program is governed by the CCOR
Management policy, which establishes the framework for
governance, identification, measurement, monitoring and
testing, management and reporting conduct risk in the
Firm.
The Firm has a senior committee that provides oversight of
the Firm's conduct initiatives to develop a more holistic
view of conduct risks and to connect key programs across
the Firm in order to identify opportunities and emerging
areas of focus. This committee is responsible for setting
overall program direction for strategic enhancements to the
Firm's employee conduct framework and review the
consolidated Firmwide Conduct Risk Appetite Assessment.
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
designated corporate functions completes an assessment of
conduct risk periodically, reviews metrics and issues which
may involve conduct risk, and provides business conduct
training as appropriate.
JPMorgan Chase & Co./2020 Form 10-K
149
Management's discussion and analysis
LEGAL RISK MANAGEMENT
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
Overview
The global Legal function ("Legal") provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm's exposure to legal risk by:
•
•
•
managing actual and potential litigation and
enforcement matters, including internal reviews and
investigations related to such matters
advising on products and services, including contract
negotiation and documentation
advising on offering and marketing documents and new
business initiatives
managing dispute resolution
Code of Conduct
The Firm maintains oversight and coordination of its
compliance risk through the implementation of the CCOR
Risk Management Framework. The Firm's CCO also provides
regular updates to the Audit Committee and the Board Risk
Committee. In certain Special Purpose Committees of the
Board have previously been established to oversee the
Firm's compliance with regulatory Consent Orders.
Operational Risk and Compliance is led by the Firm's Global
CCO and FRE for Operational Risk.
Governance and oversight
The Firm's Third-Party Oversight ("TPO”) and Inter-affiliates
Oversight ("IAO") framework assist the LOBS and Corporate
in selecting, documenting, onboarding, monitoring and
managing their supplier relationships including services
provided by affiliates. The objectives of the TPO framework
are to hold suppliers to a high level of operational
performance and to mitigate key risks including data loss
and business disruption. The Corporate Third-Party
Oversight group is responsible for Firmwide training,
monitoring, reporting and standards.
Third-party outsourcing risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. The
risk of payment fraud remains at a heightened level across
the industry, particularly during the current COVID-19
pandemic due to the use of contingent forms of payment
authentication methods, scams involving the pandemic
being perpetrated including an increase in the level of fraud
attempts against consumers. The complexities of these
incidents and the strategies used by perpetrators continue
to evolve. The Firm employs various controls for managing
payment fraud risk as well as providing employee and client
education and awareness trainings. The Firm's monitoring
of customer behavior to detect new fraud strategies is
periodically evaluated and enhanced in an effort to
mitigate these fraud risks.
Payment fraud risk
Business disruptions can occur due to forces beyond the
Firm's control such as the spread of infectious diseases or
pandemics, severe weather, power or telecommunications
loss, accidents, failure of a third party to provide expected
services, cyberattack, flooding, transit strikes, terrorism,
health emergencies. The safety of the Firm's employees and
customers is of the highest priority. The Firmwide resiliency
program is intended to enable the Firm to recover its
critical business functions and supporting assets (i.e., staff,
technology and facilities) in the event of a business
interruption. The program includes governance, awareness
training, and testing of recovery strategies, as well as
strategic and tactical initiatives to identify, assess, and
manage business interruption and public safety risks. The
strength and proficiency of the Firmwide resiliency program
has played an integral role in maintaining the Firm's
business operations during and after various events.
Business and technology resiliency risk
The Firm's Security Awareness Program includes training
that reinforces the Firm's Information Technology Risk and
Security Management policies, standards and practices, as
well as the expectation that employees comply with these
policies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm's resources and
information. This training is mandatory for all employees
globally on a periodic basis, and it is supplemented by
Firmwide testing initiatives, including periodic phishing
tests. Finally, the Firm's Global Privacy Program requires all
employees to take periodic awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding to
unauthorized access to or use of information.
The IRM function provides oversight of the activities
designed to identify, assess, measure, and mitigate
cybersecurity risk.
The Global Cybersecurity and Technology Control
governance structure is designed to identify, escalate, and
mitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
technology efforts. These forums are established at multiple
levels throughout the Firm and include representatives
from each LOB and Corporate. Reports containing
overviews of key technology risks and efforts to enhance
related controls are produced for these forums, and are
reviewed by management at multiple levels. The forums are
used to escalate information security risks or other matters
as appropriate.
Software & Platform Enablement
•
Production Management & Resiliency
Governance & Controls
interpreting existing laws, rules and regulations, and
Identity & Access Management
•
•
•
JPMorgan Chase & Co./2020 Form 10-K
147
Management's discussion and analysis
COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is the
risk of failing to comply with laws, rules, regulations or
codes of conduct and standards of self-regulatory
organizations.
Overview
Each LOB and Corporate hold primary ownership of and
accountability for managing compliance risk. The Firm's
Operational Risk and Compliance Organization
("Operational Risk and Compliance"), which is independent
of the LOBS and Corporate, provides independent review,
monitoring and oversight of business operations with a
focus on compliance with the laws, rules, and regulations
applicable to the delivery of the Firm's products and
services to clients and customers.
These compliance risks relate to a wide variety of laws,
rules and regulations depending on the LOB and the
jurisdiction, and include risks related to financial products
and services, relationships and interactions with clients and
customers, and employee activities. For example,
compliance risks include those associated with anti-money
laundering compliance, trading activities, market conduct,
and complying with the laws, rules, and regulations related
to the offering of products and services across jurisdictional
borders. Compliance risk is also inherent in the Firm's
fiduciary activities, including the failure to exercise the
applicable standard of care (such as the duties of loyalty or
care), to act in the best interest of clients and customers or
to treat clients and customers fairly.
Other functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
Operational Risk and Compliance implements policies and
standards designed to govern, identify, measure, monitor
and test, manage, and report on compliance risk.
Data Management, Protection & Privacy
Securities borrowed
advising on changes to them
and proposed laws, rules and regulations, and
To consider the impact of a hypothetical alternate
macroeconomic forecast, the Firm compared the modeled
credit losses determined using its central and relative
adverse macroeconomic scenarios, which are two of the five
scenarios considered in estimating the allowances for loan
losses and lending-related commitments. The central and
relative adverse scenarios each included a full suite of
MEVS, but differed in the levels, paths and peaks/troughs of
those variables over the eight-quarter forecast period.
For example, compared to the Firm's central scenario
described on page 132 and in Note 13, the Firm's relative
adverse scenario assumes a significantly elevated U.S.
unemployment rate throughout 2021, averaging 3.0%
higher over the eight-quarter forecast, with a peak
difference of approximately 4.0% in the second quarter of
2021; lower U.S. real GDP with a slower recovery,
152
JPMorgan Chase & Co./2020 Form 10-K
remaining nearly 2.6% lower at the end of the eight-
quarter forecast, with a peak difference of nearly 4.1% in
the third quarter of 2021; and a 10.1% further
deterioration in the national HPI with a trough in the first
quarter of 2022.
This analysis is not intended to estimate expected future
changes in the allowance for credit losses, for a number of
reasons, including:
•
the Firm has placed significant weight on its adverse
scenarios in estimating its allowance for credit losses as
of December 31, 2020, and accordingly, the existing
allowance already reflects credit losses beyond those
estimated under the central scenario
the impacts of changes in many MEVS are both
interrelated and nonlinear, so the results of this analysis
cannot be simply extrapolated for more severe changes
in macroeconomic variables
the COVID-19 pandemic has stressed many MEVS at a
speed and to degrees not seen in recent history, adding
significantly higher degrees of uncertainty around
modeled credit loss estimations
• significant changes in the expected severity and duration
of the economic downturn caused by the COVID-19
pandemic, the effects of government support and
customer assistance, and the speed of the subsequent
recovery could significantly affect the Firm's estimate of
expected credit losses irrespective of the estimated
sensitivities described below.
Without considering the additional weight the Firm has
placed on its adverse scenarios or any other offsetting or
correlated effects in other qualitative components of the
Firm's allowance for credit losses for the lending exposures
noted below, the difference between the modeled estimates
under the Firm's relative adverse and central scenarios at
December 31, 2020 would result in the following:
An increase of approximately $700 million for residential
real estate loans and lending-related commitments
An increase of approximately $5.1 billion for credit card
loans
It is difficult to estimate how potential changes in any one
factor or input might affect the overall allowance for credit
losses because management considers a wide variety of
factors and inputs in estimating the allowance for credit
losses. Changes in the factors and inputs considered may
not occur at the same rate and may not be consistent across
all geographies or product types, and changes in factors
and inputs may be directionally inconsistent, such that
improvement in one factor or input may offset deterioration
in others.
An increase of approximately $2.8 billion for wholesale
loans and lending-related commitments
Recognizing that forecasts of macroeconomic conditions are
inherently uncertain, particularly in light of the recent
economic conditions, the Firm believes that its process to
consider the available information and associated risks and
uncertainties is appropriately governed and that its
estimates of expected credit losses were reasonable and
appropriate for the period ended December 31, 2020.
Fair value
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis, including,
derivatives and structured note products. Certain assets and
liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
loans, where the carrying value is based on the fair value of
the underlying collateral.
Assets measured at fair value
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. Refer to Note 2 for
further information.
December 31, 2020
(in billions, except ratios)
Total assets
at fair value
Total level 3
assets
Federal Funds sold and securities
purchased under resale agreements
$
238.0
This analysis relates only to the modeled credit loss
estimates and is not intended to estimate changes in the
overall allowance for credit losses as it does not reflect any
potential changes in other adjustments to the quantitative
calculation, which would also be influenced by the judgment
management applies to the modeled lifetime loss estimates
to reflect the uncertainty and imprecision of these modeled
lifetime loss estimates based on then-current circumstances
and conditions.
advising on advocacy in connection with contemplated
The COVID-19 pandemic has resulted in a weak labor
market and weak overall economic conditions that will
continue to affect borrowers across the Firm's consumer
and wholesale lending portfolios. Significant judgment is
required to estimate the severity and duration of the
current economic downturn, as well as its potential impact
on borrower defaults and loss severities. In particular,
macroeconomic conditions and forecasts regarding the
duration and severity of the economic downturn caused by
the COVID-19 pandemic have been rapidly changing and
remain highly uncertain. It is difficult to predict exactly how
borrower behavior will be impacted by these changes in
economic conditions. The effectiveness of government
support, customer assistance and enhanced unemployment
benefits should act as mitigants to credit losses, but the
extent of the mitigation impact remains uncertain.
Key MEVS for the wholesale portfolio include U.S. real
GDP, U.S. unemployment, U.S. equity prices, corporate
credit spreads, oil prices, commercial real estate prices
and HPI.
providing legal advice to the LOBS, Corporate, functions
and the Board.
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have
the potential to create conflicts of interest for the Firm.
Governance and oversight
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The Firm's
General Counsel and other members of Legal report on
significant legal matters to the Firm's Board of Directors
and to the Audit Committee.
Legal serves on and advises various committees and advises
the Firm's LOBS and Corporate on potential reputation risk
issues.
150
JPMorgan Chase & Co./2020 Form 10-K
ESTIMATIONS AND MODEL RISK MANAGEMENT
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
and making business decisions. A dedicated independent
function, Model Risk Governance and Review ("MRGR”),
defines and governs the Firm's policies relating to the
management of model risk and risks associated with certain
analytical and judgment-based estimations, such as those
used in risk management, budget forecasting and capital
planning and analysis.
The governance of analytical and judgment-based
estimations within MRGR's scope follows a consistent
approach to the approach used for models, which is
described in detail below.
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. Users
and developers of models are responsible for developing,
implementing and testing their models, as well as referring
models to the MRGR for review and approval. Once models
have been approved, model users and developers are
responsible for maintaining a robust operating
environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the MRGR. In its review of a model, the
MRGR considers whether the model is suitable for the
specific purposes for which it will be used. When reviewing
a model, the MRGR analyzes and challenges the model
methodology and the reasonableness of model
assumptions, and may perform or require additional
testing, including back-testing of model outcomes. Model
reviews are approved by the appropriate level of
management within the MRGR based on the relevant model
tier.
Under the Firm's Estimations and Model Risk Management
Policy, the MRGR reviews and approves new models, as well
as material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances exceptions may be granted to the Firm's
policy to allow a model to be used prior to review or
approval. The MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
While models are inherently imprecise, the degree of
imprecision or uncertainty can be heightened by the market
or economic environment. This is particularly true when the
current and forecasted environment is significantly
different from the historical macroeconomic environments
upon which the models were trained, as the Firm has
experienced during the COVID-19 pandemic. This
uncertainty may necessitate a greater degree of judgment
and analytics to inform adjustments to model outputs than
in typical periods.
Changes in the Firm's assumptions and forecasts of
economic conditions could significantly affect its estimate of
expected credit losses in the portfolio at the balance sheet
date or lead to significant changes in the estimate from one
reporting period to the next.
Refer to Critical Accounting Estimates Used by the Firm on
pages 152-155 and Note 2 for a summary of model-based
valuations and other valuation techniques.
151
Management's discussion and analysis
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
Allowance for credit losses
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses comprises:
The allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated),
• The allowance for lending-related commitments, and
• The allowance for credit losses on investment securities,
which covers the Firm's HTM and AFS securities.
The allowance for credit losses involves significant
judgment on a number of matters including development
and weighting of macroeconomic forecasts, incorporation of
historical loss experience, assessment of risk
characteristics, assignment of risk ratings, valuation of
collateral, and the determination of remaining expected
life. Refer to Note 10 and Note 13 for further information
on these judgments as well as the Firm's policies and
methodologies used to determine the Firm's allowance for
credit losses.
One of the most significant judgments involved in
estimating the Firm's allowance for credit losses relates to
the macroeconomic forecasts used to estimate credit losses
over the eight-quarter forecast period within the Firm's
methodology. The eight-quarter forecast incorporates
hundreds of macroeconomic variables ("MEVS") that are
relevant for exposures across the Firm, with modeled credit
losses being driven primarily by a subset of less than twenty
variables. The specific variables that have the greatest
effect on the modeled losses of each portfolio vary by
portfolio and geography.
•
•
Key MEVS for the consumer portfolio include U.S.
unemployment, house price index ("HPI") and U.S. real
gross domestic product ("GDP").
JPMorgan Chase & Co./2020 Form 10-K
3.3
Proceeds from sales and securitizations of loans held-for-investment
Purchases
8,114
(182)
(15,162)
278,793
(2,863)
(152,511)
431,304
166
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2020 Form 10-K
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
"Firm") as of December 31, 2020 and 2019, and the related
consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 2020,
including the related notes (collectively referred to as the
"consolidated financial statements"). We also have audited
the Firm's internal control over financial reporting as of
December 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Firm as of December 31, 2020 and
2019, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2020 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2020, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
COSO.
Change in Accounting Principle
As discussed in Note 1 and Note 13 to the consolidated
financial statements, the Firm changed the manner in which
it accounts for credit losses on certain financial instruments
in 2020.
Basis for Opinions
The Firm's management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management's report on internal control over financial
reporting. Our responsibility is to express opinions on the
Firm's consolidated financial statements and on the Firm's
internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to
the Firm in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles
used and significant estimates made by management, as
well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and
testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and
directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the
financial statements.
263,631
263,978
34,158
32,987
Net increase/(decrease) in cash and due from banks and deposits with banks
Cash and due from banks and deposits with banks at the beginning of the period
Cash and due from banks and deposits with banks at the end of the period
Cash interest paid
Cash income taxes paid, net
$ 527,609 $ 263,631 $ 278,793
$ 13,077 $ 29,918 $ 21,152
7,661
5,624
3,542
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(1,430)
(4,075)
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
(1,696)
(24,001)
(19,983)
(12,690)
(12,343)
(10,109)
(927)
596,645
9,155
(1,146)
(1,430)
(6,517)
PricewaterhouseCoopers LLP • 300 Madison Avenue • New York, NY 10017
JPMorgan Chase & Co./2020 Form 10-K
159
Principal transactions
Lending- and deposit-related fees
(a)
Asset management, administration and commissions (a)
Investment securities gains/(losses)
Mortgage fees and related income
Card income (b)
Other income
Investment banking fees
Noninterest revenue
Interest expense
Net interest income
Total net revenue
Provision for credit losses
2020
2019
2018
$
Interest income
Effect of exchange rate changes on cash and due from banks and deposits with banks
Revenue
Consolidated statements of income
Report of Independent Registered Public Accounting Firm
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required
to be communicated to the audit committee and that: (i)
relate to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Allowance for Loan Losses - Portfolio-based component of
Wholesale Loan and Credit Card Loan Portfolios
As described in Note 13 to the consolidated financial
statements, the allowance for loan losses for the portfolio-
based component of the wholesale and credit card loan
portfolios was $23.4 billion on total portfolio-based
retained loans of $653.4 billion at December 31, 2020. The
Firm's allowance for loan losses represents management's
estimate of expected credit losses over the remaining
expected life of the Firm's loan portfolios and considers
expected future changes in macroeconomic conditions. The
portfolio-based component of the Firm's allowance for loan
losses for the wholesale and credit card retained loan
portfolios begins with a quantitative calculation of expected
credit losses over the expected life of the loan by applying
credit loss factors to the estimated exposure at default. The
credit loss factors applied are determined based on the
weighted average of five internally developed
macroeconomic scenarios that take into consideration the
Firm's economic outlook as derived through forecast
macroeconomic variables, the most significant of which are
U.S. unemployment and U.S. real gross domestic product.
This quantitative calculation is further adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate.
The principal considerations for our determination that
performing procedures relating to the allowance for loan
losses for the portfolio-based component of the wholesale
and credit card loan portfolios is a critical audit matter are
(i) the significant judgment and estimation by management
in the forecast of macroeconomic variables, specifically U.S.
unemployment and U.S. real gross domestic product, as the
Firm's forecasts of economic conditions significantly affect
its estimate of expected credit losses at the balance sheet
date, (ii) the significant judgment and estimation by
management in determining the quantitative calculation
utilized in their credit loss estimates and the adjustments to
take into consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate,
which both in turn led to a high degree of auditor judgment,
subjectivity and effort in performing procedures and in
evaluating audit evidence obtained relating to the credit
loss estimates and the appropriateness of the adjustments
to the credit loss estimates, and (iii) the audit effort
involved professionals with specialized skill and knowledge
to assist in evaluating the audit evidence.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's allowance for loan losses,
including controls over model validation and generation of
macroeconomic scenarios. These procedures also included,
among others, testing management's process for estimating
the allowance for loan losses, which involved (i) evaluating
the appropriateness of the models and methodologies used
in quantitative calculations; (ii) evaluating the
reasonableness of forecasts of U.S. unemployment and U.S.
real gross domestic product; (iii) testing the completeness
and accuracy of data used in the estimate; and (iv)
evaluating the reasonableness of management's
adjustments to the quantitative output for the impacts of
model imprecision, emerging risk assessments, trends and
other subjective factors that are not yet otherwise reflected
in the credit loss estimate. These procedures also included
the use of professionals with specialized skill and
knowledge to assist in evaluating the appropriateness of
certain models, methodologies and macroeconomic
variables.
Fair Value of Certain Level 3 Financial Instruments
As described in Notes 2 and 3 to the consolidated financial
statements, the Firm carries $1.2 trillion of its assets and
$437.6 billion of its liabilities at fair value on a recurring
basis. Included in these balances are $10.3 billion of
trading assets and $41.5 billion of liabilities measured at
fair value on a recurring basis, collectively financial
instruments, which are classified as level 3 as they contain
one or more inputs to valuation which are unobservable
and significant to their fair value measurement. The Firm
utilized internally developed valuation models and
unobservable inputs to estimate fair value of the level 3
financial instruments. The unobservable inputs used by
management to estimate the fair value of certain of these
financial instruments include forward equity prices,
volatility relating to interest rates and equity prices and
correlation relating to interest rates, equity prices, credit
and foreign exchange rates.
Year ended December 31, (in millions, except per share data)
The principal considerations for our determination that
performing procedures relating to the fair value of certain
level 3 financial instruments is a critical audit matter are (i)
the significant judgment and estimation by management in
determining the inputs to estimate fair value, which in turn
led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures related to the fair value of
these financial instruments, and (ii) the audit effort
involved professionals with specialized skill and knowledge
to assist in evaluating the audit evidence obtained from
these procedures.
JPMorgan Chase & Co./2020 Form 10-K
Report of Independent Registered Public Accounting Firm
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's processes for determining
fair value which include controls over models, inputs, and
data. These procedures also included, among others, the
involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate
of fair value for a sample of these financial instruments.
Developing the independent estimate involved testing the
completeness and accuracy of data provided by
management, developing independent inputs and, as
appropriate, evaluating and utilizing management's
aforementioned unobservable inputs; and comparing
management's estimate to the independently developed
estimate of fair value.
PrewaterhouseCoopers LLP
February 23, 2021
We have served as the Firm's auditor since 1965.
JPMorgan Chase & Co./2020 Form 10-K
161
160
Net cash provided by financing activities
All other financing activities, net
Dividends paid
Changes in the credit quality of the Firm's clients,
customers and counterparties;
•
Competitive pressures;
Ability of the Firm to control expenses;
Ability of the Firm to attract and retain qualified and
diverse employees;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm to
innovate and to increase market share;
Ability of the Firm to develop or discontinue products and
services, and the extent to which products or services
previously sold by the Firm require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;
The effectiveness of the Firm's control agenda;
•
•
•
•
•
•
All forward-looking statements are, by their nature, subject to
risks and uncertainties, many of which are beyond the Firm's
control. JPMorgan Chase's actual future results may differ
materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ from
those in the forward-looking statements:
From time to time, the Firm has made and will make forward-
looking statements. These statements can be identified by the
fact that they do not relate strictly to historical or current
facts. Forward-looking statements often use words such as
"anticipate," "target,” “expect,” “estimate,” “intend,” “plan,”
"goal," "believe," or other words of similar meaning. Forward-
looking statements provide JPMorgan Chase's current
expectations or forecasts of future events, circumstances,
results or aspirations. JPMorgan Chase's disclosures in this
2020 Form 10-K contain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. The Firm also may make forward-looking statements in
its other documents filed or furnished with the SEC. In
addition, the Firm's senior management may make forward-
looking statements orally to investors, analysts,
representatives of the media and others.
FORWARD-LOOKING STATEMENTS
Other changes in loans, net (a)
•
All other investing activities, net
•
•
Changes in investor sentiment or consumer spending or
savings behavior;
Securities and capital markets behavior, including changes
in market liquidity and volatility;
•
Changes in income tax laws and regulations;
•
Changes in trade, monetary and fiscal policies and laws;
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices, including
dealings with retail customers;
capital and liquidity requirements affecting the Firm's
businesses, and the ability of the Firm to address those
requirements;
•
Changes in laws and regulatory requirements, including
•
•
•
•
•
•
Economic, financial, reputational and other impacts of the
COVID-19 pandemic;
•
Local, regional and global business, economic and political
conditions and geopolitical events;
9,486 $
Net cash (used in) investing activities
52,200
23,415
(28,561)
18,476
Beneficial interests issued by consolidated VIES
1,347
4,289
1,712
Proceeds from long-term borrowings
1,347
10,338
Proceeds from issuance of preferred stock
(105,055)
4,500
61,085
(69,610)
5,000
71,662
(76,313)
1,696
Redemption of preferred stock
Treasury stock repurchased
Payments of long-term borrowings
57,675
31,528
4,438
Federal funds purchased and securities loaned or sold under repurchase agreements
37,401
149,758
(397,145)
23,559
(50,263)
(7,341)
(261,912)
70,181
46,067
(242,149)
(95,091)
62,095
29,826
Short-term borrowings
(51,743)
(5,035)
(52,059)
(4,986)
(199,420)
Financing activities
Net change in:
Deposits
602,765
101,002
26,728
(83,013)
Ability of the Firm to manage effectively its capital and
liquidity;
7,501 $
18,021
Other comprehensive income/(loss), after-tax
Unrealized gains/(losses) on investment securities
Net income
Year ended December 31, (in millions)
Consolidated statements of comprehensive income
JPMorgan Chase & Co./2020 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
162
(b) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
(a) In the first quarter of 2020, the Firm reclassified certain fees from asset management, administration and commissions to lending- and deposit-related
fees. Prior-period amounts have been revised to conform with the current presentation.
3,414.0
3,230.4
3,396.4
3,221.5
3,082.4
3,087.4
9.04
9.00
10.72
10.75 $
Translation adjustments, net of hedges
Fair value hedges
Cash flow hedges
Defined benefit pension and OPEB plans
19
20
20
234
(1,858)
2,855
4,123
32,474
$
36,431 $
29,131
$
2018
2019
2020
Comprehensive income
Total other comprehensive income/(loss), after-tax
DVA on fair value option elected liabilities
$
8.89
8.88
$
Weighted-average diluted shares
66,656
5,731
5,087
5,941
Income tax expense
Income before income tax expense
Total noninterest expense
Other expense
65,269
3,044
2,476
Marketing (b)
8,502
8,533
8,464
Professional and outside services
8,802
9,821
3,351
30
63,148
44,545
Weighted-average basic shares
Diluted earnings per share
Basic earnings per share
Net income per common share data
Net income applicable to common stockholders
Net income
30,709
34,642 $
35,407
27,410 $
32,474
36,431 $
29,131 $
$
8,290
3,952
6,276
40,764
$
(107)
2,320
172
53,724
64,523
84,040
76,100
9,960
26,795
21,041
54,563
58,154
57,245
119,543
115,399
108,783
17,480
5,585
4,871
Noninterest expense
Compensation expense
55,059
34,988
64,980
5,731
14,018
12,059
6,511
6,626
6,377
18,177
16,908
16,793
5,343
802
(395)
3,091
2,036
1,254
4,435
5,076
4,743
4,457
258
7,550
34,155
Occupancy expense
163
JPMorgan Chase & Co./2020 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
30,998
$
39,507
35,548 $
$
Consolidated balance sheets
(1,476)
6,417
1,043
(965)
(491)
(373)
964
212
(201)
3,076
33,117
December 31, (in millions, except share data)
2020
4,449
4,322
369,687
503,126
Trading assets (included assets pledged of $130,645 and $111,522) (a)
139,758
160,635
249,157
Assets
296,284
241,927
502,735
Deposits with banks
21,704
24,874 $
$
Cash and due from banks
2019
Federal funds sold and securities purchased under resale agreements (included $238,015 and $14,561 at fair value)
Securities borrowed (included $52,983 and $6,237 at fair value)
Changes in credit ratings assigned to the Firm or its
subsidiaries;
78,686
Damage to the Firm's reputation;
Balance at January 1
Retained earnings
Balance at December 31
89,162
88,522
88,394
(679)
(49)
(56)
Other
(738)
(591)
(72)
Shares issued and commitments to issue common stock for employee share-based compensation awards, and
related tax effects
90,579
89,162
88,522
Balance at January 1
Additional paid-in capital
4,105
4,105
4,105
Balance at January 1 and December 31
26,068
26,993
Cumulative effect of change in accounting principles
30,063
Net income
199,202
(1,507)
1,569
Other comprehensive income/(loss), after-tax
Cumulative effect of change in accounting principles
Balance at January 1
Accumulated other comprehensive income
199,202
223,211
236,990
(9,214)
(10,897)
(11,119)
Common stock ($3.60, $3.40 and $2.72 per share for 2020, 2019 and 2018, respectively)
Balance at December 31
(1,551)
(1,587)
(1,583)
Preferred stock
Dividends declared:
32,474
36,431
29,131
(183)
62
(2,650)
177,676
223,211
(119)
(1,696)
(1,430)
Total liabilities
All other liabilities
Beneficial interests issued by consolidated VIES
Liabilities
Total assets
All other assets
Loans
Trading assets
Assets
December 31, (in millions)
164
(b) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2020 and 2019. The
assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general
credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIES and exclude
intercompany balances that eliminate in consolidation. Refer to Note 14 for a further discussion.
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
$ 3,386,071 $ 2,687,379
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
261,330
(83,049)
279,354
(88,184)
(21)
1,569
7,986
223,211
236,990
88,522
2020
(4,075)
2019
1,934 $
37,619
1,696
5,000
4,500
26,993 $ 26,068 $ 26,068
$
2018
2019
2020
Common stock
Balance at December 31
Redemption
Issuance
Balance at January 1
Preferred stock
Year ended December 31, (in millions, except per share data)
Consolidated statements of changes in stockholders' equity
JPMorgan Chase & Co./2020 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
17,841
447
18,288
17,578 $
233
17,811 $
$
$
2,633
42,931
881
46,445
681
40,234 $
$
$
88,394
88
3,076
6,551
(148,749)
Available-for-sale securities:
Purchases
Proceeds from paydowns and maturities
Held-to-maturity securities:
Federal funds sold and securities purchased under resale agreements
Net change in:
Investing activities
Net cash provided by/(used in) operating activities
Other operating adjustments (a)
Accounts payable and other liabilities
Trading liabilities
Other assets (a)
Accrued interest and accounts receivable
Securities borrowed
Trading assets (a)
Net change in:
Proceeds from sales, securitizations and paydowns of loans held-for-sale (a)
2,717
(172,728)
163,747
171,415
175,490
(169,289)
(166,504)
1,996
(35,067)
1,649
(20,734)
(6,861)
Proceeds from sales
Proceeds from paydowns and maturities
2,945
(9,368)
3,423
(13,427)
21,360
(12,400)
(123,201)
72,396
(47,115)
15,614
4,092
(79,910)
(1,343)
2,233
3,115
14,630
(352)
18,290
(14,516)
77,198
7,827
(8,779)
(17,570)
(42,434)
(5,849)
(78)
(18,012)
(27,631)
6,417
1,721
(3,981)
(24,121)
1,566
(83,049)
(42,595)
(60,494)
(83,049)
(6,397)
1,262
(88,184)
Total stockholders' equity
Balance at December 31
Reissuance
Repurchase
(21)
(21)
21
(21)
(21)
(21)
Balance at January 1
Treasury stock, at cost
Balance at December 31
Liquidation of RSU Trust
Balance at the beginning of the period
Shares held in RSU Trust, at cost
Balance at December 31
(1,507)
1,569
7,986
(1,476)
(19,983)
949
$ 279,354
2,084
(60,494)
7,791
8,368
8,614
4,871
5,585
17,480
$ 29,131 $ 36,431 $ 32,474
2018
2019
2020
Originations and purchases of loans held-for-sale (a)
Other
Deferred tax expense
Depreciation and amortization
Provision for credit losses
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net income
Operating activities
Year ended December 31, (in millions)
Consolidated statements of cash flows
165
JPMorgan Chase & Co./2020 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
$ 256,515
$ 261,330
•
Technology, communications and equipment expense
(13,123)
Total liabilities (b)
Long-term debt (included $76,817 and $75,745 at fair value)
Beneficial interests issued by consolidated VIES (included $41 and $36 at fair value)
Accounts payable and other liabilities (included $3,476 and $3,728 at fair value)
Trading liabilities
Short-term borrowings (included $16,893 and $5,920 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $155,735 and $549 at
fair value)
Deposits (included $14,484 and $28,589 at fair value)
Liabilities
130,395
152,853
Other assets (included $13,827 and $12,676 at fair value and assets pledged of $3,739 and $3,349) (a)
Total assets
(b)
53,341
53,428
25,813
27,109
72,861
90,503
984,497
984,525
(28,328)
997,620
1,012,853
398,239
Commitments and contingencies (refer to Notes 28, 29 and 30)
Stockholders' equity
$ 3,386,071 $ 2,687,379
$ 2,144,257 $ 1,562,431
4,105
4,105
26,993
30,063
Total liabilities and stockholders' equity
Total stockholders' equity
Treasury stock, at cost (1,055,499,435 and 1,020,912,567 shares)
Shares held in restricted stock units ("RSU") trust, at cost (zero and 472,953 shares)
Accumulated other comprehensive income
Retained earnings
Additional paid-in capital
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 3,006,250 and 2,699,250 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Goodwill, MSRS and other intangible assets
2,426,049
291,498
281,685
17,841
17,578
210,407
232,599
119,277
170,181
40,920
45,208
183,675
215,209
3,106,717
Premises and equipment
589,999
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
157
JPMorgan Chase & Co./2020 Form 10-K
counterparties or competitors;
Technology changes instituted by the Firm, its
environment;
•
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in JPMorgan Chase's 2020 Form 10-K.
Any forward-looking statements made by or on behalf of the
Firm speak only as of the date they are made, and JPMorgan
Chase does not undertake to update any forward-looking
statements. The reader should, however, consult any further
disclosures of a forward-looking nature the Firm may make in
any subsequent Form 10-Ks, Quarterly Reports on Form 10-
Qs, or Current Reports on Form 8-K.
Ability of the Firm to effectively defend itself against cyber
attacks and other attempts by unauthorized parties to
access information of the Firm or its customers or to
disrupt the Firm's systems; and
Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
Ability of the Firm to maintain the security of its financial,
accounting, technology, data processing and other
operational systems and facilities;
Occurrence of natural or man-made disasters or
calamities, including health emergencies, the spread of
infectious diseases, pandemics or outbreaks of hostilities,
or the effects of climate change, and the Firm's ability to
deal effectively with disruptions caused by the foregoing;
Ability of the Firm to determine accurate values of certain
assets and liabilities;
Changes in applicable accounting policies, including the
introduction of new accounting standards;
Adverse judicial or regulatory proceedings;
disclosure controls and procedures and internal control
over financial reporting;
Adequacy of the Firm's risk management framework,
•
•
•
•
including, but not limited to, in the interest rate
slowdown or other economic or market disruption,
Ability of the Firm to deal effectively with an economic
Ability of the Firm to appropriately address social,
environmental and sustainability concerns that may arise,
including from its business activities;
•
•
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America ("U.S. GAAP").
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures of the
Firm are being made only in accordance with authorizations
of JPMorgan Chase's management and directors; and (3)
provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of the Firm's assets that could have a material
effect on the financial statements.
Management's report on internal control over financial reporting
Based upon the assessment performed, management
concluded that as of December 31, 2020, JPMorgan
Chase's internal control over financial reporting was
effective based upon the COSO 2013 framework.
Additionally, based upon management's assessment, the
Firm determined that there were no material weaknesses in
its internal control over financial reporting as of
December 31, 2020.
Loans (included $44,474 and $44,955 at fair value) (a)
Investment securities, net of allowance for credit losses
47,540
201,821
Held-to-maturity securities (net of allowance for credit losses of $78)
350,699
388,178
Available-for-sale securities (amortized cost of $381,729 and $345,306; included assets pledged of $32,227 and
$10,325)
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2020. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO”).
Opinions on the Financial Statements and Internal Control
over Financial Reporting
Allowance for loan losses
pwc
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
JPMorgan Chase & Co./2020 Form 10-K
158
February 23, 2021
Executive Vice President and Chief Financial Officer
Jennifer Piepszak
Jenif Pijs
Chairman and Chief Executive Officer
Dinin
спие
James Dimon
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2020, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
Report of Independent Registered Public Accounting Firm
88,192 $
$
Total liabilities measured at fair value on a recurring basis
41
53,420
926,189
41
Long-term debt
$
20,396
$
(618,264) $
76,817
437,627
176
JPMorgan Chase & Co./2020 Form 10-K
Beneficial interests issued by consolidated VIES
21,018
23,397
41,510
170,181
3,476
68
513
Revenue from contracts with customers
JPMorgan Chase recognizes noninterest revenue from
certain contracts with customers, in investment banking
fees, deposit-related fees, asset management
administration and commissions, and components of card
income, when the Firm's related performance obligations
are satisfied. Refer to Note 6 for further discussion of the
Firm's revenue from contracts with customers.
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. Refer to Notes 2 and 3 for
further discussion of fair value measurement. Refer to Note
6 for further discussion of principal transactions revenue.
Use of estimates in the preparation of consolidated
financial statements
2,856
126,390
201,951
20,396
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
The Firm recognizes interest income on loans, debt
securities, and other debt instruments, generally on a level-
yield basis, based on the underlying contractual rate. Refer
to Note 7 for further discussion of interest income.
Total available-for-sale securities
Mortgage servicing rights
Other assets
(b)(e)
Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
ts(d)
Debt and equity instruments"
Derivative payables:
Interest rate
Credit
Foreign exchange
Equity
Loans (DXA)
Commodity
Interest income
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
Obligations of U.S. states and municipalities
105,372
21,018
201,951
U.S. Treasury and government agencies
Total mortgage-backed securities
2,856
Commercial nonagency
10,233
Residential nonagency
Notes to consolidated financial statements
Note 1 - Basis of presentation
JPMorgan Chase & Co. ("JPMorgan Chase” or the “Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm in the
U.S., with operations worldwide. The Firm is a leader in
investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction
processing and asset management. Refer to Note 32 for a
further discussion of the Firm's business segments.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Refer to Note 14 for further discussion of the Firm's VIES.
Revenue recognition
Consolidation
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
10,233
Voting interest entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in noninterest revenue.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-
affiliated partners or members have the ability to remove
the Firm as the general partner or managing member
without cause (i.e., kick-out rights), based on a simple
majority vote, or the non-affiliated partners or members
have rights to participate in important decisions.
Accordingly, the Firm does not consolidate these voting
interest entities. However, in the limited cases where the
non-managing partners or members do not have
substantive kick-out or participating rights, the Firm
evaluates the funds as VIES and consolidates the funds if
the Firm is the general partner or managing member and
has a potentially significant interest.
The Firm's investment companies and asset management
funds have investments in both publicly-held and privately-
held entities, including investments in buyouts, growth
equity and venture opportunities. These investments are
accounted for under investment company guidelines and,
accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidated
balance sheets at fair value, and are recorded in other
assets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains the accounting under such
specialized investment company guidelines.
Variable interest entities
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE's
investors and other parties that have rights to those cash
flows. SPEs are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE's
economic performance, the Firm considers all the facts and
JPMorgan Chase & Co./2020 Form 10-K
167
Notes to consolidated financial statements
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over
those activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
113,301
Total derivative payables
13,135
2,049
(340,615)
13,012
14,344
848
(13,197)
1,995
132
214,373
1,421
(194,493)
21,433
74,032
7,381
349,082
(55,515)
21,767
962
(14,444)
8,285
2,628
673,598
12,661
85,297
690,436
12,712
(618,264)
(618,264)
70,623
Accounts payable and other liabilities
2,895
25,898
Total trading liabilities
2,496
51
9,793
216
22,928
216
10,048
236,104
6,249
152,074
42,169
I
10,048
6,249
2,305
3,276
388,178
44,474
3,276
$
$
99,558
8,110
481,130 $
$
538
13,209
$
16,410
$
2,913
$
$
(627,924) $
$
1,243,209
14,484
2,420
155,735
16,893
82,669
16,838
4,561
1,373,593
11,571
155,735
14,473
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
92,283
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
•
Beneficial interests issued by
consolidated VIES
Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where observable Level 2 or 3 (a)
activity is limited.
Valued using observable market information, where available.
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
Level 2 or 3
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
174
JPMorgan Chase & Co./2020 Form 10-K
Product/instrument
Level 1
Structured notes (included in
Valuation methodology
Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.
• The embedded derivative features are considered using models such
as the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservable
valuation inputs, depending on the embedded derivative. The
specific inputs used vary according to the nature of the embedded
derivative features, as described in the discussion above regarding
derivatives valuation. Adjustments are then made to this base
valuation to reflect the Firm's own credit risk (DVA). Refer to page
188 of this Note.
Classification in the valuation
hierarchy
Level 2 or 3
JPMorgan Chase & Co./2020 Form 10-K
175
Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2020 and 2019, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
deposits, short-term
borrowings and long-term
debt)
• NAV is supported by the ability to redeem and purchase at the NAV
level.
•
Additional available inputs relevant to the investment.
Foreign exchange correlation
Interest rate-FX correlation
Commodity derivatives specific inputs include:
Commodity volatility
Forward commodity price
Commodity correlation
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 188 of this Note.
Classifications in the valuation
hierarchy
Level 1
Level 2 or 3
Level 3
Mortgage servicing rights
Private equity direct
investments
Refer to Mortgage servicing rights in Note 15.
Fair value is estimated using all available information; the range of
potential inputs include:
Transaction prices
Trading multiples of comparable public companies
•
Operating performance of the underlying portfolio company
Level 2 or 3
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
•
Adjustments as required, since comparable public companies are not
identical to the company being valued, and for company-specific
issues and lack of liquidity.
Net asset value
•
December 31, 2020 (in millions)
Interest rate correlation
Level 1
$
U.S. Treasury, GSES and government agencies (a)
104,263
10,996
115,259
Obligations of U.S. states and municipalities
7,184
8
7,192
Certificates of deposit, bankers' acceptances and commercial paper
1,230
1,230
72,340
Non-U.S. government debt securities
40,671
182
67,625
Corporate debt securities
21,017
507
21,524
Loans (b)
6,101
893
Asset-backed securities
26,772
480
71,860
Total mortgage-backed securities
$
Securities borrowed
Level 2
238,015
52,983
Level 3
Derivative
netting
adjustments()
Total fair value
$
238,015
52,983
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential
nonagency
Commercial nonagency
68,395
449
68,844
2,138
28
2,166
1,327
3
1,330
Federal funds sold and securities purchased under resale agreements
Interest rate spread volatility
Interest rate volatility
Interest rate and FX exotic options specific inputs include:
Valuations are based on discounted cash flows, which consider:
• Derivative features: refer to the discussion of derivatives below
for further information.
• Market rates for the respective maturity
•
Collateral characteristics
Loans and lending-related commitments - wholesale
Loans carried at fair value
(trading loans and non-trading
loans) and associated
lending-related commitments
Classifications in the valuation
hierarchy
Predominantly level 2
Where observable market data is available, valuations are based on:
Level 2 or 3
Valuation methodology
• Observed market prices (circumstances are infrequent)
•
Observed market prices for similar instruments
Loans consumer
Loans carried at fair value -
conforming residential
Where observable market data is unavailable or limited, valuations are
based on discounted cash flows, which consider the following:
•
•
•
Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
• Relevant broker quotes
Securities financing agreements
Product/instrument
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
•
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower
market activity. Liquidity valuation adjustments are
made based on current market conditions. Factors that
may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
Uncertainty adjustments related to unobservable
parameters may be made when positions are valued
using prices or input parameters to valuation models
JPMorgan Chase & Co./2020 Form 10-K
171
Notes to consolidated financial statements
that are unobservable due to a lack of market activity or
because they cannot be implied from observable market
data. Such prices or parameters must be estimated and
are, therefore, subject to management judgment.
Adjustments are made to reflect the uncertainty
inherent in the resulting valuation estimate.
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. Refer to
Credit and funding adjustments on page 188 of this Note
for more information on such adjustments.
Valuation model review and approval
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction terms
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs in those models.
Under the Firm's Estimations and Model Risk Management
Policy, the MRGR reviews and approves new models, as well
as material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances exceptions may be granted to the Firm's
policy to allow a model to be used prior to review or
approval. The MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
Valuation hierarchy
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the observability of
inputs to the valuation of an asset or liability as of the
•
•
measurement date. The three levels are defined as follows.
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 3 - one or more inputs to the valuation
methodology are unobservable and significant to the fair
value measurement.
A financial instrument's categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
172
JPMorgan Chase & Co./2020 Form 10-K
Prepayment speed
Collateral characteristics
Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
mortgage loans expected to be these prices to account for differences between the securities and the
sold
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
Investment and trading
securities
Credit spreads
•
Credit rating data
Physical commodities
Valued using observable market prices or data.
JPMorgan Chase & Co./2020 Form 10-K
Level 1 or 2
173
Notes to consolidated financial statements
Product/instrument
Derivatives
Valuation methodology
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, interest rate yield curves, foreign exchange rates,
volatilities, correlations, CDS spreads and recovery rates. Additionally,
the credit quality of the counterparty and of the Firm as well as market
funding levels may also be considered.
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
Structured credit derivatives specific inputs include:
CDS spreads and recovery rates
Credit correlation between the underlying debt instruments
Equity option specific inputs include:
Forward equity price
Equity volatility
Equity correlation
Equity-FX correlation
Equity-IR correlation
.
2,304
severity
•
Quoted market prices
Predominantly level 2
Level 1
In the absence of quoted market prices, securities are valued based
Level 2 or 3
on:
• Observable market prices for similar securities
•
Relevant broker quotes
.
Discounted cash flows
In addition, the following inputs to discounted cash flows are used for
the following products:
Mortgage- and asset-backed securities specific inputs:
.
Collateral characteristics
•
Deal-specific payment and loss allocations
• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
Collateralized loan obligations ("CLOS") specific inputs:
•
Collateral characteristics
.
Deal-specific payment and loss allocations
Expected prepayment speed, conditional default rates, loss
28
6,994
Total debt instruments
Note 8
page 215
Note 7
Interest income and Interest expense
Pension and other postretirement
employee benefit plans
Employee share-based incentives
Investment securities
Securities financing activities
Loans
page 212
Note 6
Noninterest revenue and noninterest
expense
page 198
Note 5
Derivative instruments
page 192
page 216
Note 3
Note 2
Fair value option
Fair value measurement
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Significant accounting policies
Accounting standards adopted January 1, 2018
Effective January 1, 2018, the Firm adopted several
accounting standards resulting in a net decrease of
$183 million to retained earnings and a net increase of
$88 million to AOCI. The adoption of the recognition and
measurement guidance resulted in $505 million of fair
value gains in the first quarter of 2018, recorded in total
net revenue, on certain equity investments that were
previously held at cost.
As permitted under the U.S. capital rules issued by the
federal banking agencies in 2019, the Firm initially elected
to phase-in the January 1, 2020 (“day 1") CECL adoption
impact to retained earnings of $2.7 billion to CET1 capital,
at 25% per year in each of 2020 to 2023. As part of their
response to the impact of the COVID-19 pandemic, on
March 31, 2020, the federal banking agencies issued an
interim final rule (issued as final on August 26, 2020) that
provided the option to delay the effects of CECL on
regulatory capital for two years, followed by a three-year
transition period ("CECL capital transition provisions").
Refer to Note 27 for further information.
As permitted by the guidance, the Firm elected to continue
classifying accrued interest on loans, including accrued but
unbilled interest on credit card loans, and investment
securities in accrued interest and accounts receivables on
the Consolidated balance sheets. For credit card loans,
accrued interest once billed is then recognized in the loan
balances, with the related allowance recorded in the
allowance for credit losses. Changes in the allowance for
credit losses on accrued interest on credit card loans are
recognized in the provision for credit losses and charge-offs
are recognized by reversing interest income. For other
loans and securities, the Firm generally does not recognize
an allowance for credit losses on accrued interest
receivables, consistent with its policy to write them off no
later than 90 days past due by reversing interest income.
Capital transition provisions
Accrued interest receivables
class. Refer to Note 12 for further information.
Changes in credit portfolio segments and classes
In conjunction with the adoption of CECL, the Firm
reclassified risk-rated loans and lending-related
commitments from the consumer excluding credit card
portfolio segment to the wholesale portfolio segment, to
align with the methodology applied when determining the
allowance. The Firm also revised its loan classes. Prior-
period amounts have been revised to conform with the
current presentation. Refer to Note 12 for further
information.
Notes to consolidated financial statements
page 171
Note 9
page 221
Note 10
2,332
Note 25
Income taxes
page 274
Note 23
Earnings per share
page 269
Note 20
Long-term debt
page 266
Note 18
page 265
Note 16
page 261
Note 15
Goodwill and Mortgage servicing rights
Premises and equipment
page 253
Note 14
page 248
Note 13
page 232
Note 12
page 229
Note 11
page 223
169
JPMorgan Chase & Co./2020 Form 10-K
The adoption resulted in a change in the accounting for PCI
loans, which are considered purchased credit deteriorated
("PCD") loans under CECL. Upon adoption, the Firm
recognized the nonaccretable difference on PCD loans in
the allowance, which resulted in a corresponding increase
to loans. PCD loans are subject to the Firm's nonaccrual and
charge-off policies and are now reported in the consumer,
excluding credit card portfolio's residential real estate loan
PCD loans
6.0
11.2
5.5
5.7
3.0
0.4 $
2.6 $
Consumer, excluding credit card (a) $
January 1,
2020
CECL
adoption
impact
December
31, 2019
Allowance for credit losses
(in billions)
The following table presents the impacts to the allowance
for credit losses and retained earnings upon adoption of
this guidance on January 1, 2020:
Accounting standard adopted January 1, 2020
Financial Instruments - Credit Losses ("CECL")
The adoption of this guidance established a single
allowance framework for all financial assets measured at
amortized cost and certain off-balance sheet credit
exposures. This framework requires that management's
estimate reflects credit losses over the instrument's
remaining expected life and considers expected future
changes in macroeconomic conditions. Refer to Note 13 for
further information. Prior to the adoption of the CECL
accounting guidance, the Firm's allowance for credit losses
represented management's estimate of probable credit
losses inherent in the Firm's retained loan portfolios and
certain lending-related commitments.
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks.
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
Refer to Note 5 for further discussion of the Firm's
derivative instruments. Refer to Note 11 for further
discussion of the Firm's securities financing agreements.
Statements of cash flows
JPMorgan Chase & Co./2020 Form 10-K
168
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of "in the money" transactions are
netted against the negative values of “out of the money"
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
agreements and securities loan agreements in general (i)
all transactions are terminated and accelerated, (ii) all
values of securities or cash held or to be delivered are
calculated, and all such sums are netted against each other
and (iii) the only remaining payment obligation is of one of
the parties to pay the netted termination amount.
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
Offsetting assets and liabilities
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in the
Consolidated statements of comprehensive income. Gains
and losses relating to nonfunctional currency transactions,
including non-U.S. operations where the functional currency
is the U.S. dollar, are reported in the Consolidated
statements of income.
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Foreign currency translation
(1.6)
Off-balance sheet lending-related financial
4.4
14.3 $
As a result of the adoption of this guidance, the Firm
expanded credit quality disclosures for financial assets
measured at amortized cost particularly within the retained
loan portfolios. Refer to Note 12 for further information.
Credit quality disclosures
Upon adoption, HTM securities are presented net of an
allowance for credit losses. The guidance also amended the
previous other-than-temporary impairment ("OTTI") model
for AFS securities to incorporate an allowance. Refer to
Note 10 for further information.
Investment securities
As permitted by the guidance, the Firm elected the fair
value option for certain securities financing agreements.
The difference between their carrying amount and fair
value was immaterial and was recorded as part of the
Firm's cumulative-effect adjustment. Refer to Note 11 for
further information.
Securities Financing Agreements
(b) Represents the recognition of the nonaccretable difference on
purchased credit deteriorated loans and the Firm's election to
recognize the reserve for uncollectible accrued interest on credit card
loans in the allowance, both of which resulted in a corresponding
increase to loans.
(a) In conjunction with the adoption of CECL, the Firm reclassified risk-
rated business banking and auto dealer loans and lending-related
commitments held in CCB from the consumer, excluding credit card
portfolio segment to the wholesale portfolio segment, to align with the
methodology applied when determining the allowance. Prior-period
amounts have been revised to conform with the current presentation.
Accordingly, $0.6 billion of the allowance for credit losses at
December 31, 2019 and $(0.2) billion of the CECL adoption impact
were reclassified.
2.7
$
Decrease to retained earnings
(0.8)
3.5
Total pre-tax impact
Tax effect
(0.8)
Balance sheet reclassification
(b)
4.3
$
Firmwide allowance increase
Retained earnings
Firmwide
Credit card
Wholesale (a)
18.6
4.3 $
$
instruments, guarantees and other
page 277
Note 28
Note 30
(355,765)
35,725
12,879
624
(12,823)
680
146
205,127
987
(190,479)
15,781
2,307
71,279
(54,125)
20,673
21,272
231
(14,732)
6,771
2,464
697,422
7,668
commitments
883,791
3,519
386,865
2,318
423,444
Equity securities
Physical commodities (c)
Other
Total debt and equity instruments(d)
Derivative receivables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
131,035
97,035
6,382
161,363
2,098
294,496
2,652
179
99,866
5,189
11,571
17,165
346
17,511
234,452
186,369
2,623
10,291
(627,924)
(627,924)
236,916
503,074
79,630
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to the discussion below for further
information on the fair value hierarchy). For other
positions, judgment is required to assess the need for
valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived
prices, valuation inputs and other market data, where
available. Where independent prices or inputs are not
available, the VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral
valuation. There are also additional levels of management
review for more significant or complex positions.
Price verification process
Risk-taking functions are responsible for providing fair
value estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's VCG,
which is part of the Firm's Finance function and
independent of the risk-taking functions, is responsible for
verifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm's
positions are recorded at fair value. The VGF is composed of
senior finance and risk executives and is responsible for
overseeing the management of risks arising from valuation
activities conducted across the Firm. The Firmwide VGF is
chaired by the Firmwide head of the VCG (under the
direction of the Firm's Controller), and includes sub-forums
covering the CIB, CCB, CB, AWM and certain corporate
functions including Treasury and CIO.
Valuation process
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use, as inputs,
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, prices (such as
commodity, equity or debt prices), correlations, foreign
exchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments are
recorded at fair value, as described below.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets,
liabilities and unfunded lending-related commitments are
measured at fair value on a nonrecurring basis; that is, they
are not measured at fair value on an ongoing basis but are
subject to fair value adjustments only in certain
circumstances (for example, when there is evidence of
impairment).
Note 2 - Fair value measurement
JPMorgan Chase & Co./2020 Form 10-K
170
Litigation
Leases
Total derivative receivables
page 290
page 283
Total trading assets
U.S. GSES and government agencies (a)
Available-for-sale securities:
Allowance for credit losses
Variable interest entities
Mortgage-backed securities:
Mortgage-backed securities:
Debt instruments:
(50)
(7)
78
(2)
60
(74)
59
Fair
unrealized
Fair value measurements using significant unobservable inputs
Residential nonagency
$ (21)
549
(70) $
94 $
$
(73)
$
$ (164)
478
$
307 $ (23)
Total
realized/
$
at Dec. 31, 2018
financial
instruments held
Change in
unrealized
gains/(losses)
related to
Fair
value at
Dec. 31,
2018
Transfers
(out of)
level 3
Transfers
into
level 3 (i)
Settlements (h)
Sales
Purchases(g)
1, 2018 (losses)
gains/
value at
January
U.S. GSES and government
agencies
64
(680)
Commercial - nonagency
Purchases
Total
realized/
unrealized
(gains)/
losses
Fair
value at
1, 2018
(in millions)
January
December 31, 2018
Sales Issuances
Year ended
(331)
1,161
(1)
4
(176)
(d)
230
Fair value measurements using significant unobservable inputs
Settlements (h)
Transfers
into
level 3 (i)
Transfers
(out of)
level 3)
(736)
(3,388)
$
$ 1,437
3,455
(329)
$
$
(d)(f)
(d)(f)
1,665
Short-term borrowings
$ 4,142 $(136)
Deposits
Liabilities:
(a)
at Dec. 31, 2018
related to
financial
instruments held
Change in
unrealized
(gains)/losses
Fair
value at
Dec. 31,
2018
6,130
(740)
(e)
(d)
9
2,152
(d)
Loans (b)
1
277
(j)
Total available-for-sale securities
1
276
Asset-backed securities
803
(3,796)
397
(729)
1,047
(d)
412
$
(1,256)
(e)
(4)
856
(159)
194
(496)
1
(277)
(277)
(38)
195
(319)
1,496
(d)
Other assets (b)
(636)
1,246
6,030 230
Mortgage servicing rights
2 $
272
(540) $ 4,169
(152)
$ (204) (d)(f)
$1.4 billion decrease in MSRS due to losses and
settlements partially offset by purchases.
•
•
partially offset by
$1.8 billion increase in non-trading loans due to net
transfers.
$907 million increase in gross interest rate derivative
receivables and $1.4 billion increase in gross equity
derivative receivables largely due to gains net of
settlements.
•
•
The increase for the year ended December 31, 2020 was
driven by:
Level 3 assets were $16.4 billion at December 31, 2020,
reflecting an increase of $2.9 billion from December 31,
2019.
For the year ended December 31, 2020
Level 3 assets at fair value including assets measured at fair
value on a nonrecurring basis were 0.5% of total Firm assets
at December 31, 2020. The following describes significant
changes to level 3 assets since December 31, 2019, for those
items measured at fair value on a recurring basis. Refer to
Assets and liabilities measured at fair value on a
nonrecurring basis on page 189 for further information on
changes impacting items measured at fair value on a
nonrecurring basis.
Consolidated balance sheets changes
Level 3 analysis
(j) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in
investment securities gains/(losses). Unrealized gains/(losses) are reported in OCI. There were no realized gains/(losses) and foreign exchange hedge
accounting adjustments recorded in income on AFS securities for the years ended December 31, 2020 and 2019, respectively and $1 million recorded for the
year ended December 31, 2018. There were no material unrealized gains/(losses) recorded on AFS securities in OCI for the years ended December 31, 2020,
2019 and 2018 respectively.
(i) All transfers into and/or out of level 3 are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the
beginning of the quarterly reporting period in which they occur.
(h) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidation associated with beneficial
interests in VIES and other items.
Refer to the sections below for additional information.
Transfers between levels for instruments carried at
fair value on a recurring basis
(g) Loan originations are included in purchases.
During the year ended December 31, 2020, significant
transfers from level 2 into level 3 included the following:
$1.8 billion of total debt and equity instruments,
predominantly equity securities and trading loans, driven
by a decrease in observability.
$2.6 billion of gross equity derivative receivables and
$3.5 billion of gross equity derivative payables as a result
JPMorgan Chase & Co./2020 Form 10-K
186
$904 million of gross equity derivative payables as a
result of a decrease in observability and an increase in the
significance of unobservable inputs.
During the year ended December 31, 2019, significant
transfers from level 2 into level 3 included the following:
$993 million of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
$1.3 billion of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
$943 million of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
significance of unobservable inputs.
of an increase in observability and a decrease in the
$2.4 billion of gross equity derivative receivables and
$2.4 billion of gross equity derivative payables as a result
$2.0 billion of total debt and equity instruments,
predominantly due to corporate debt and trading loans,
driven by an increase in observability.
•
•
During the year ended December 31, 2020, significant
transfers from level 3 into level 2 included the following:
$1.2 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for structured notes.
$2.6 billion of non-trading loans driven by a decrease in
observability.
$880 million of gross interest rate derivative payables as
a result of a decrease in observability and an increase in
the significance of unobservable inputs.
of a decrease in observability and an increase in the
significance of unobservable inputs.
•
1-------1-
(f) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the
years ended December 31, 2020, 2019 and 2018, respectively. Unrealized (gains)/losses are reported in OCI, and they were $221 million, $319 million and
$(277) million for the years ended December 31, 2020, 2019 and 2018, respectively.
(d) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments
originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
10
4
5
(12)
13
Accounts payable and other liabilities
50
(36)
14
(1)
114
(99)
19
(d)
39
Trading liabilities - debt and equity
instruments
1,523
(131) (d)(f)
(e) Changes in fair value for MSRs are reported in mortgage fees and related income.
16 (d)
consolidated VIES
(c) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(a) Level 3 assets at fair value as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis)
were 1%, 2% and 3% at December 31, 2020, 2019 and 2018, respectively. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair value
(including liabilities measured at fair value on a nonrecurring basis) were 9%, 16% and 15% at December 31, 2020, 2019 and 2018, respectively.
(b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
Notes to consolidated financial statements
185
JPMorgan Chase & Co./2020 Form 10-K
(1,385) (d)(f)
19,418
(831)
1,143
(7,769)
11,919
1
(39)
(1150) (d)(f) 1
16,125 (1,169)
Long-term debt
39
Beneficial interests issued by
1
(2,440)
Available-for-sale securities:
612
Loans (b)
(1)
334
(229)
262
(48)
1
(309)
(18)
312
Corporate debt securities
(9)
155
(94)
23
364
941
(536)
(219)
(51)
2,278
Total debt instruments
22
127
(101)
45
(55)
(41)
98
28
153
Asset-backed securities
(13)
738
Trading assets:
619
(12)
(277)
459
(22)
(97)
(232)
574
(23)
378
securities
(2)
བྱ།
Total mortgage-backed
11
(21)
36
(17)
(18)
18
2
11
189
2,548
(165)
(22)
78
securities
Non-U.S. government debt
(17)
689
(80)
(70)
112
(17)
744
municipalities
Obligations of U.S. states and
(1)
1
1
government agencies
U.S. Treasury, GSES and
624
(1,465)
(511)
1,138
(63)
(297)
42
(108)
30
(20)
52
(28)
(107)
23
4
(57)
(7)
5
(35) (40)
(396) 103
Foreign exchange
Credit
Equity
187
(3,409) 198
(2,208)
1,841
(d)
146
(1,129)
(17)
7
(301)
(72)
1
(674) (73)
(4,250) 338
Total net derivative receivables
Commodity
561
(2,225)
330
(617)
1,805
1,676
Mortgage-backed securities
(38)
(15)
3
(118)
(40)
55
9
232
(127)
107
(1)
(120)
118
295 (40)
690 (285)
Other
Equity securities
(40)
2,667
(1,270)
(4)
19
301
Total trading assets - debt and
equity instruments
(430)
(133)
107
264 150
Interest rate
Net derivative receivables:
(c)
(332)
3,200
(1,401)
1,248
(630)
(1,625)
2,721
(d)
(376) (d)
3,263
(301)
Assets: (a)
16
Year ended
unrealized
1, 2020 gains/(losses) Purchases (g) Sales
Settlements (h)
Transfers
into
level 3 (i)
Transfers
(out of)
level 3 (i)
Fair
value at
Dec. 31,
2020
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31, 2020
Debt instruments:
realized/
Mortgage-backed securities:
$
797 $ (172)
$
134 $
Residential nonagency
23
2
15
(149)
(5)
U.S. GSES and government
agencies
Total
Fair
value at
January
Trading assets:
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV
ratios for residential mortgages and the nature of the
property and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states and
municipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of the
obligation.
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender's lien on the property and other instrument-
specific factors.
JPMorgan Chase & Co./2020 Form 10-K
181
Notes to consolidated financial statements
Correlation - Correlation is a measure of the relationship
between the movements of two variables. Correlation is a
pricing input for a derivative product where the payoff is
driven by one or more underlying risks. Correlation inputs are
related to the type of derivative (e.g., interest rate, credit,
equity, foreign exchange and commodity) due to the nature
of the underlying risks. When parameters are positively
correlated, an increase in one parameter will result in an
increase in the other parameter. When parameters are
negatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase in
correlation can result in an increase or a decrease in a fair
value measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result in
a decrease in a fair value measurement.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
Volatility Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
Forward price - Forward price is the price at which the buyer
agrees to purchase the asset underlying a forward contract
on the predetermined future delivery date, and is such that
the value of the contract is zero at inception.
The forward price is used as an input in the valuation of
certain derivatives and depends on a number of factors
including interest rates, the current price of the underlying
asset, and the expected income to be received and costs to be
incurred by the seller as a result of holding that asset until
the delivery date. An increase in the forward can result in an
increase or a decrease in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2020, 2019 and 2018. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that
are part of the valuation methodology. Also, the Firm risk-
manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
182
JPMorgan Chase & Co./2020 Form 10-K
Fair value measurements using significant unobservable inputs
Year ended
December 31, 2020
(in millions)
Assets: (a)
$
(161) $
(4)
Commercial nonagency
government agencies
.----
Obligations of U.S. states and
municipalities
10
(1)
(1)
8 -
Non-U.S. government debt
securities
155
21
281
(245)
(7)
(23)
182
11
Corporate debt securities
558
(23)
582
(205)
U.S. Treasury, GSES and
Credit spread -The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
(151)
(6)
4
1
(1)
N II
$
- $ 449
$ (150)
(3)
28
(1)
2
(3)
3
Total mortgage-backed
securities
824
(170)
150
(154)
(166)
2
480
Yield - The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm's positions.
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
28%
$600 / MT
$609 / MT
$605 / MT
$12/MWH
$55/MWH
$34 / MWH
1%
58%
29%
(49)%
95%
23%
Credit spread
45bps
45bps
Yield
4%
30%
7%
585
50%
Long-term debt, short-term borrowings, and
deposits (e)
20%
55%
Forward equity price
(h)
61%
106%
99%
Equity volatility
5%
138%
35%
Equity correlation
18%
99%
60%
Net commodity derivatives
(731) Option pricing
MSRS
Other assets
3,276
299
Discounted cash flows
Discounted cash flows
Equity-FX correlation
Equity-IR correlation
Oil Commodity Forward
Forward power price
Commodity volatility
Commodity correlation
Refer to Note 15
(79)%
(27)%
(236)
27,912
Price
50%
28%
818
Discounted cash flows
Credit correlation
34%
65%
48%
Other level 3 assets and liabilities, net(f)
250
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
(b) Comprises U.S. GSE and government agency securities of $449 million, nonagency securities of $28 million and non-trading loans of $805 million.
(c) Comprises nonagency securities of $3 million, trading loans of $43 million and non-trading loans of $420 million.
(d) Comprises trading loans of $850 million and non-trading loans of $1.1 billion.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
(h) Forward equity price is expressed as a percentage of the current equity price.
(i) Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used.
180
JPMorgan Chase & Co./2020 Form 10-K
Changes in and ranges of unobservable inputs
20%
Market comparables
Option pricing
Equity-IR correlation
55%
$29
$29
$29
Interest rate volatility
7bps
513bps
101bps
Interest rate correlation
(65)%
99%
35%
IR-FX correlation
(35)%
50%
0%
Equity correlation
18%
99%
60%
Equity-FX correlation
(79)%
(27)%
Option pricing
411
507
(176)
(d)
75
(104)
(1)
(733)
2,571
(684)
(d)
(84)
(899)
(320)
40
(7)
2,305
3,276
538
(18)
(1,540)
(e)
(d)
(3)
Fair value measurements using significant unobservable inputs
-
962
1,192
(d)
516 (243)
4,699 (1,540) (e)
917 (63)
(16) (546)
(4,489) 1,908
27
(d)
2,121
(241)
(2,884)
356
(310)
(446) (1,505)
24 (3,862) (556)
(1) (731)
267
302 (4,993)
(d)
42
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Loans
(b)
Mortgage servicing rights
Other assets (b)
¯¯(1)
1
Year ended
Fair value Total realized/
December 31, 2020
(in millions)
at January unrealized
1, 2020
143
(d)(f)
Trading liabilities - debt and equity
instruments
(d)
41
(2)
(126)
14
(4)
136
(8)
51
(1)
(d)
Accounts payable and other liabilities
(d)
45
33
(87)
37
47
(d)(f)
Total net derivative receivables
$ 455
105
(gains)/losses Purchases Sales Issuances Settlements(h)
Transfers
into
level 3 (i)
Transfers
(out of)
level 3)
Fair
value at
Dec. 31,
2020
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2020
(a)
Liabilities:
Deposits
$ 3,360 $ 165 (d)(f)
$
$
-
$ 671 $
Short-term borrowings
1,674
(338) (d)(f)
-
5,140
(605) $
(4,115)
265 $
(943) $2,913
(46) 2,420
Commodity
(935)
1,162
2,169
(1,129)
(601)
1,213
(1,563)
2,098
(209)
Equity securities
196
(75)
53
(376)
(1)
535
(153)
179
(20)
Other
232
271
245
(248)
(9)
2,257
(4)
(25)
Loans
(b)
673
(73)
1,112
(484)
(182)
791
(944)
893
(40)
Asset-backed securities
37
(3)
44
(40)
(9)
9
(10)
28
Total debt instruments
(580)
(154)
(245)
Foreign exchange
(139) (212)
(607)
73
(154)
181
59
(32)
(224)
(110)
49
49
(24)
83
13
3
(434)
116
Equity
(3,395) (65)
1,664
(2,317)
Credit
6
325
308
346
206
Total trading assets - debt and
equity instruments
2,685
(52) (d)
(d)
2,467
(1,514)
(756)
1,754
(1,961)
2,623
(23)
Net derivative receivables:
(c)
Interest rate
(332) 2,682
308
(148)
(2,228)
(332)
258
(7)
(3,862)
9%
(479,860)
369,633
Total trading assets
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential - nonagency
Commercial nonagency
Total mortgage-backed securities
7,410
110,117
Obligations of U.S. states and municipalities
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Loans (b)(f)
U.S. Treasury and government agencies
660,828
181,255
49,766
14,252
624
(14,175)
701
117
137,938
432
(129,482)
9,005
43,642
2,085
(39,250)
6,477
17,058
184
(11,080)
6,162
838
524,063
4,725
(479,860)
Mortgage servicing rights
(b)(e)
Other assets (b
Total assets measured at fair value on a recurring basis
350,699
$
Deposits
$
7.305
340,962 $
$
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
3,824
928,185
25,229
549
4,246
516
4,699
917
44,955
4,699
12,046
$
$
13,543
3,360
$
(479,860)
$
802,830
$
$
28,589
1
27,421
5,458
5,458
198,296
44,439
12,989
5,188
-
128,294
139,436
29,810
12,966
77
8,821
845
1
110,117
12,990
5,188
1
128,295
139,436
29,810
77
21,787
845
24,991
152,402
24,991
(285,873)
1,400
311,173
44,510
797
45,307
1,977
23
2,000
1,486
4
1,490
Total mortgage-backed securities
47,973
824
48,797
U.S. Treasury, GSES and government agencies (a)
78,289
10,295
-
88,584
Obligations of U.S. states and municipalities
6,468
10
6,237
6,478
14,561
6,237
Fair value hierarchy
December 31, 2019 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential
nonagency
Commercial nonagency
Derivative
Level 1
$
$
Level 2
14,561
Level 3
netting
adjustments()
$
$
$
Total fair value
1,674
Certificates of deposit, bankers' acceptances and commercial paper
252
Foreign exchange
Equity
Commodity
Total derivative receivables
104,889
71,890
3,638
119,046
2,257
226,192
244
196
72,330
3,579
7,217
13,896
232
14,128
180,417
136,765
2,685
319,867
721
Credit
252
Interest rate
Total debt and equity instruments (d)
Non-U.S. government debt securities
26,600
27,169
155
53,924
Corporate debt securities
17,956
558
18,514
Loans (b)
6,340
673
7,013
Asset-backed securities
2,593
37
2,630
Total debt instruments
Equity securities
Physical commodities (c)
Other
Derivative receivables:
Net equity derivatives
549
5,920
Debt and equity instruments(d)
Price
$10
$104
$72
Asset-backed securities
28
Market comparables
Price
$1
Market comparables
$97
Net interest rate derivatives
238
Option pricing
Interest rate volatility
7bps
513bps
101bps
Interest rate spread volatility
11bps
$57
1,930
Loans (d)
$85
10%
Conditional default rate
0%
30%
14%
Loss severity
0%
107%
7%
Commercial mortgage-backed securities and
loans (c)
466
Market comparables
Price
$0
$101
$84
Corporate debt securities
507 Market comparables
Price
$2
$116
23bps
15bps
Interest rate correlation
(65)%
2%
100%
58%
Loss severity
100%
100%
36
Net foreign exchange derivatives
(298)
(136)
Market comparables
Option pricing
Discounted cash flows
Price
$1
$115
$71
IR-FX correlation
(40)%
65%
18%
Prepayment speed
9%
Conditional default rate
46%
46%
0%
99%
35%
IR-FX correlation
(35)%
50%
0%
Net credit derivatives
20 Discounted cash flows
(260) Discounted cash flows
Prepayment speed
0%
30%
8%
Credit correlation
34%
65%
48%
Credit spread
3bps
1,302bps
441bps
Recovery rate
67%
0%
Prepayment speed
6%
1,652
109
143,960
1,039
(131,950)
13,158
47,261
5,480
(40,204)
12,537
19,685
200
(12,127)
7,758
904
59,951
3,231
502,010
9,214
518,491
452
36
9,255
45
(468,420)
(468,420)
(13,469)
43,708
763
8,603
Derivative payables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative payables
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIES
Long-term debt
Total liabilities measured at fair value on a recurring basis
$
59,047
16,481
41
75,569
795
276,746
1,732
(270,670)
14,358
Trading liabilities:
119,277
36
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
In the Firm's view, the input range, weighted and arithmetic
average values do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm's
estimates and assumptions. Rather, they reflect the
characteristics of the various instruments held by the Firm
and the relative distribution of instruments within the range
of characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
JPMorgan Chase & Co./2020 Form 10-K
179
Notes to consolidated financial statements
Level 3 inputsa
December 31, 2020
Product/Instrument
Fair value
(in millions)
Principal valuation
technique
Unobservable inputs(8)
Range of input values
(i)
Average
Residential mortgage-backed securities and
(b)
loans"
$
1,282
Discounted cash flows
Yield
0%
18%
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and the weighted or arithmetic averages of such
inputs. While the determination to classify an instrument
within level 3 is based on the significance of the unobservable
inputs to the overall fair value measurement, level 3 financial
instruments typically include observable components (that is,
components that are actively quoted and can be validated to
external sources) in addition to the unobservable
components. The level 1 and/or level 2 inputs are not
included in the table. In addition, the Firm manages the risk
of the observable components of level 3 financial instruments
using securities and derivative positions that are classified
within levels 1 or 2 of the fair value hierarchy.
3,728
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess relevant empirical data in
deriving valuation inputs including transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, prices (such as commodity, equity or
debt prices), valuations of comparable instruments, foreign
exchange rates and credit curves.
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). Refer to pages 171-175 of this Note for further
information on the Firm's valuation process and a detailed
discussion of the determination of fair value for individual
financial instruments.
63,182 $
52,406
601,409
$
23,339
37,673
75,745
$
(468,420)
$
233,844
(a) At December 31, 2020 and 2019, included total U.S. GSE obligations of $117.6 billion and $104.5 billion, respectively, which were mortgage-related.
(b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. "Net realizable value" is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell ("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm's physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further
JPMorgan Chase & Co./2020 Form 10-K
177
Notes to consolidated financial statements
discussion of the Firm's hedge accounting relationships. To provide consistent fair value disclosure information, all physical commodities inventories have
been included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2020 and 2019, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $670 million and $684 million, respectively. Included in these balances at December 31, 2020 and 2019,
were trading assets of $52 million and $54 million, respectively, and other assets of $618 million and $630 million, respectively.
(f) At December 31, 2020 and 2019, included within loans were $15.1 billion and $19.8 billion, respectively, of residential first-lien mortgages, and $6.3
billion and $8.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with
the intent to sell to U.S. GSES and government agencies of $8.4 billion and $13.6 billion, respectively.
(g) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid
when a legally enforceable master netting agreement exists. The level 3 balances would be reduced if netting were applied, including the netting benefit
associated with cash collateral.
178
JPMorgan Chase & Co./2020 Form 10-K
Level 3 valuations
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
December 31, 2018
(in millions)
(d)
28
91
Total trading assets - debt and
equity instruments
3,200
(22)
(d)
(d)
2,289
(18)
(1,856)
805
(1,305) 2,685
85
Net derivative receivables:(c)
Interest rate
Credit
(38) (394)
(426)
109
12
13
232
(41)
58
(103)
(22)
181
Other
(3)
301
50
(26)
(54)
2
ཀཱ ཙ ྴའཀྱེཌསྐྱ་
13
40
(36)
(125)
5
(7)
(503)
(405)
(607)
224 (3,395)
(380)
(1,608)
Commodity
(1,129) 497
(573)
36
89
(6)
845
(16)
130
(d)
(d)
(348)
397
(2,225) (310)
Equity
(107)
(36)
20
(9)
8
29
118
(44) (139)
(332)
(599)
(127)
Foreign exchange
(297) (551)
17
(67)
312
(22)
1
Equity securities
37
(22)
(1,191) 2,257
622
437
47
334
Corporate debt securities
155
(18)
14
(247)
(287)
1
155
securities
Non-U.S. government debt
10
(610)
(8)
290
(52)
112
(73) 558
68
Total debt instruments
28
(40)
(93)
37
127
Asset-backed securities
673
(386)
437
(82)
(519)
456
29
738
Loans (b)
(159)
Total net derivative receivables
85
689
11
ཌ།
2
23
(58)
15
(20)
2
(86)
25
64
2,667
55
2,181
(1,727)
(350)
83
20
(26)
(14)
municipalities
Obligations of U.S. states and
government agencies
U.S. Treasury, GSES and
(55)
824
(82)
31
(168)
(422)
876
(35)
624
1
4
(4)
15
13
(3,796) (794)
(109) 196
(5) 232
(1,122)
651
(d)(f)
(1,448) 23,339
2,822
184
JPMorgan Chase & Co./2020 Form 10-K
$ (58)
(8,538)
(20) $ 797
(134) $
$
773 $ (310)
$
549 $ (62)
$
securities
1 $
10,441
2,815 (d)(f)
19,418
(d)
3
Accounts payable and other liabilities
10
(2)
(d)
(84)
115
6
45
29 (d)
Beneficial interests issued by
consolidated VIES
(d)
1
(1)
Long-term debt
Total mortgage-backed
41
Commercial nonagency
at Dec. 31, 2019
Fair value measurements using significant unobservable inputs
Notes to consolidated financial statements
579
JPMorgan Chase & Co./2020 Form 10-K
1,920 (d)(f)
23,397
(1,282)
Fair
1,250
9,883
40
23,339
(d)(f)
Long-term debt
consolidated VIES
Beneficial interests issued by
(9,833)
Total
realized/
Year ended
value at
Change in
unrealized
gains/(losses)
related to
financial
instruments held
U.S. GSES and government
agencies
Mortgage-backed securities:
Debt instruments:
Trading assets:
Assets: (a)
value at
Dec. 31,
2019
Transfers
(out of)
level 3
Transfers
into
level 3 (i)
Settlements (h)
Sales
Purchases (g)
gains/
(losses)
January
1, 2019
December 31, 2019
(in millions)
Fair
unrealized
Residential nonagency
(47)
183
41
(482)
188
(153)
(d)
516
38
(951)
(188)
4,699
(e)
(156)
6
(7)
917
(180)
(d)
(1,180)
236
1,489 (789)
229 (166)
6,130 (1,180) (e)
(150) (d)
1,161
(89)
1
(411)
1,144 (4,489)
(2,584)
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Mortgage servicing rights
Other assets (b)
1-------1-
-
1
1
(d)
856
59
Fair value measurements using significant unobservable inputs
Year ended
Total available-for-sale securities
Loans(b)
December 31, 2019
Short-term borrowings
(d)(f)
1,523
229
916 $
3,441
(806) $
(3,356)
12 $ (1,209) $3,360
85
$
$ 307 (d)(f)
(d)(f)
155
50
(d)
(22)
Fair value
2
(248) 1,674
$
Trading liabilities - debt and equity
instruments
(d)(f)
$
1, 2019
Total
realized/
unrealized
(gains)/
losses
Issuances Settlements (h)
Transfers
into
level 3(i)
Transfers
(out of).
level 3
at January
Fair
value at
Dec. 31,
2019
Purchases Sales
unrealized
(gains)/losses
$ 4,169 $ 278
Change in
Liabilities:(a)
Deposits
(in millions)
at Dec. 31, 2019
related to
financial
instruments held
2.1
$
1.2 $
$
$
2.1 $
1.9
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
(b) Includes the wholesale allowance for lending-related commitments.
The Firm does not estimate the fair value of consumer off-balance sheet lending-related commitments. In many cases, the Firm
can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without
notice. Refer to page 173 of this Note for a further discussion of the valuation of lending-related commitments.
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
191
1.9 $
Level 3
$
-
related commitments $ 2.2 $
Wholesale lending-
Total
estimated
fair value
Level 2
Level 1
Carrying
(a)(B)
value
Total
estimated
fair value
Level 3
Level 2
Note 3 - Fair value option
Level 1
Carrying
value(a)(B)
$
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
2020
The Firm's election of fair value includes the following
instruments:
purchased under resale
(in billions)
Federal funds sold and securities
December 31, (in millions)
Total
changes in
fair value
recorded()
All other
income
Principal
transactions
changes in
fair value
recorded(f)
All other
income
Principal
transactions
Total
Total
changes in
fair value
recorded
All other
income
Principal
transactions
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments that otherwise would be accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
2018
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2020, 2019 and 2018, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
Changes in fair value under the fair value option election
JPMorgan Chase & Co./2020 Form 10-K
192
Certain long-term beneficial interests issued by CIB'S
consolidated securitization trusts where the underlying
assets are carried at fair value
Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that are
issued as part of client-driven activities
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
Certain securities financing agreements
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
•
•
•
•
•
2019
December 31, 2019
Estimated fair value hierarchy
59.5
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value and the estimated fair value of these wholesale lending-related commitments were as
follows for the periods indicated.
59.5
under repurchase agreements
securities loaned or sold
Federal funds purchased and
$ 1,534.1
-
$ 1,534.1 $
$ 1,533.8 $
$ 2,128.9
$ 2,128.9 $
$ 2,129.8 $
Deposits
Financial liabilities
61.4
Short-term borrowings
0.8
734.9
214.1
60.6
48.9
61.3
81.9
1.9
80.0
939.5
966.5
755.6
210.9
81.8
Other
agreements
949.0
28.3
28.3
59.5
28.3
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. Carrying
value of the loan takes into account the loan's allowance for loan losses, which represents the loan's expected credit losses over its remaining expected
life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including
credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value.
221.8
3.5
218.3
215.5
17.9
17.9
17.8
17.6
212.4
3.2
-
17.6
209.2
17.5
204.8
Long-term debt
Beneficial interests issued by
consolidated VIES
163.6
3.5
183.1
35.0
183.1
35.0
183.1
35.0
Accounts payable and other
December 31, 2020
Estimated fair value hierarchy
liabilities
181.9
4.3
186.2
164.0
0.1
160.0
186.6
$
(a)
$
40,560
$
(e)
Principal-protected debt
Long-term debt
(3,940)
51,968 $
$
55,908
(4,052) $
51,468 $
$
55,520
$
Total loans
(1,334)
50,909
$
52,243
40,526 $
(34) $
ΝΑ
NA
76,817
$
NA
Total long-term debt
ΝΑ
36,499
ΝΑ
ΝΑ
36,291
ΝΑ
Nonprincipal-protected debt (d)
(878)
39,246 $
$
40,124
(e)
$
(850)
49,939
328
(9)
129
138
(11)
317
328
(2,597)
930
3,527
(268)
696
964
(360)
(3,191)
2,062
5,253
1,507
317
49,089
(11)
129
Subtotal
175
44,130
43,955
628
42,650
42,022
(1,509)
6,779
8,288
(1,478)
6,439
7,917
Loans (a)
Loans reported as trading assets (a)
All other performing loans (c)
(9)
138
1,867
75,745
Long-term beneficial interests
4,852
29,294
38,857
6,893
232
5,021
13
250
26,943
5
48
3,862
3,705
6,590
34 $ 16,692 $ 52,196
875
$ 35,470 $
5,715
65 $ 5,057 $ 43,251
1,022
7,431
92
3,613
6,409
8,177
$ 38,129 $
3,915
42,323
472
JPMorgan Chase & Co./2020 Form 10-K
196
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for loan losses.
The Firm does not believe that its exposure to any
particular loan product or industry segment (e.g., real
estate), or its exposure to residential real estate loans with
high LTV ratios, results in a significant concentration of
credit risk.
The Firm's wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,
credit derivatives, master netting agreements, collateral
and other risk-reduction techniques. Refer to Note 12 for
additional information on loans.
In the Firm's consumer portfolio, concentrations are
managed primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. Refer to Note 12 for additional
information on the geographic composition of the Firm's
consumer loan portfolios. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual client or counterparty basis.
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm's
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
(a)
Notes to consolidated financial statements
195
JPMorgan Chase & Co./2020 Form 10-K
1,958
1,454
32
5,841 $26,328 $106,982
$ 74,813 $
$ 75,344 $ 6,213 $ 12,182 $ 93,739
Total structured notes
495
ΝΑ
Equity
Commodity
Credit
36
$
ΝΑ
ΝΑ
41
$
ΝΑ
ΝΑ
36
$
ΝΑ
ΝΑ
41
$
ΝΑ
Total long-term beneficial interests
Nonprincipal-protected debt (d)
ΝΑ
Foreign exchange
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(c) There were no performing loans that were ninety days or more past due as of December 31, 2020 and 2019.
Interest rate
Risk exposure
debt borrowings Deposits Total
borrowings Deposits Total
Long-term Short-term
Short-term
Long-term
debt
(in millions)
December 31, 2019
December 31, 2020
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
Structured note products by balance sheet classification and risk component
JPMorgan Chase & Co./2020 Form 10-K
194
At December 31, 2020 and 2019, the contractual amount of lending-related commitments for which the fair value option was
elected was $18.1 billion and $8.6 billion, respectively, with a corresponding fair value of $(39) million and $(120) million,
respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments. Prior-
period amounts have been revised to conform with the current presentation.
(e) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
(d) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for
structured notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors
are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
(b) These balances are excluded from nonaccrual loans as the loans are insured and/or guaranteed by U.S. government agencies.
234 $ (2,329)
$
(2,831) $ 2,563
Other changes in fair value a
386
1
385
477
(d)
2
475
197
7
190
(d)
(d)
Changes in instrument-specific
credit risk (a)
Loans:
28
28
(d)
(1)
470
3,239
6
8
(e)
38
(e)
(65)
103
(a)
Other assets
323
185
138
1,491
(d)
1,224
267
3,709
(d)
14
15
248
(1)
1,546
Debt and equity instruments,
excluding loans
Trading assets:
22
(35)
$
(35) $
22
(36) $
133
133
143
143
Securities borrowed
$
(36) $
$
12
(d)
15
(d)
2,482
(1)
(19)
248
135
(19)
Other changes in fair value (a)
135
specific credit risk(a)
Changes in instrument-
assets:
Loans reported as trading
(1,679)
1
(d)
(1,680)
2,481
(1)
1,545
11
(45) (e)
(34)
Loans
December 31, (in millions)
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2020 and 2019, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
Notes to consolidated financial statements
193
JPMorgan Chase & Co./2020 Form 10-K
Securities financing agreements: Generally, for these
types of agreements, there is a requirement that
collateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related to
these agreements.
from observable changes in the Firm's credit spread as
observed in the bond market.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
•
•
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for
the period is made between those changes in value that
are interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to
similar entities or industries.
•
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
Determination of instrument-specific credit risk for items
for which the fair value option was elected
(f) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial
instruments. Refer to Note 7 for further information regarding interest income and interest expense.
(e) Reported in other income.
Nonaccrual loans
(d) Reported in mortgage fees and related income.
Loans reported as trading assets (a)
Loans (a)
90 or more days past due and government guaranteed (b)
555 $
$
3,386
$
principal
outstanding
Fair value
over/
(under)
contractual
Contractual
principal
outstanding
Fair value
2019
Fair value
over/
(under)
contractual
principal
outstanding
Fair value
Contractual
principal
outstanding
2020
Subtotal
Loans
Loans reported as trading assets
Subtotal
(b) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected are recorded in OCI and
subsequently recorded in principal transactions revenue when realized. Realized gains/(losses) due to instrument-specific credit risk recorded in principal
transactions revenue were $20 million for the year ended December 31,2020 and were not material for the years ended December 31, 2019 and 2018.
(c) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such
risk.
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
2,695
294
(6)
Long-term debt (b)(c)
Other liabilities
Trading liabilities
Short-term borrowings (b)
repurchase agreements
securities loaned or sold under
Federal funds purchased and
181
181
(1,730)
(1,730)
(726)
(726)
(b)
Deposits
2
(94)
(2,120)
(d)
(1)
294
2,695
862
1
1
6
(16)
(6,172)
1
(d)
(16)
(6,173)
6
12 $
2
(693)
11
11
(8)
(8)
(693)
(6)
(2,121)
(94)
862
Note 4 - Credit risk concentrations
loan losses
48.8
$
Total liabilities measured at fair value on a nonrecurring basis
12
12
Accounts payable and other liabilities (b)
3,567
$
1,951
$
1,616
$
$
Total assets measured at fair value on a nonrecurring basis
984
979
5
2,583
$
972
$
1,611
$
$
Other assets (a)
Loans
(d)
(c)
$
$
12
$
Loans
4,788
$
1,312
$
3,476
$
$
1,057
1,043
14
(e)
3,731
value
$
$
3,462
$
$
(c)
value
Level 3
Level 2
Level 1
December 31, 2019 (in millions)
Total fair
Fair value hierarchy
12
269
Level 3
Level 2
Level 1
$10 million of net gains on assets driven by gains in net
interest rate derivative receivables due to market
movements largely offset by losses in MSRS reflecting
faster prepayment speeds on lower rates. Refer to Note
15 for additional information on MSRs.
•
The following describes significant components of total
realized/unrealized gains/(losses) for instruments measured
at fair value on a recurring basis for the years ended
December 31, 2020, 2019 and 2018. These amounts
exclude any effects of the Firm's risk management activities
where the financial instruments are classified as level 1 and 2
of the fair value hierarchy. Refer to Changes in level 3
recurring fair value measurements rollforward tables on
pages 182-186 for further information on these instruments.
2020
Gains and losses
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur
at the beginning of the quarterly reporting period in which
they occur.
$1.2 billion of gross equity derivative receivables and
$1.5 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
increase in observability.
$1.5 billion of total debt and equity instruments, the
majority of which were trading loans, driven by an
•
During the year ended December 31, 2018, significant
transfers from level 3 into level 2 included the following:
$1.1 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
significance of unobservable inputs.
$1.6 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
$102 million of net gains on liabilities driven by market
movements in short-term borrowings.
$1.0 billion of gross equity derivative receivables and
During the year ended December 31, 2018, significant
transfers from level 2 into level 3 included the following:
$1.4 billion of long-term debt as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
$1.2 billion of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
$962 million of gross commodities derivative payables as
a result of an increase in observability.
$1.1 billion of gross equity derivative receivables and
$1.3 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$1.5 billion of total debt and equity instruments, the
majority of which were obligations of U.S. states and
municipalities and trading loans, driven by an increase in
observability.
•
•
•
•
During the year ended December 31, 2019, significant
transfers from level 3 into level 2 included the following:
Loans, net of allowance for
940.1
$1.4 billion of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
Other assets
2019
$3.3 billion of net losses on liabilities predominantly
driven by market movements in long-term debt.
December 31, 2020 (in millions)
Fair value hierarchy
The following tables present the assets and liabilities held as of December 31, 2020 and 2019, respectively, for which
nonrecurring fair value adjustments were recorded during the years ended December 31, 2020 and 2019, respectively, by
major product category and fair value hierarchy.
Assets and liabilities measured at fair value on a nonrecurring basis
JPMorgan Chase & Co./2020 Form 10-K
188
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported in
principal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 186 in this Note and Note
24 for further information.
Valuation adjustments on fair value option elected
liabilities
(337) $ 241 $ 193
(64)
199
(74)
Derivatives FVA
$
Derivatives CVA
Credit and funding adjustments:
$2.1 billion of net losses on assets largely due to MSRS
reflecting faster prepayment speeds on lower rates. Refer
to Note 15 for additional information on MSRs.
2018
2020
Year ended December 31,
(in millions)
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm's own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm's own credit quality over time.
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm's credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter ("OTC")
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm's positions with
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm's existing positions with
each counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm's credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
Notes to consolidated financial statements
187
JPMorgan Chase & Co./2020 Form 10-K
$1.6 billion of net gains on liabilities largely driven by
market movements in long-term debt.
•
2018
2019
Total assets measured at fair value on a nonrecurring basis
(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative). Of the $979 million in level 3 assets measured at fair value on a
nonrecurring basis as of December 31, 2020, $535 million related to equity securities adjusted based on the measurement alternative. These equity
securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
Total fair
(c) Primarily includes certain mortgage loans that were reclassified to held-for-sale.
241.9
21.7
$
$
21.7 $
241.9
21.7 $
241.9
502.7
-
$
24.9
$
$
24.9 $
502.7
Accrued interest and accounts
receivable
24.9 $
502.7
$
Cash and due from banks
Financial assets
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value
fair value
Level 3
Level 2
Level 1
Total
estimated
Deposits with banks
Carrying
value
- 89.3 0.1
71.3
0.1
47.5
(b) There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2019.
205.5
152.3
53.2
201.8
maturity
Investment securities, held-to-
133.5
234.6
133.5
234.6
89.4
133.5
107.7
234.6
58.3
58.3
107.7
Securities borrowed
58.3
resale agreements
securities purchased under
Federal funds sold and
71.3
0.1
71.2
107.7
December 31, 2019
Estimated fair value hierarchy
89.4
(in billions)
JPMorgan Chase & Co./2020 Form 10-K
Refer to Note 12 for further information about the
measurement of collateral-dependent loans.
(c) Prior-period amounts have been revised to conform with the current
presentation.
(b) Included $(134) million, $201 million and $149 million for the years
ended December 31, 2020, 2019 and 2018, respectively, of net
(losses)/gains as a result of the measurement alternative.
(a) Includes the impact of certain mortgage loans that were reclassified to
held-for-sale.
64
$
$ (92)
$(933)
Total nonrecurring fair value
gains/(losses)
(11)
Accounts payable and other
liabilities
182
(529)
(c)
Other assets (b)
$ (68)
2018
2019
$(274)
$(393)
(a)
Loansd
2020
December 31, (in millions)
The following table presents the total change in value of
assets and liabilities for which fair value adjustments have
been recognized for the years ended December 31, 2020,
2019 and 2018, related to assets and liabilities held at
those dates.
December 31, 2020
Estimated fair value hierarchy
Nonrecurring fair value changes
(e) Prior-period amounts have been revised to conform with the current presentation.
(d) of the $972 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2020, $602 million related to residential real
estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans). These amounts are classified as level 3 as
they are valued using information from broker's price opinions, appraisals and automated valuation models and discounted based upon the Firm's
experience with actual liquidation values. These discounts ranged from 13% to 46% with a weighted average of 27%.
189
Notes to consolidated financial statements
132
Equity securities without readily determinable fair values
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2020 and 2019, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.
JPMorgan Chase & Co./2020 Form 10-K
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
Financial instruments for which carrying value approximates
fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, which are included in the
following table. However, this table does not include other
items, such as nonfinancial assets, intangible assets, certain
financial instruments, and customer relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this table.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
Included in other assets above is the Firm's interest in approximately 40 million Visa Class B common shares, recorded at a
nominal carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa
Class A common shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B
common shares into Visa Class A common shares is 1.6228 at December 31, 2020, and may be adjusted by Visa depending on
developments related to the litigation matters.
(a) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.
(b) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2020 were $708 million.
(c) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2020 were $(430) million.
(d) Prior-period amounts have been revised to conform with the current presentation.
(42)
(301)
243
(d)
2,441
$
190
As of or for the year ended December 31,
$
2019
2020
Downward carrying value changes/impairment (c)
Upward carrying value changes (b)
Carrying value (a)
Other assets
(in millions)
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm's estimated fair values. Such adjustments may include adjustments to reflect the different
rights and obligations of similar securities, and other adjustments that are consistent with the Firm's valuation techniques for
private equity direct investments.
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2020 and 2019, that are measured under the measurement alternative and the related adjustments recorded
during the periods presented for those securities with observable price changes. These securities are included in the
nonrecurring fair value tables when applicable price changes are observable.
The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or
minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in
other income.
2,368
167
14,306
(21,778)
(40,204)
(55,515)
47,810
69,821
34,491
(18,426)
20,216
7,739
(26,752)
7,606
5,816
1,790
10,365
32
(32)
7,391 (6,868)
17,788 (14,444)
665,950 (618,264)
2,821
8,714
(6,235)
2,479
22,937
523
3,344
47,686
(d)
30
6,012
14,756
497,977
(30)
22,937
(5,862)
(12,127)
(468,420)
150
2,629
29,557
(d)
(7,544)
27,594
186
12
(28,763)
10,568
14,151
17
(2)
32
(152)
34
(6)
6
Total foreign exchange contracts
211,673
(194,493)
17,180
142,558
6,567
(131,950)
Equity contracts:
OTC
Exchange-traded (a)
Total equity contracts
Commodity contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total commodity contracts
Derivative payables with appropriate legal opinion
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
Total derivative payables recognized on the
Consolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(c)
Net amounts
35,330
10,608
14,151
Total
$
153
1,243
2,449
$
189 $
1,467
104
1,398
(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding was not material at both December 31, 2020 and
2019.
JPMorgan Chase & Co./2020 Form 10-K
205
Notes to consolidated financial statements
119 $
Impact of derivatives on the Consolidated statements of income
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2020,
2019 and 2018, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
Year ended December 31, 2020
(in millions)
Contract type
Interest rate (a)(b)
Foreign exchange (c)
Commodity (d)
Year ended December 31, 2019
(in millions)
Contract type
Interest rate (a)(b)
Foreign exchange
(131,792)
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
$ 688,887
Amount of additional collateral to be posted upon downgrade (a)
Two-notch
downgrade
70,623
$ 512,128
$ 43,708
$
(11,964)
58,659
(6,960)
$ 36,748
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Includes liquid securities and other cash collateral held at third-party custodians related to derivative instruments where an appropriate legal opinion has
been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables
balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that
counterparty. In the fourth quarter of 2020, the Firm refined its approach for disclosing additional collateral held by the Firm that may be used as security
when the fair value of the client's exposure is in the Firm's favor. Prior-period amounts have been revised to conform with the current presentation.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $88.0 billion and $65.9 billion at December 31, 2020 and 2019, respectively. Net derivatives
payable included cash collateral netted of $78.4 billion and $54.4 billion at December 31, 2020 and 2019, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
204
JPMorgan Chase & Co./2020 Form 10-K
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to
credit risk - the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts
and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of
JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral
agreements to mitigate derivative counterparty credit risk inherent in derivative receivables.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value of the
contracts moves in the counterparties' favor or upon specified downgrades in the Firm's and its subsidiaries' respective credit
ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the
Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net
derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that
may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of
business, at December 31, 2020 and 2019.
Single-notch Two-notch
downgrade downgrade
OTC and OTC-cleared derivative payables containing downgrade triggers
December 31, (in millions)
2020
2019
$
27,712
$
14,819
26,289
13,329
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, N.A., at December 31, 2020 and 2019, related to OTC
and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings
downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the
predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a
preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral
(except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination
payments requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current
rating of the rating agencies referred to in the derivative contract.
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
2020
2019
December 31, (in millions)
Single-notch
downgrade
Aggregate fair value of net derivative payables
Collateral posted
142,360
6,928
(193,672)
(819)
8,199
42,760
(39,250)
3,510
Commodity contracts:
OTC
10,924
(7,901)
3,023
7,093
(5,149)
1,944
OTC-cleared
Exchange-traded (a)
1,224
Total commodity contracts
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
20
6,833
(6,811)
17,777 (14,732)
681,647 (627,924)
(20)
22
3,045
53,723
(d)
28
6,154
13,275
516,083
(28)
(5,903)
(11,080)
(479,860)
251
2,195
36,223
(d)
25,907
25,907
13,543
Derivative receivables with appropriate legal opinion
Total derivative receivables recognized on the
Consolidated balance sheets
(18,430)
1,543
OTC-cleared
Exchange-traded (a)
834
35
(189,655)
(819)
11,694
15
(5)
30
136,252
185
10
(129,324)
(152)
33
Total foreign exchange contracts
202,218
(190,479)
19,654
11,739
(6)
(129,482)
4
6,965
Equity contracts:
OTC
Exchange-traded (a)
Total equity contracts
34,030
28,294
62,324
(27,374)
6,656
23,106
(20,820)
2,286
(26,751)
(54,125)
136,447
$ 707,554
$
79,630
17
$ 267,311
10,217
365
$ (260,229)
(10,138)
$ 7,082
79
(303)
62
11,307
277,893
(270,670)
7,223
10,671
4,075
Total credit contracts
14,746
(341)
(340,615)
(9,141)
(4,056)
(13,197)
19
1,549
11,570
3,390
14,960
(10,080)
1,490
(3,389)
(13,469)
1
1,491
Foreign exchange contracts:
OTC
210,803
OTC-cleared
Exchange-traded (a)
836
34
1,530
351,922
$ 11,074
216
(19,494)
$ 529,626
13,543
$ 49,766
Collateral not nettable on the Consolidated balance
sheets(b)(c)
(14,806)
Net amounts
$ 64,824
(13,052)
$ 36,714
JPMorgan Chase & Co./2020 Form 10-K
203
Notes to consolidated financial statements
2020
2019
Gross
derivative
payables
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
payables
$ 331,854 $ (320,780)
19,710
358
OTC-cleared
OTC
Credit contracts:
Total interest rate contracts
Exchange-traded (a)
17,131
OTC-cleared
Interest rate contracts:
U.S. GAAP nettable derivative payables
December 31, (in millions)
Net
derivative
payables
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
payables
OTC
Amount required to settle contracts with termination triggers upon downgrade (b)
Notional amounts"
OTC
19
6,515
2,117
4,507
757
7,381
3,757
2,741
469
8,048
8,710
2,282
1,356
12,348
4,838
2,739
4,121
13
(g)(h)
Total exposure
510,879
550,058
1,127,261
7,024
35,651
79,630 449,863
58,038
514,947
35,111
35,111
47,710
Total wholesale-related
Receivables from customers (f)
Loans held-for-sale and loans at fair value
1,044,440
100,713
1,626
2,482
9,572
$2,305,881 $1,012,853
2,527
13,141
6,566
16,232
Metals & Mining
Transportation
1,548
10,477
1,495
2,840
1,316
12,313
3,396
17,025
Central Govt
12,176
14,865
8,171
14,497
5,253
Subtotal
All other(e)
Financial Markets Infrastructure
Securities Firms
Insurance
9,820
402
5,364
15,586
9,806
882
4,854
15,542
8,529
715
1,042
79,598 51,357
948,954 481,678
29,201 29,201
33,706
1,011,861
$2,189,491 $ 997,620 $ 49,766 $1,108,399
1,865
26,376
Fair value hedge
Hedge fixed rate assets and liabilities
Hedge floating-rate assets and liabilities
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Interest rate
• Interest rate
Designation and disclosure segment or unit reference
Corporate
Use of Derivative
Page
Affected
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Notes to consolidated financial statements
199
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, changes in the fair value of the derivative are
recorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item - primarily noninterest revenue, net
interest income and compensation expense. If the hedge
relationship is terminated, then the change in value of the
derivative recorded in AOCI is recognized in earnings when
the cash flows that were hedged affect earnings. For hedge
relationships that are discontinued because a forecasted
transaction is expected to not occur according to the
original hedge forecast, any related derivative values
recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
Type of Derivative
206-207
Cash flow hedge
Corporate
208
Corporate
Net investment hedge
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
• Foreign exchange
208
Corporate
Cash flow hedge
206-207
Corporate
Fair value hedge
Hedge foreign currency-denominated assets and liabilities
Hedge foreign currency-denominated forecasted revenue and
expense
• Foreign exchange
• Foreign exchange
208
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. If the
hedge relationship is terminated, then the adjustment to
the hedged item continues to be reported as part of the
basis of the hedged item, and for benchmark interest rate
hedges, is amortized to earnings as a yield adjustment.
Derivative amounts affecting earnings are recognized
consistent with the classification of the hedged item -
primarily net interest income and principal transactions
revenue.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. If it is determined that a
derivative is not highly effective at hedging the designated
exposure, hedge accounting is discontinued.
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm's
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts as
hedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
Derivatives designated as hedges
(k) Represents lending-related financial instruments.
(j) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. PPP loans are guaranteed by the SBA. Other than in certain limited
circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans.
(i) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in a
corresponding reclassification of certain off-balance sheet commitments. Prior-period amounts have been revised to conform with the current presentation.
(h) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) Excludes cash placed with banks of $516.9 billion and $254.0 billion, at December 31, 2020 and 2019, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks.
(f) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM that are collateralized by assets maintained in the
clients' brokerage accounts (e.g., cash on deposit, liquid and readily marketable debt or equity securities). Because of this collateralization, no allowance for credit
losses is generally held against these receivables. To manage its credit risk the Firm establishes margin requirements and monitors the required margin levels on an
ongoing basis, and requires clients to deposit additional cash or other collateral, or to reduce positions, when appropriate. These receivables are reported within
accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
(e) All other includes: SPES and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2020 and 90% and
10%, respectively, at December 31, 2019. Refer to Note 14 for more information on exposures to SPES.
(d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2020 and 2019, noted above, the Firm held:
$7.2 billion and $6.5 billion, respectively, of trading assets; $20.4 billion and $29.8 billion, respectively, of AFS securities; and $12.8 billion and $4.8 billion,
respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(c) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies and
personal and testamentary trusts.
(a) Also includes commercial card lending-related commitments primarily in CB and CIB.
(b) The industry rankings presented in the table as of December 31, 2019, are based on the industry rankings of the corresponding exposures at December 31, 2020,
not actual rankings of such exposures at December 31, 2019.
79,630 449,863
$ 79,630 $1,165,688
417,510
49,766
417,510
49,766
JPMorgan Chase & Co./2020 Form 10-K
459
197
Note 5 - Derivative instruments
JPMorgan Chase & Co./2020 Form 10-K
198
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
202-209 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. Refer to Notes 2 and 3 for a further
discussion of derivatives embedded in structured notes.
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
Accounting for derivatives
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain exchanges and
clearing houses. The Firm does not reflect the clients'
derivative contracts in its Consolidated Financial
Statements. Refer to Note 28 for further information on the
Firm's clearing services.
Refer to the risk management derivatives gains and losses
table on page 209 of this Note, and the hedge accounting
gains and losses tables on pages 206-208 of this Note for
more information about risk management derivatives.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Derivative clearing services
Commodities derivatives are used to manage the price risk
of certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. Refer to the Credit derivatives section on pages
209-211 of this Note for a further discussion of credit
derivatives.
Foreign currency derivatives are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
The Firm generally uses interest rate derivatives to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increase or decrease as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
Risk management derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative contracts or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Market-making derivatives
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
Notes to consolidated financial statements
• Commodity
4,864
11,436
Consumer & Retail
9,717
694
94,616
105,027
11,374
108,437
1,750
122,870
(c)
32,591
619
117,709
150,919
109,746
39,013
2,802
66,622
Asset Managers
41,945
2,766
15,322
60,033
53,211
4,252
14,687
72,150
Telecommunications
Technology, Media &
68,577
1,424
36,985
106,986
28,814
66,573
1,385
148,498
sheet(k)
Off-balance
2019
On-balance sheet
Loans (i)
Derivatives
Credit
exposure (h)(i)
Off-balance
sheet (k)
Derivatives
Consumer, excluding credit card
Loans (i)
Credit
exposure
December 31, (in millions)
On-balance sheet
2020
In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the
consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied
when determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to
Note 1 for further information.
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale credit exposure by the Firm's
three credit portfolio segments as of December 31, 2020 and 2019. The wholesale industry of risk category is generally based
on the client or counterparty's primary business activity.
(h)(i)
$ 375,898 $ 318,579
(j)
$
650,720
690,889
168,924
486,741
819,644
1,177,630
658,506
715,825
462,795
1,178,620
Individuals and Individual Entities
Real Estate
Wholesale-related (b)
Total consumer-related (a)
144,216
802,722
Credit card (a)
$ 40,169
$ 57,319 $ 357,986 $ 317,817 $
118,299
31,059
9,277
26,237
18,054
38,286
State & Municipal Govt (d)
27,688
852
13,101
2,347
41,641
1,643
11,267
39,159
Oil & Gas
15,906
368
26,249
17,885
30,095
13,271
856
4,884
17,176
Chemicals & Plastics
27,113
2,573
5,157
34,843
21,910
3,340
4,874
30,124
Utilities
14,824
2,000
18,844
35,118
20,208
5,995
60,118
Healthcare
39,542
878
22,063
62,483
43,476
1,851
21,143
66,470
Industrials
23,136
7,160
24,008
54,304
19,405
17,499
3,252
50,824
17,128
43,331
Automotive
14,430
5,165
31,191
50,786
14,984
8,044
31,004
54,032
Banks & Finance Cos
31,139
2,078
17,607
37,461
Hedge commodity inventory
Fair value hedge
CIB
$
$ 279,272
15,121
27,421
701
14,876
14,876
Credit
1
$
843
$
$ 312,451
Interest rate
Trading assets and
liabilities
(b)
$ 313,294
$ 279,273
$ 8,603
15,121
6,477
45,727
45,727
16,914
Commodity
Equity
13,158
145,108
983
144,125
9,005
138,487
308
138,179
Foreign exchange
1,652
derivative
payables
52,741
Net
Designated
as hedges
25,898
81,413
81,413
20,834
6,771
21,503
924
1,895
20,579
20,673
74,798
74,798
Equity
21,433
215,926
Commodity
22,729
8,285
Total fair value of trading
assets and liabilities
Not
designated
as hedges
Net
derivative
receivables (b)
Total
Designated as derivative
hedges receivables
as hedges
Not
designated
December 31, 2019
(in millions)
Gross derivative payables
Gross derivative receivables
$ 70,623
$ 688,887
$ 3,592
$ 685,295
79,630
$ 707,554 $
$ 704,898 $ 2,656
Total
derivative
payables
-
52,741
12,537
(17,919)
(395)
(355,765)
385,950
554
18,340
$ 29,605
$ 367,056 $ (337,451)
421
159
30,185
derivative
receivables
2019
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
receivables
Net
derivative
receivables
2020
Amounts
Gross
netted on the
derivative Consolidated
receivables balance sheets
OTC-cleared
OTC
Net
$ 299,205
9,442
347
308,994
$ (276,255)
(9,360)
(258)
(285,873)
$ 22,950
Foreign exchange contracts:
432
426
6
(10,317)
(3,858)
(14,175)
10,743
3,864
14,607
555
17
538
(8,514)
(4,309)
(12,823)
13,378
Total credit contracts
9,052
4,326
23,121
89
82
Credit contracts:
Total interest rate contracts
Exchange-traded (a)
OTC-cleared
$
$ 510,995
$ 529,626 $ 49,766
1,479
$
$ 528,147
assets and liabilities
Total fair value of trading
7,758
19,885
149
19,736
6,162
17,242
328
1,133
1,697
$ 512,128
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
OTC
Interest rate contracts:
U.S. GAAP nettable derivative receivables
December 31, (in millions)
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
collateral that consists of liquid securities and other cash collateral held at third-party custodians, which are shown
separately as "Collateral not nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure
amount. Liquid securities represent high quality liquid assets as defined in the LCR rule;
•
•
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
The following tables present, as of December 31, 2020 and 2019, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown
separately in the tables below.
Derivatives netting
JPMorgan Chase & Co./2020 Form 10-K
202
$ 43,708
1,995
15,192
15,192
214,229
Credit derivatives (a)
32,679
31,093
Total interest rate contracts
4,361
3,675
1,201
Purchased options
3,375
Written options
3,152
3,057
Futures and forwards
21,228
3,938
1,242
Foreign exchange contracts
Cross-currency swaps
Equity contracts
10,599
12,450
Total foreign exchange contracts
718
825
Purchased options
700
830
Written options
5,577
6,871
Spot, futures and forwards
3,604
3,924
20,986 $
$
Swaps
Interest rate contracts
209
209
CIB
Specified risk management
Specified risk management Corporate
209
CCB
Specified risk management
Market-making derivatives and other activities:
Manage the credit risk associated with wholesale lending exposures
Manage the risk associated with certain other specified assets and
liabilities
Manage the risk associated with mortgage commitments, warehouse
loans and MSRS
• Interest rate
Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships:
• Interest rate and
foreign exchange
• Credit
206-207
• Various
Swaps
• Various
Other derivatives
2019
2020
(b)
(c)
December 31, (in billions)
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2020
and 2019.
Notional amount of derivative contracts
JPMorgan Chase & Co./2020 Form 10-K
200
Corporate
209
CIB, AWM,
209
CIB
Market-making and other
Market-making and other
Market-making and related risk management
201,349
Futures and forwards
Purchased options
(b)
Net
Total
derivative derivative
payables payables
Designated
as hedges
Not
designated
as hedges
Net
derivative
receivables (b)
Trading assets and
Total
derivative
receivables
Not
designated
as hedges
December 31, 2020
(in millions)
Gross derivative payables
Gross derivative receivables
Free-standing derivative receivables and payables (a)
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2020 and 2019, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Designated as
hedges
liabilities
Interest rate
$ 390,659
15,781
206,260
901
205,359
Foreign exchange
680
$ 353,627 $ 13,012
$
$ 353,627
$ 35,725
$ 391,490
13,503
13,503
Credit
831
$
Impact of derivatives on the Consolidated balance sheets
Notes to consolidated financial statements
201
JPMorgan Chase & Co./2020 Form 10-K
147
138
Swaps
Commodity contracts
Total equity contracts
1,805
1,885
611
621
646
676
142
140
406
448
Spot, futures and forwards
Written options
198
Written options
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative contracts, the notional
amount is not exchanged; it is simply a reference amount
used to calculate payments.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
(a) Refer to the Credit derivatives discussion on pages 209-211 for more
information on volumes and types of credit derivative contracts.
46,942
47,194 $
$
Total derivative notional amounts
617
565
Total commodity contracts
124
105
Purchased options
135
124
211
Commodity (d)
JPMorgan Chase & Co./2020 Form 10-K
Year ended December 31, 2018
Derivatives -
Gains/(losses).
recorded in OCI (f)
Changes in fair
value
Amortization
approach
Income
statement
impact
Hedged items
Derivatives
OCI impact
Income statement impact of
excluded components (e)
Gains/(losses) recorded in income
39
$
$
1,373
$
63
39
482
(866)
482
71
1,384
148
(1,897) $
3,281 $
$
(77)
328
(866) $
$
(1,145) $
1,092
789
736 $
1,782 $
Total
JPMorgan Chase & Co./2020 Form 10-K
206
(f) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-
currency basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
(e) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts, time values and cross-currency basis spreads. Excluded components may impact earnings either through
amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were
recorded primarily in principal transactions revenue and net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate
swaps and the related hedged items.
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
(140)
$
1,125
(566) $
1,148 $
26
35
(754)
(140)
623 $
476
(566)
476
(616)
$
$
637
154
$
412 $
$
(457)
174
(619)
$
1,093
$
1,073 $
(1,889) $
2,962 $
793
$
Derivatives -
Gains/(losses).
recorded in OCI (f)
174
Changes in fair
value
Income
statement
impact
Derivatives Hedged items
OCI impact
Gains/(losses) recorded in income
Total
Commodity (d)
Foreign exchange (c)
Interest rate (a)(b)
Contract type
(in millions)
828
Amortization
approach
25
Income statement impact of
excluded components
2,650
831 $
(2,373) $
(2,507)
3,204 $
$
Derivatives -
Gains/(losses).
recorded in OCI(f)
Amortization
approach
Income
statement
impact
Hedged items
Derivatives
OCI impact
Income statement impact of
excluded components
Gains/(losses) recorded in income
Changes in fair
value
1,248 $
$
1,404
(457) $
137
$
1,390
142 $
-
$
143
25
(c) The prior-period amounts have been revised to conform with the
current presentation.
Principal transactions revenue is earned primarily by CIB.
Refer to Note 32 for segment results.
2018
The following table presents the components of lending-
and deposit-related fees.
Year ended December 31, (in millions)
Lending-related fees
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned from providing overdraft
and other deposit account services, and from performing
cash management activities. Lending- and deposit-related
fees in this revenue category are recognized over the period
in which the related service is provided.
(b) Includes the impact of changes in credit valuation adjustments on
derivatives, net of the associated hedging activities.
$ 18,021
$ 12,059
$ 14,018
Principal transactions
(349)
(250)
181
Deposit-related fees"
Private equity gains/
(losses)
(a) Includes the impact of changes in funding valuation adjustments on
derivatives.
(a)
$ 11,694
2019
11,038
2019
11,180
12,032
270
315
338
$ 10,768
$ 10,865
Asset management fees
Investment management fees (a)
All other asset management fees (b)
Total asset management fees
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 32 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
Total lending- and deposit-related fees $6,511 $6,626 $ 6,377
(a) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions to lending- and
deposit-related fees. Prior-period amounts have been revised to
conform with the current presentation.
$ 1,117
5,260
$ 1,184
5,442
5,240
$ 1,271
2018
2020
2020
1,628
12,408
Foreign exchange
1,625
(c)
(c)
2,753
Credit (b)
1,844
$ 2,739 $
4,253
(c)
(c)
Interest rate (a)
instrument type
Trading revenue by
2018
2019
2020
Total administration fees (c)
$ 2,575
Year ended December 31,
(in millions)
3,179
3,222
14,268
17,840
Total trading revenue
895
1,133
The following table presents the components of Firmwide
asset management, administration and commissions.
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to these third-party service
providers are generally recorded in professional and
outside services expense.
(c)
(c)
2,088
Commodity
4,822
5,589
(c)
(c)
6,171
Equity
(c)
(c)
2,249
Other expense on the Firm's Consolidated statements of
income included the following:
2,179
239
1,115 $
$
2018
2019
2020
Legal expense/(benefit)
FDIC-related expense
Year ended December 31,
(in millions)
$
(in millions)
Noninterest expense
Refer to Note 18 for information on operating lease income
included within other income.
Includes an adjustment to the credit card rewards liability of
approximately $330 million, recorded in the second quarter of 2018.
Card income is earned primarily by CCB, CIB and CB. Refer
to Note 32 for segment results.
(c)
(a) In the second quarter of 2020, the Firm reclassified certain spend-
based credit card reward costs from marketing expense to be a
reduction of card income, with no effect on net income. Prior-period
amounts have been revised to conform with the current presentation.
(b) Predominantly represents the amortization of account origination
costs and annual fees, which are deferred and recognized on a
straight-line basis over a 12-month period.
$ 4,435 $ 5,076 $ 4,743
(13,320)
(745)
(14,540)
(754)
Other expense
(13,637)
(491)
72
457
1,329
1,184
7,962
7,843
$ 43,758 $ 51,855 $ 49,032
2018
2019
2020
717
Non-taxable securities (c)
Interest income
Loans (a)(b)
Year ended December 31,
(in millions)
The following table presents the components of interest
income and interest expense:
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
Note 7 - Interest income and Interest expense
JPMorgan Chase & Co./2020 Form 10-K
214
1,239
Taxable securities
2,197
(c)
$ 20,370
Mortgage fees and related income
Asset management, administration and commissions are
earned primarily by AWM, CIB and CCB. Refer to Note 32 for
segment results.
(e) In the first quarter of 2020, the Firm reclassified certain fees from
asset management, administration and commissions to lending- and
deposit-related fees. Prior-period amounts have been revised to
conform with the current presentation.
(c) Predominantly includes fees for custody, securities lending, funds
services and securities clearance. These fees are recorded as revenue
over the period in which the related service is provided.
(d) Represents commissions earned when the Firm acts as a broker, by
facilitating its clients' purchases and sales of securities and other
financial instruments. Brokerage commissions are collected and
recognized as revenue upon occurrence of the client transaction. The
Firm reports certain costs paid to third-party clearing houses and
exchanges net against commission revenue.
(b) Represents fees for services that are ancillary to investment
management services, such as commissions earned on the sales or
distribution of mutual funds to clients. These fees are recorded as
revenue at the time the service is rendered or, in the case of certain
distribution fees based on the underlying fund's asset value and/or
investor redemption, recorded over time as the investor remains in the
fund or upon investor redemption.
administration and commissions $ 18,177 $ 16,908 $ 16,793
(a) Represents fees earned from managing assets on behalf of the Firm's
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
Total asset management,
3,576
This revenue category reflects CCB's Home Lending net
production and net mortgage servicing revenue.
3,531
1,071
1,092
937
All other commissions and fees (e)
Total commissions and fees
2,505
2,439
2,959
Commissions and other fees
Brokerage commissions (d)
3,896
$ 18,808
Net production revenue includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option. Net mortgage
213
$ 18,563
2018
2019
2020
Other card income (b)
Total card income
(a)
Interchange and merchant
processing income
Reward costs and partner
payments
Year ended December 31,
(in millions)
JPMorgan Chase & Co./2020 Form 10-K
The following table presents the components of card income:
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
Credit card revenue sharing agreements
Certain credit card products offer the cardholder the ability
to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
This revenue category includes interchange and other
income from credit and debit card transactions; and fees
earned from processing card transactions for merchants,
both of which are recognized when purchases are made by
a cardholder and presented net of certain transaction-
related costs. Card income also includes account origination
costs and annual fees, which are deferred and recognized
on a straight-line basis over a 12-month period.
Card income
Net interest income from mortgage loans is recorded in
interest income.
servicing revenue includes operating revenue earned from
servicing third-party mortgage loans, which is recognized
over the period in which the service is provided; changes in
the fair value of MSRS; the impact of risk management
activities associated with MSRs; and gains and losses on
securitization of excess mortgage servicing. Net mortgage
servicing revenue also includes gains and losses on sales
and lower of cost or fair value adjustments of certain
repurchased loans insured by U.S. government agencies.
Refer to Note 15 for further information on risk
management activities and MSRS.
Notes to consolidated financial statements
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program rewards are reported as a
reduction of card income when incurred. Payments to
partners based on new credit card account originations are
accounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on a
straight-line basis over a 12-month period. Payments to
partners based on sales volumes are reported as a
reduction of card income when the related interchange
income is earned.
Year ended December 31,
Total
212
(3,854)
(e)
46,541
618,433
(e)
3,936
Credit-related notes
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2020 and
2019. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased through credit-related notes.
7,364
210
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
Total credit derivatives and credit-related notes
December 31, 2020 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives (a)
Total credit derivatives
Credit-related notes
JPMorgan Chase & Co./2020 Form 10-K
Total
5,700
9,606
Total notional
amount
>5 years
1-5 years
<1 year
December 31, 2020
(in millions)
Protection sold - credit derivatives and credit-related notes ratings (a)/maturity profile
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2020 and 2019, where JPMorgan Chase is the seller of protection. The maturity
profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the
rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile
reflected below.
(e) Prior-period amounts have been revised to conform with the current presentation.
11,300
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.
(a) Other credit derivatives predominantly consist of credit swap options and total return swaps.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on
protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
20,906
5,700 $
$
618,433
$
(612,733)
$
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of
protection pays to the buyer of protection in determining settlement value.
Fair value of
receivables(b)
December 31, 2019 (in millions)
Credit default swaps
-
10,248
$ (575,178)
$ 611,909
$
36,731 $
23,664
Maximum payout/Notional amount
13,416
Protection purchased
Protection sold
with identical
underlyings"
(b)
(sold)/
purchased (c)
Other
protection
purchased (d)
$
(562,338)
(50,395)
(612,733)
$ 571,892
Net protection
Credit derivatives
36,731
4,001
Other credit derivatives (a)
Total credit derivatives
Credit-related notes
Total
Maximum payout/Notional amount
Protection purchased
with identical
Net protection
Protection sold
9,415
underlyings (b)
Other
protection
purchased (d)
$
(535,094)
(40,084)
(575,178)
$ 554,565
$
57,344
611,909
19,471 $
17,260
(sold)/
purchased (c)
JPMorgan Chase & Co./2020 Form 10-K
Fair value of
payables(b)
Risk rating of reference entity
5,161
7,121
3,513
4,362
$ 2,759 $ 1,648 $ 1,684
Advisory
Total underwriting
Debt
2,365
Equity
2018
2019
2020
Year ended December 31,
(in millions)
The following table presents the components of investment
banking fees.
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of the
client's transaction.
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance price
and quantity of the underlying instruments, and are
recognized as revenue typically upon execution of the
client's transaction. The Firm also manages and syndicates
loan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing and
yield criteria.
Investment banking fees
Underwriting
The Firm records noninterest revenue from certain
contracts with customers in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income. The
related contracts are often terminable on demand and the
Firm has no remaining obligation to deliver future services.
For arrangements with a fixed term, the Firm may commit
to deliver services in the future. Revenue associated with
these remaining performance obligations typically depends
on the occurrence of future events or underlying asset
values, and is not recognized until the outcome of those
events or values are known.
2,340
$ 9,486 $ 7,501 $ 7,550
Trading revenue is presented primarily by instrument type.
The Firm's client-driven market-making businesses
generally utilize a variety of instrument types in connection
with their market-making and related risk-management
activities; accordingly, the trading revenue presented in the
table below is not representative of the total revenue of any
individual LOB.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities in CIB and cash deployment activities in
Treasury and CIO. Refer to Note 7 for further information
on interest income and interest expense.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
Refer to Note 5 for further information on the income
statement classification of gains and losses from derivatives
activities.
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
•
3,347
5,031
2,519
•
Unrealized gains and losses result from changes in
valuation.
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
•
Principal transactions revenue is driven by many factors,
including:
Principal transactions
Total investment banking fees
Investment banking fees are earned primarily by CIB. Refer
to Note 32 for segment results.
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
Net fair
value
Noninterest revenue
Notes to consolidated financial statements
$ 4,686
1,411
(835)
(2,542)
(3,377)
$
5,521
3,953
9,474 $
$
$ (575,178)
Total notional
amount
>5 years
1-5 years
$ 6,097
<1 year (c)
December 31, 2019
$ (436,879) $
(138,299)
$ (307,648) $ (35,326)
(97,337)
(9,153)
$ (404,985) $ (44,479)
$ (125,714)
Total
$ (93,905)
(31,809)
Noninvestment-grade
Investment-grade
(in millions)
Note 6 - Noninterest revenue and noninterest expense
Fair value of
receivables (b)(c)
Net fair
value
211
JPMorgan Chase & Co./2020 Form 10-K
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements including cash collateral netting.
(c) Prior-period amounts have been revised to conform with the current presentation.
$ (399,176) $ (51,970)
$ 6,737
$ 5,267
1,470
6,168 $ (901)
4,287
(2,817)
10,455 $ (3,718)
$ (612,733) $
Fair value of
payables (b)(c)
$ (161,587)
$ (473,324) $
(139,409)
$ (42,129)
(9,841)
$ (311,407)
(87,769)
(41,799)
Noninvestment-grade
$ (119,788)
Investment-grade
Risk rating of reference entity
5,653
1,595
$
Total investment securities (a)
9,291
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Total change
in OCI
for period
44 $
(44) $
(88)
(26)
(201)
(175)
18 $
(245) $
(263)
(a) Primarily consists of hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of
gains and losses follows the hedged item - primarily noninterest revenue and compensation expense.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2020, 2019 and 2018.
Over the next 12 months, the Firm expects that approximately $818 million (after-tax) of net gains recorded in AOCI at
December 31, 2020, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately nine years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm's
longer-dated forecasted transactions relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2020, 2019 and
2018.
Year ended December 31,
(in millions)
Foreign exchange derivatives
$
$
225
122 $
3,012
41
41
570 $
3,623 $
3,053
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from Amounts recorded
AOCI to income
2020
in OCI
$
(28) $
(3) $
25
(75)
125
200
$
(103) $
Total change
in OCI
for period
3,582 $
2019
Amounts
recorded in
income (a)(b)
2018
$ 2,994 $ 1,491 $
(176)
43
(30)
(5)
$ 2,861 $ 1,456 $
79
(21)
117
175
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in mortgage commitments, warehouse loans
and MSRS, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this
category. Gains and losses on these derivatives are
primarily recorded in principal transactions revenue. Refer
to Note 6 for information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm's wholesale
businesses, and to manage the credit risk arising from
certain financial instruments in the Firm's market-making
businesses. Following is a summary of various types of
credit derivatives.
JPMorgan Chase & Co./2020 Form 10-K
209
Notes to consolidated financial statements
Credit default swaps
Credit derivatives may reference the credit of either a single
reference entity (“single-name”) or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS
and index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
2019
2020
Derivatives gains/(losses)
recorded in income
Foreign exchange (c)
Total
$(122)
Amounts
recorded in
OCI
$(1,408)
Amounts
recorded in
income(a)(b)
$72
Amounts
recorded in
OCI
$64
Amounts
recorded in
income (a)(b)
Amounts
recorded in
OCI
$11
$1,219
2018
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
208
JPMorgan Chase & Co./2020 Form 10-K
Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax gains/(losses)
recorded on a limited number of derivatives, not designated
in hedge accounting relationships, that are used to manage
risks associated with certain specified assets and liabilities,
including certain risks arising from mortgage commitments,
warehouse loans, MSRS, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Year ended December 31,
(in millions)
Contract type
Interest rate (a)
Credit (b)
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. The Firm reclassified net pre-tax gains/(losses) of
$3 million and $18 million to other income, and $(17) million to other expense related to the liquidation of certain legal entities during the years ended
December 31, 2020, 2019 and 2018, respectively. Refer to Note 24 for further information.
570 $
Total change
in OCI
for period
Amounts recorded
in OCI
177,611
746
$
3,194 $
11,473 $
(3)
14,667
December 31, 2019
(in millions)
Assets
Investment securities - AFS
Liabilities
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Carrying amount
of the hedged
items
Active hedging
relationships
Discontinued
hedging
relationships
(d)(e)
Total
$
(c)
Beneficial interests issued by consolidated VIES
$
Long-term debt
4,419
As of December 31, 2020 and 2019, the following amounts were recorded on the Consolidated balance sheets related to
certain cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future
periods as an adjustment to yield.
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
December 31, 2020
(in millions)
Assets
Investment securities - AFS
Liabilities
Carrying amount
of the hedged
125,860
items
Discontinued
hedging
relationships
(d)(e)
Total
(c)
$
139,684
$
3,572 $
847 $
Active hedging
relationships
$
2,110 $
278 $
Interest rate
(a)
Foreign exchange (b)
Total
Year ended December 31, 2019
(in millions)
Contract type
Interest rate
(a)
Contract type
Foreign exchange (b)
Year ended December 31, 2018
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Total
$
$
Amounts
reclassified from
AOCI to income
Total
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
(in millions)
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
2,388
Long-term debt
$
157,545
2,365
$
6,719 $
161 $
6,880
(8)
Year ended December 31, 2020
(8)
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. At December 31, 2020 and 2019, the carrying amount excluded for AFS securities is
$14.5 billion and $14.9 billion, respectively, and for long-term debt is $6.6 billion and $2.8 billion, respectively.
(c) Carrying amount represents the amortized cost, net of allowance if applicable. Refer to Note 10 for additional information.
(d) Represents basis adjustments existing on the balance sheet date associated with hedged items that have been de-designated from qualifying fair value
hedging relationships.
(e) Positive amounts related to assets represent cumulative fair value hedge basis adjustments that will reduce net interest income in future periods. Positive
(negative) amounts related to liabilities represent cumulative fair value hedge basis adjustments that will increase (reduce) net interest income in future
periods.
JPMorgan Chase & Co./2020 Form 10-K
207
Notes to consolidated financial statements
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2020, 2019 and 2018,
respectively. The Firm includes the gains/(losses) on the hedging derivative in the same line item in the Consolidated
statements of income as the change in cash flows on the related hedged item.
Beneficial interests issued by consolidated VIES
(a) Excludes physical commodities with a carrying value of $11.5 billion and $6.5 billion at December 31, 2020 and 2019, respectively, to which the Firm
applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing
unrealized gains and losses in current periods. Since the Firm exits these positions at fair value, there is no incremental impact to net income in future
periods.
9,027
9,554 $
5,585
Provision for credit losses
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
reported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable. Refer to Notes 12, 10, 11 and 20,
for further information on accounting for interest income
and interest expense related to loans, investment securities,
securities financing activities (i.e., securities purchased or
sold under resale or repurchase agreements; securities
borrowed; and securities loaned) and long-term debt,
respectively.
Net interest income
9,960 $26,795 $ 21,041
$
Total interest expense
493
568
Net interest income after provision
for credit losses
214
7,978
8,807
5,764
Long-term debt
2,387
2,585
195
liabilities (d)(g)
Beneficial interest issued by
other interest-bearing
$ 54,563 $ 57,245 $ 55,059
4,871
JPMorgan Chase & Co./2020 Form 10-K
216
Pension and OPEB accounting guidance generally requires
that the difference between plan assets at fair value and the
benefit obligation be measured and recorded on the
balance sheet. Plans that are overfunded (excess of plan
assets over benefit obligation) are recorded in other assets
and plans that are underfunded (excess benefit obligation
over plan assets) are recorded in other liabilities. Gains or
losses resulting from changes in the benefit obligation and
the fair value of plan assets are recorded in OCI and
recognized as part of the net periodic benefit cost over
subsequent periods as discussed in the Gains and losses
section of this Note. Additionally, benefits earned during the
year are reported in compensation expense; all other
components of net periodic defined benefit costs are
reported in other expense in the Consolidated statements of
income.
The Firm partially defrays the cost of its U.S. OPEB
obligation through corporate-owned life insurance ("COLI")
purchased on the lives of eligible employees and retirees.
While the Firm owns the COLI policies, certain COLI
proceeds (death benefits, withdrawals and other
distributions) may be used only to reimburse the Firm for
its net postretirement benefit claim payments and related
administrative expense. The Firm has prefunded its U.S.
postretirement benefit obligations. The U.K. OPEB plan is
unfunded.
The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to certain qualifying U.S. and U.K. employees.
The Firm also has a number of nonqualified noncontributory
defined benefit pension plans that are unfunded. These
plans provide supplemental defined pension benefits to
certain employees.
The Firm also has defined benefit pension plans that are
offered in certain non-U.S. locations based on factors such
as eligible compensation, age and/or years of service. It is
the Firm's policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time making any
contribution to the U.S. defined benefit pension plan in
2021. The 2021 contributions to the non-U.S. defined
benefit pension plans are expected to be $50 million, of
which $35 million are contractually required.
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. The Firm also provides a
qualified defined contribution plan in the U.S. and maintains
other similar arrangements in certain non-U.S. locations.
The principal defined benefit pension plan in the U.S. is a
qualified noncontributory plan that provides benefits to
substantially all U.S. employees who were hired prior to
December 2, 2017. The Firm has frozen the U.S. defined
benefit pension plan (the "Plan Freeze"). Effective as of
January 1, 2020 (and January 1, 2019 for new hires), new
pay credits have been directed to the U.S. defined
contribution plan. Interest credits will continue to accrue on
the U.S. defined benefit pension plan. As a result of the Plan
Freeze, a curtailment was triggered and a remeasurement
of the U.S. defined benefit pension obligation and plan
assets occurred as of November 30, 2018. The plan design
change did not have a material impact on the U.S. defined
benefit pension plan or the Firm's Consolidated Financial
Statements.
17,480
Note 8 - Pension and other postretirement
employee benefit plans
215
JPMorgan Chase & Co./2020 Form 10-K
(g) All other interest-bearing liabilities includes interest expense on
brokerage-related customer payables.
(d) Negative interest income is related to the impact of current interest
rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage
customer payables is recognized in interest expense and reported
within trading liabilities - debt and all other interest-bearing liabilities.
(e) Includes interest earned on brokerage-related held-for-investment
customer receivables, which are classified in accrued interest and
accounts receivable, and all other interest-earning assets, which are
classified in other assets on the Consolidated balance sheets.
(f) Includes commercial paper.
(c) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
purchase premiums/discounts, net deferred fees/costs, and others).
(b) In the third quarter of 2020, the Firm reclassified certain fair value
option elected lending-related positions from trading assets to loans
and other assets. Prior-period amounts have been revised to conform
with the current presentation.
(a) Includes the amortization/accretion of unearned income (e.g.,
$ 37,083 $ 51,660 $ 50,188
Notes to consolidated financial statements
Trading liabilities - debt and all
consolidated VIES
1,248
749
Deposits with banks
913
1,574
(302)
Securities borrowed (d)
3,819
1,144
3,887
2,436
purchased under resale
Federal funds sold and securities
7,146
9,141
7,832
(b)
Trading assets - debt instruments
7,248
agreements
5,907
6,146
(b)(e)
All other interest-earning assets
372
Short-term borrowings (f)
3,066
4,630
1,058
repurchase agreements
Federal funds purchased and
5,973
securities loaned or sold under
1,023
$
Interest bearing deposits
Interest expense
$ 64,523 $ 84,040 $ 76,100
Total interest income
2,035
2,146
2,357 $ 8,957 $
(1,157) $
77
(270)
373
$
(187) $
(27)
(214) $
$
450
(887) $
$
Plan assumptions
(1,013) $
423
Total recognized in net periodic defined benefit plan cost/(credit) and other comprehensive income
The following table presents the weighted-average actuarial assumptions used to determine the net periodic benefit costs for
the U.S. defined benefit pension plans.
Year ended December 31, (in millions)
Discount rate
Expected long-term rate of return on plan assets
Rate of compensation increase
Interest crediting rate
(21)
The Firm's expected long-term rate of return for defined
benefit pension plan assets is a blended weighted average,
by asset allocation of the projected long-term returns for
the various asset classes, taking into consideration local
market conditions and the specific allocation of plan assets.
Returns on asset classes are developed using a forward-
looking approach and are not strictly based on historical
returns. Consideration is also given to current market
conditions and the portfolio mix of each plan.
(499) $
21
100 %
(147)
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension plan was provided by
the Firm's actuaries. This rate was selected by reference to
the yields on portfolios of bonds with maturity dates and
coupons that closely match each of the plan's projected
cash flows.
Curtailment (loss)/gain
Amortization of prior service (cost)/credit
Amortization of net (loss)/gain
Net (gain)/loss arising during the year
Prior service (credit)/cost arising during the year
Changes recognized in other comprehensive income, U.S. defined benefit pension plans
845
1,096 $
1,047 $
(80)
$
872
952
Total recognized in other comprehensive income, U.S. defined benefit pension plans
Other defined benefit pension and OPEB plans
Total recognized in other comprehensive income
5
(181)
(745)
453
(6)
Total pension and OPEB cost included in noninterest expense
100 %
U.S. defined benefit pension plans
2019
4.30% 3.70/4.50%
$
Net periodic defined benefit plan cost/(credit), U.S. defined benefit pension plans
21
Curtailment (gain)/loss
(21)
100 %
80
147
6
(836)
478
323
327 $
518
(776)
(634)
(204) $
422
$
2018
Pension and OPEB plans
2019
2020
Net (gain)/loss
Expected return on plan assets
Amortization:
Interest cost on benefit obligations
Benefits earned during the year
Components of net periodic benefit cost, U.S. defined benefit pension plans
Year ended December 31, (in millions)
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm's defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the
defined benefit pension and OPEB plans.
Notes to consolidated financial statements
217
JPMorgan Chase & Co./2020 Form 10-K
2 $
For the Firm's defined benefit pension plans, fair value is used to determine the expected return on plan assets. Amortization
of net gains and losses is included in annual net periodic benefit cost if, as of the beginning of the year, the net gain or loss
exceeds 10% of the greater of the projected benefit obligation or the fair value of the plan assets. Any excess is amortized
over the average expected remaining lifetime of plan participants, which for the U.S. defined benefit pension plans is currently
37 years and for the non-U.S. defined benefit pension plans is the period appropriate for the affected plan. For the years
ended December 31, 2020 and 2019, the net gain was primarily attributable to a market-driven increase in the fair value of
plan assets, predominantly offset by a decrease in the discount rate.
216 $
Other defined benefit pension and OPEB plans
(a) Debt securities primarily includes cash and cash equivalents, corporate debt, U.S. federal, state, local and non-U.S. government, asset-backed and
mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. defined benefit pension plan only as it is the most significant plan. The other U.S. defined benefit pension plans are unfunded. The
weighted-average asset allocation for the U.S. OPEB plan was 59% debt securities and 41% equity securities and 60% debt securities and 40% equity
securities at December 31, 2020 and 2019, respectively.
JPMorgan Chase & Co./2020 Form 10-K
219
Notes to consolidated financial statements
Fair value measurement of the plans' assets and liabilities
Refer to Note 2 for information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value
hierarchy and the valuation methods employed by the Firm.
Pension plan assets and liabilities measured at fair value
Defined benefit pension and OPEB plans
2020
1,332
2019
December 31,
45
(in millions)
Corporate debt securities
U.S. federal, state, local and non-U.S.
government debt securities
Mortgage-backed securities
Other (a)
U.S. defined benefit pension plans (b)
Other defined benefit pension and OPEB
plans (c)
Total defined contribution plans
(27)
144 $
(285) $
$
Total net periodic defined benefit plan cost/(credit)
(72)
(72)
(81)
Equity securities
2020
3.30%
Gains and losses
4.65
December 31,
U.S. defined benefit pension plan (c)
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved asset allocation ranges by asset class.
Investments held by the Firm's defined benefit pension and
OPEB plans include financial instruments which are exposed
to various risks such as interest rate, market and credit
risks. Exposure to a concentration of credit risk is mitigated
by the broad diversification of both U.S. and non-U.S.
investments. Additionally, the investments in each of the
collective investment funds and/or registered investment
companies are further diversified into various financial
instruments. As of December 31, 2020, assets held by the
Firm's defined benefit pension and OPEB plans do not
include securities issued by JPMorgan Chase or its affiliates,
except through indirect exposures through investments in
ETFS, mutual funds and collective investment funds
managed by third-parties. The defined benefit pension and
OPEB plans hold investments that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$2.7 billion and $3.1 billion, as of December 31, 2020 and
2019, respectively.
(1,586) $
The investment policies for the assets of the Firm's defined
benefit pension plans are to optimize the risk-return
relationship as appropriate to the needs and goals of each
plan. Assets are managed by a combination of internal and
external investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as other
factors that could impact the portfolios, which are
rebalanced when deemed necessary.
The assets of the Firm's defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments. The trust-
owned assets of the Firm's U.S. OPEB plan are invested
primarily in fixed income securities. COLI policies used to
partially defray the cost of the Firm's U.S. OPEB plan are
invested in separate accounts of an insurance company and
are allocated to investments intended to replicate equity
and fixed income indices.
Investment strategy and asset allocation
JPMorgan Chase & Co./2020 Form 10-K
218
404
ΝΑ
43
(20)
$
Asset class
Expected long-term rate of return
Discount rate
Pension expense
(in millions)
Effect on U.S. defined benefit pension plans
The following table represents the effect of a 25-basis point
decline in the expected long-term rate of return of 3.00%
and discount rate of 2.50%.
At December 31, 2020, the Firm decreased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension plans in light of current market
interest rates, which is expected to decrease expense by
approximately $64 million in 2021. The 2021 expected
long-term rate of return on U.S. defined benefit pension
plan assets is 3.00%.
4.90
4.90
2.30
2.30
ΝΑ
4.65
5.50
5.50
4.00
2018
Benefit
obligation
Interest crediting rate
Asset
Allocation
2019
4.65
ΝΑ
ΝΑ
3.30%
2.50%
2019
2020
U.S. defined benefit
pension plans
Rate of compensation increase
Discount rate
As of December 31,
The following table presents the weighted-average actuarial assumptions used to value the benefit obligations for the U.S.
defined benefit pension plans.
(1,816)
Total
% of plan assets
2020
9
0-15
1
1
0-4
16
15
0-40
Alternatives (b)
Equity securities
Real estate
74 %
77 %
42-100%
Debt securities (a)
7
Prior service (credit)/cost
Number of
awards
Level 1
LO
4
3,677
96
13
1 33
-
Asset-backed securities:
Collateralized loan obligations
Other
5,248
268
18
2,645
1
685
13
7,893
Less than 12 months
Gross
Fair value unrealized losses
December 31, 2019 (in millions)
106
16,827 $
49 $
4,694 $
5
$
12,133 $
$
Total available-for-sale securities with gross
unrealized losses
31
16
953
15
57
Available-for-sale securities with gross unrealized losses
12 months or more
3
968
4
235
1
2,742
35
Commercial
699
18
124
16
823
34
Total mortgage-backed securities
3,768
25
391
17
9
2,709
Corporate debt securities
Non-U.S. government debt securities
-
-
91
Certificates of deposit
1
49
Obligations of U.S. states and municipalities
2
42
4,159
49
Gross
Fair value unrealized losses
Total fair
value
1
77
-
77
3,970
13
1,406
4
5,376
17
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
10,364
Other
49
18,608 $
$
Total available-for-sale securities with gross
unrealized losses
56
20
2,392
186
11
45
753
9
7,756
11
1,639
18,120
1
186
20
3 $
423 $
3 $
1,072 $
13
$
Obligations of U.S. states and municipalities
1,495 $
Total mortgage-backed securities
Non-U.S.
U.S.
Residential:
Mortgage-backed securities:
Available-for-sale securities
Total gross
unrealized losses
Commercial
2,507
6
420
3,414
5
1,042
15
2,372
13
-
1,486
199
12
1,287
1
433
1
1
Non-U.S.
594 $
$
5,438
40
20
5,458
Total available-for-sale securities"
(b)
381,729
6,705
256
388,178
345,306
5,771
378
350,699
Held-to-maturity securities (c)
Mortgage-backed securities:
U.S. GSES and government agencies (a)
U.S. Residential
77
2,602
Commercial
30
8
4,345
6,249
37,626
1,165
36,523
110,828
29
2,968
107,889
62
16
91
6,174
Corporate debt securities
21,787
17
377
21,427
22,928
215
13
22,587
Non-U.S. government debt securities
77
77
-
Certificates of deposit
354
4,323
2,679
4
216
Other
24,991
56
9
25,038
10,048
3
31
10,055
Collateralized loan obligations
Asset-backed securities:
845
22
823
24
$
Total mortgage-backed securities
3,053
Total investment securities, net of
allowance for credit losses"
$ 583,550 $ 10,417 $ 317
$ 593,650 $ 392,846 $
7,235 $ 441
$ 399,640
(a) Includes AFS U.S. GSE obligations with fair values of $65.8 billion and $78.5 billion, and HTM U.S. GSE obligations with amortized cost of $86.3 billion and
$31.6 billion, at December 31, 2020 and 2019, respectively. As of December 31, 2020, mortgage-backed securities issued by Fannie Mae and Freddie
Mac each exceeded 10% of JPMorgan Chase's total stockholders' equity; the amortized cost and fair value of such securities were $95.7 billion and $98.8
billion, and $54.7 billion and $55.8 billion, respectively.
(b) There was no allowance for credit losses on AFS securities at December 31, 2020.
(c) The Firm purchased $12.4 billion, $13.4 billion and $9.4 billion of HTM securities for the years ended December 31, 2020, 2019 and 2018, respectively.
(d) HTM securities measured at amortized cost are reported net of allowance for credit losses of $78 million at December 31, 2020.
(e) Excludes $2.1 billion and $1.9 billion of accrued interest receivables at December 31, 2020 and 2019, respectively. The Firm did not reverse through
interest income any accrued interest receivables for the years ended December 31, 2020 and 2019.
At December 31, 2020, the investment securities portfolio
consisted of debt securities with an average credit rating of
AA+ (based upon external ratings where available, and
where not available, based primarily upon internal risk
ratings). Risk ratings are used to identify the credit quality
of securities and differentiate risk within the portfolio. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., probability of
default ("PD") and loss given default (“LGD")) may differ as
they reflect internal historical experiences and
assumptions. Risk ratings are assigned at acquisition, are
reviewed on a regular and ongoing basis by Credit Risk
Management and are adjusted as necessary over the life of
the investment for updated information affecting the
issuer's ability to fulfill its obligations.
224
JPMorgan Chase & Co./2020 Form 10-K
AFS securities impairment
The following tables present the fair value and gross unrealized losses by aging category for AFS securities at December 31,
2020 and 2019. The tables exclude U.S. Treasury and government agency securities and U.S. GSE and government agency
MBS with unrealized losses of $150 million and $264 million, at December 31, 2020 and 2019, respectively; changes in the
value of these securities are generally driven by changes in interest rates rather than changes in their credit profile given the
explicit or implicit guarantees provided by the U.S. government.
Available-for-sale securities with gross unrealized losses
December 31, 2020 (in millions)
32 $
3 $
562 $
$
U.S.
Residential:
48,941
Mortgage-backed securities:
unrealized losses
Total gross
Total fair
value
12 months or more
Gross
unrealized losses
Fair value
Less than 12 months
Gross
Fair value unrealized losses
Available-for-sale securities
63
1,464
47,540
12,751
Obligations of U.S. states and municipalities
50
37,626
62
1
51
519
53,234
53,184
U.S. Treasury and government agencies
1,165
36,523
117,830
59
50
114,836
13,270
299
205,472
61
3,712
201,821
Total held-to-maturity securities, net of
allowance for credit losses (d)
6,169
4,797
6,169
2
90
21,050
Collateralized loan obligations
Asset-backed securities:
5,096
21,138
10,957 $
65 $
29,565 $
Notes to consolidated financial statements
221
JPMorgan Chase & Co./2020 Form 10-K
Refer to Note 23 for further information on the
classification of share-based awards for purposes of
calculating earnings per share.
The Firm's policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2020, 2019 and 2018, the Firm settled all of its employee
share-based awards by issuing treasury shares.
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
Once the PSUs and dividend equivalent share units have
vested, the shares of common stock that are delivered, after
applicable tax withholding, must be held for an additional
two-year period, for a total combined vesting and holding
period of approximately five to eight years from the grant
date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights ("SARS") and
stock options have generally been granted with an exercise
price equal to the fair value of JPMorgan Chase's common
stock on the grant date. SARS and stock options generally
expire ten years after the grant date. There were no
material grants of SARS or stock options in 2020, 2019 and
2018.
Performance share units ("PSUs") are granted annually,
and approved by the Firm's Board of Directors, to members
of the Firm's Operating Committee under the variable
compensation program. PSUs are subject to the Firm's
achievement of specified performance criteria over a three-
year period. The number of awards that vest can range
from zero to 150% of the grant amount. In addition,
dividends that accrue during the vesting period are
reinvested in dividend equivalent share units. PSUs and the
related dividend equivalent share units are converted into
shares of common stock after vesting.
RSUS are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Predominantly all RSUS entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding.
In 2020, 2019 and 2018, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 15, 2018.
Under the terms of the LTIP, as of December 31, 2020, 67
million shares of common stock were available for issuance
through May 2022. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the "LTI Plans,” and such plans
constitute the Firm's share-based incentive plans.
Note 9 - Employee share-based incentives
Employee share-based awards
JPMorgan Chase & Co./2020 Form 10-K
3,843
829
847
897
918
The following table presents benefit payments expected to
be paid for the U.S. defined benefit pension plans for the
years indicated.
Year ended December 31,
(in millions)
2021
2022
RSUS, PSUs, SARS and stock options activity
2023
2025
Years 2026-2030
220
$
U.S. defined
benefit pension
plans
912
2024
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for SARS and stock options, is measured at the grant date using the Black-Scholes valuation model.
Compensation expense for these awards is recognized in net income as described previously. The following table summarizes
JPMorgan Chase's RSUs, PSUs, SARS and stock options activity for 2020.
RSUS/PSUS
Year ended December 31, 2020
Granted
17,891
99.62
132.17
5,527
$
41.36
52,239 $
1
Exercised or vested
(21,502)
Forfeited
Canceled
(1,118)
ΝΑ
96.64
111.59
137.80
Estimated future benefit payments
Outstanding, January 1
intrinsic
Weighted-
SARS/Options
Weighted-average
(in thousands, except weighted-average data, and
where otherwise stated)
Number of
units
value
Weighted-
average grant
date fair value
remaining
Aggregate
$
exercise
price
contractual life
(in years)
average
(2,389)
Investments classified in level 3 of the valuation hierarchy increased $263 million in 2020 from $2.7 billion to $3.0 billion,
consisting of $343 million in unrealized gains, partially offset by $113 million in settlements. In addition, there were transfers
into level 3 of $33 million. In 2019, there was an increase of $307 million from $2.4 billion to $2.7 billion, consisting of $401
million in unrealized gains, partially offset by $85 million in settlements.
(c) At December 31, 2020 and 2019, excludes $487 million and $465 million, respectively, of certain investments that are measured at fair value using the
net asset value per share (or its equivalent) as a practical expedient. Investments in level 3 of the valuation hierarchy include $2.7 billion and $2.4 billion
of COLI policies at December 31, 2020 and 2019, respectively.
401
1,616
1,755
360
1,395
6,476
2
6,474
7,425
11
7,414
2,264
$
2
$
3
$
Level 2
Level 3
Total fair
value
Total fair
Level 1
Level 2
2,017
Level 3
$ 2,353
$
$
2
$ 2,355
$ 2,259
value
461
788
1,184
31
$ 12,771
2,034
2,565
2,707
7,306
1,834
258
2,307
6,572
$ 2,689
$ 19,343
$ 7,031 $ 12,384 $ 2,952
$ 22,367 $ 6,739 $ 9,915
(a) Other consists primarily of mutual funds, money market funds and participating annuity contracts.
(b) At December 31, 2020 and 2019, excludes $3.2 billion and $3.9 billion, respectively, of certain investments that are measured at fair value using the net
asset value per share (or its equivalent) as a practical expedient, and $606 million and $343 million, respectively, of net defined benefit pension plan
payables, primarily for investments sold and purchased, which are not required to be classified in the fair value hierarchy. Investments in level 3 of the
valuation hierarchy include $199 million and $250 million of participating annuity contracts at December 31, 2020 and 2019, respectively.
2,431
Changes in level 3 fair value measurements using significant unobservable inputs
$
245
1,676
312
681
4
997
861
$ 15,061 $ 4,905 $ 7,608
201
718
49
250
1,017
$ 4,997
$ 9,819 $
1,850
Total assets measured at fair value
41.40
(4)
(11)
126,390
92
2,687
123,795
Total mortgage-backed securities
5,188
13
64
5,137
2,856
34
71
2,819
Commercial
2,540
1
64
Non-U.S.
6,246
224
3
6,467
10,223
125,648
233
10,450
3,751
20
5
3,766
2,477
6
2,756
109
128,295
Based on its assessment, the Firm did not recognize an
allowance for credit losses on impaired AFS securities as of
January 1, 2020 or December 31, 2020.
Allowance for credit losses
For beneficial interests in securitizations that are rated
below "AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm evaluates impairment for credit losses
when there is an adverse change in expected cash flows.
When assessing securities issued in a securitization for
credit losses, the Firm estimates cash flows considering
relevant market and economic data, underlying loan-level
data, and structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
Factors considered in evaluating credit losses include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; and payment structure of
the security.
For impaired debt securities that the Firm has the intent
and ability to hold, the securities are evaluated to
determine if a credit loss exists. If it is determined that a
credit loss exists, that loss is recognized as an allowance for
credit losses through the provision for credit losses in the
Consolidated Statements of Income, limited by the amount
of impairment. Any impairment not due to credit losses is
recorded in OCI.
226
investment securities gains/(losses) is equal to the full
difference between the amortized cost (net of allowance if
applicable) and the fair value of the securities.
AFS securities are considered impaired if the fair value is
less than the amortized cost.
As a result of the adoption of the amended AFS securities
impairment guidance, an allowance for credit losses on AFS
securities is required for impaired securities if a credit loss
exists.
Notes to consolidated financial statements
225
JPMorgan Chase & Co./2020 Form 10-K
114
The Firm recognizes impairment losses in earnings if the
Firm has the intent to sell the debt security, or if it is more
likely than not that the Firm will be required to sell the debt
security before recovery of its amortized cost. In these
circumstances the impairment loss recognized in
U.S.
JPMorgan Chase & Co./2020 Form 10-K
27,693
U.S. Treasury and government agencies
199,910
2,141
100
201,951
139,162
2,118
449
139,436
Obligations of U.S. states and municipalities
18,993
1,404
1
20,396
175
NA
Residential:
89
Tax benefits
At December 31, 2020, approximately $664 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.6 years. The Firm does not
capitalize any compensation expense related to share-
based compensation awards to employees.
$ 2,451 $ 2,256 $2,322
1,081
1,115
1,350
$ 1,101 $ 1,141 $ 1,241
2018
2019
2020
Total noncash compensation expense
related to employee share-based
incentive plans
Accrual of estimated costs of share-
based awards to be granted in future
periods including those to full-career
eligible employees
Year ended December 31, (in millions)
Cost of prior grants of RSUs, PSUS, SARS
and stock options that are amortized
over their applicable vesting periods
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.
Compensation expense
The total fair value of RSUs that vested during the years ended December 31, 2020, 2019 and 2018, was $2.8 billion, $2.9
billion and $3.6 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020,
2019 and 2018, was $182 million, $503 million and $370 million, respectively.
265,059
122.59
39.33
Outstanding, December 31
Exercisable, December 31
47,510 $
112.85
Income tax benefits (including tax benefits from dividends
or dividend equivalents) related to share-based incentive
arrangements recognized in the Firm's Consolidated
statements of income for the years ended December 31,
2020, 2019 and 2018, were $837 million, $895 million
and $1.1 billion, respectively.
3,124 $
NA
NA
3,124
41.25
1.4 $265,059
1.4
41.25
222
JPMorgan Chase & Co./2020 Form 10-K
Note 10 - Investment securities
Amortized
(e)
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
December 31, (in millions)
Available-for-sale securities
Fair
value
Mortgage-backed securities:
$ 110,979 $
2,372 $
50
$ 113,301
$ 107,811 $
2,395 $
U.S. GSES and government agencies (a)
$ 110,117
Gross
unrealized
losses
(e)
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm's AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities.
AFS securities are carried at fair value on the Consolidated
balance sheets. Unrealized gains and losses, after any
applicable hedge accounting adjustments or allowance for
credit losses, are reported in AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in
investment securities gains/(losses) on the Consolidated
statements of income. HTM securities, which the Firm has
the intent and ability to hold until maturity, are carried at
amortized cost, net of allowance for credit losses, on the
Consolidated balance sheets.
For both AFS and HTM securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, premiums on certain callable debt securities are
amortized to the earliest call date.
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance, which also amended the AFS securities
impairment guidance. Refer to Note 1 for further
information.
During 2020, the Firm transferred $164.2 billion of
investment securities from AFS to HTM for capital
management purposes. AOCI included pretax unrealized
gains of $5.0 billion on the securities at the dates of
transfer.
Unrealized gains or losses at the date of transfer of these
securities continue to be reported in AOCI and are amortized
into interest income on a level-yield basis over the
remaining life of the securities. This amortization will offset
the effect on interest income of the amortization of the
premium or discount resulting from the transfer recorded at
fair value.
Gross
unrealized
gains
Transfers of securities from AFS to HTM are non-cash
transactions and are recorded at fair value.
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2020
2019
Amortized
cost
223
(66)
29,810
(1,745)
640
690
Benefit obligations, end of year, U.S. defined benefit pension plans
$
(14,147) $
(13,277)
Benefit obligations, other defined benefit pension and OPEB plans
Benefits paid
(4,990)
Benefit obligations, end of year
$
(19,137) $
(17,705)
Change in plan assets, U.S. defined benefit pension plans
Fair value of plan assets, beginning of year
Actual return on plan assets
(4,428)
Firm contributions
(1,086)
Net gain/(loss)
(5)
(1,750)
1
The following table presents the pretax changes in benefit obligations, plan assets, the net funded status, and the amounts
recorded in AOCI on the Consolidated balance sheets for the Firm's defined benefit pension and OPEB plans.
As of or for the year ended December 31,
(in millions)
Defined benefit
pension and OPEB plans
2020
2019
Change in projected and accumulated benefit obligations, U.S. defined benefit pension plans
Benefit obligation, beginning of year
(5)
$
(13,277) $
(2)
(12,173)
(327)
Interest cost on benefit obligations
(422)
(518)
Plan amendments
Benefits earned during the year
Benefits paid
(944)
Fair value of plan assets, other defined benefit pension and OPEB plans
3,472 $
3,052
Net funded status, other defined benefit pension and OPEB plans
2,808
2,609
$
6,280 $
$
5,661
Net gain/(loss), U.S. defined benefit pension plans
$
Prior service credit/(cost), U.S. defined benefit pension plans
Accumulated other comprehensive income/(loss), end of year, U.S. defined benefit pension plans
Accumulated other comprehensive income/(loss), other defined benefit pension and OPEB plans
Accumulated other comprehensive income/(loss)
$
Fair value of plan assets, end of year, U.S. defined benefit pension plans
(1,558) $
(4)
(1,562) $
(24)
Amounts recorded in accumulated other comprehensive income/(loss), U.S. defined benefit pension plans
23,366
Net funded status
2,465
Net funded status, U.S. defined benefit pension plans
25,417 $
$
16,329 $
14,521
1,901
29
(640)
33
$
17,619 $
16,329
7,798
7,037
$
(690)
Fair value of plan assets, end of year
$
(a)
$
78,202
Loan accounting framework
555,172
$
56,020
937
1,978
Note 12 - Loans
(a) The prior period amounts have been revised to conform with the current period presentation.
Transfers not qualifying for sale accounting
At December 31, 2020 and 2019, the Firm held $598 million and $743 million, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets.
231
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
195,816
1,706
36,649
$
Total
Total securities loaned and other
The accounting for a loan depends on management's
strategy for the loan. The Firm accounts for loans based on
the following categories:
Greater than
90 days
$
37,636
$
1,332
578,060
41,366
Remaining contractual maturity of the agreements
225,134
32,028
2019 (in millions)
Up to 30 days
30 - 90 days
Greater than
90 days
Total
(a)
(a)
Total securities sold under repurchase agreements
$
Overnight and
continuous
•
Loans held-for-sale are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Originated or purchased loans held-for-investment (i.e.,
"retained")
Certain consumer loans are charged off or charged down to
their net realizable value earlier than the FFIEC charge-off
standards in certain circumstances as follows:
•
•
Loans modified in a TDR that are determined to be
collateral-dependent.
Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off or
charged down within 60 days of receiving notification of
a bankruptcy filing).
Auto loans upon repossession of the automobile.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on the government-
guaranteed portion of loans.
Wholesale loans are charged off when it is highly certain
that a loss has been realized. The determination of whether
to recognize a charge-off includes many factors, including
the prioritization of the Firm's claim in bankruptcy,
expectations of the workout/restructuring of the loan and
valuation of the borrower's equity or the loan collateral.
When a loan is charged down to the lower of its amortized
cost or the estimated net realizable value of the underlying
collateral, the determination of the fair value of the
collateral depends on the type of collateral (e.g., securities,
real estate). In cases where the collateral is in the form of
liquid securities, the fair value is based on quoted market
prices or broker quotes. For illiquid securities or other
financial assets, the fair value of the collateral is generally
estimated using a discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm utilizes a broker's price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation ("exterior opinions"), which is then
updated at least every twelve months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home ("interior appraisals").
Exterior opinions and interior appraisals are discounted
based upon the Firm's experience with actual liquidation
values as compared with the estimated values provided by
exterior opinions and interior appraisals, considering state-
specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Loans held-for-sale
30 - 90 days
70,777
500
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Because these loans are recognized at the lower of cost or
fair value, the Firm's allowance for loan losses and charge-
off policies do not apply to these loans. However, loans
held-for-sale are subject to the nonaccrual policies
described above.
JPMorgan Chase & Co./2020 Form 10-K
•
232
Charge-offs
Loans held-for-sale
Loans at fair value
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. Refer to Note 1 for further
information.
The following provides a detailed accounting discussion of
the Firm's loans by category:
Loans held-for-investment
Originated or purchased loans held-for-investment are
recorded at the principal amount outstanding, net of the
following: charge-offs; interest applied to principal (for
loans accounted for on the cost recovery method);
unamortized discounts and premiums; and net deferred
loan fees or costs. Credit card loans also include billed
finance charges and fees.
Interest income
Interest income on performing loans held-for-investment is
accrued and recognized as interest income at the
contractual rate of interest. Purchase price discounts or
premiums, as well as net deferred loan fees or costs, are
amortized into interest income over the contractual life of
the loan as an adjustment of yield.
The Firm classifies accrued interest on loans, including
accrued but unbilled interest on credit card loans, in
accrued interest and accounts receivables on the
Consolidated balance sheets. For credit card loans, accrued
interest once billed is then recognized in the loan balances,
with the related allowance recorded in the allowance for
credit losses. Changes in the allowance for credit losses on
accrued interest on credit card loans are recognized in the
provision for credit losses and charge-offs are recognized
by reversing interest income. Expected losses related to
accrued interest on certain performing, modified loans to
borrowers impacted by COVID-19 are considered in the
Firm's allowance for loan losses. For other loans, the Firm
generally does not recognize an allowance for credit losses
on accrued interest receivables, consistent with its policy to
write them off no later than 90 days past due by reversing
interest income.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full.
Allowance for loan losses
The allowance for loan losses represents the estimated
expected credit losses in the held-for-investment loan
portfolio at the balance sheet date and is recognized on the
balance sheet as a contra asset, which brings the amortized
cost to the net carrying value. Changes in the allowance for
loan losses are recorded in the provision for credit losses on
the Firm's Consolidated statements of income. Refer to
Note 13 for further information on the Firm's accounting
policies for the allowance for loan losses.
Consumer loans are generally charged off or charged down
to the lower of the amortized cost or the net realizable
value of the underlying collateral (i.e., fair value less
estimated costs to sell), with an offset to the allowance for
loan losses, upon reaching specified stages of delinquency
in accordance with standards established by the FFIEC.
Residential real estate loans, unmodified credit card loans
and scored business banking loans are generally charged
off no later than 180 days past due. Scored auto and
modified credit card loans are charged off no later than 120
days past due.
$
34,119
$
Obligations of U.S. states and municipalities
Non-U.S. government debt
Corporate debt securities
Asset-backed securities
Equity securities
Total
2020 (in millions)
Total securities sold under repurchase agreements
Total securities loaned and other
Securities sold
under repurchase
agreements
2020
Gross liability balance
Securities loaned
and other
Securities sold
under repurchase
agreements
2019
U.S. Treasury, GSES and government agencies
Securities loaned
and other
Commercial nonagency
U.S. GSES and government agencies
555,172 $
36,649
(379,463) $
(26,960)
175,709 $
9,689
(151,566)
(9,654)
$
24,143
35
(a) Includes securities-for-securities lending agreements of $3.4 billion and $3.7 billion at December 31, 2020 and 2019, respectively, accounted for at fair
value, where the Firm is acting as lender. In the Consolidated balance sheets, the Firm recognizes the securities received at fair value within other assets
and the obligation to return those securities within accounts payable and other liabilities.
(b) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
(c) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2020 and 2019, included $17.0 billion and $11.0 billion, respectively, of securities
purchased under resale agreements; $42.1 billion and $31.9 billion, respectively, of securities borrowed; $14.5 billion and $22.7 billion, respectively, of
securities sold under repurchase agreements; and $8 million and $7 million, respectively, of securities loaned and other.
(d) The prior period amounts have been revised to conform with the current period presentation.
230
JPMorgan Chase & Co./2020 Form 10-K
The tables below present as of December 31, 2020 and 2019 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
December 31, (in millions)
Mortgage-backed securities:
Residential nonagency
230,980
1,647
$
$
1,580
694
1,794
$
20,980
578,060
$
37,627
41,366
21,455
33,512
$
555,172 $
36,649
Remaining contractual maturity of the agreements
Overnight and
continuous
Up to 30 days
238,667
37,887
13,826
56,744
1,864
1,528
$
Loans at fair value
$
1,016
1,239
855
1,612
315,834
143
334,398
29
1,525
2
1,181
157,563
1,730
145,548
22,849
Loans for which the fair value option has been elected are
measured at fair value, with changes in fair value recorded
in noninterest revenue.
Wholesale
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value are
subject to the nonaccrual policies described above.
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale(a)
2020
Consumer, excluding
credit card
Credit card
Wholesale
Total
(b)(c)
$
3,474 (c) $-$
352
2,084
787
1,159
17,916
1,580
$
4,633
18,268
4,451
Year ended December 31,
2019
Retained loans reclassified to held-for-sale (a)
Purchases
4,062
7,064
19,816
25,139
44,955
$
317,817
$ 168,924
$ 510,879
$
997,620
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans. Prior-period
amounts have been revised to conform with the current presentation.
(b) Excludes $2.9 billion of accrued interest receivables at both December 31, 2020 and 2019. The Firm wrote off accrued interest receivables of
$121 million and $50 million for the years ended December 31, 2020 and 2019, respectively.
(c) Loans (other than those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net deferred loan
fees or costs. These amounts were not material as of December 31, 2020 and 2019.
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Loans that were reclassified to held-for-sale and sold in a subsequent period are
excluded from the sales line of this table.
Year ended December 31,
(in millions)
Sales
Consumer, excluding
credit card
Credit card
Wholesale
(b)(c)
$
$
2,354
16,741
$
4,897
36
2,276
(a) Reclassifications of loans to held-for-sale are non-cash transactions.
26,725
2,312
(b) Predominantly includes purchases of residential real estate loans, including the Firm's voluntary repurchases of certain delinquent loans from loan pools
as permitted by Government National Mortgage Association ("Ginnie Mae") guidelines for the years ended December 31, 2020, 2019 and 2018. The Firm
typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable
requirements of Ginnie Mae, FHA, RHS, and/or VA.
(c) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
Such purchases were $15.3 billion, $16.6 billion and $18.6 billion for the years ended December 31, 2020, 2019 and 2018, respectively.
Gains and losses on sales of loans
Net gains/(losses) on sales of loans and lending-related commitments (including adjustments to record loans and lending-
related commitments held-for-sale at the lower of cost or fair value) recognized in noninterest revenue was $(43) million for
the year ended December 31, 2020 of which $(36) million was related to loans. Net gains on sales of loans was $394 million
for the year ended December 31, 2019. Gains and losses on sales of loans was not material for the year ended December 31,
2018. In addition, the sale of loans may also result in write downs, recoveries or changes in the allowance recognized in the
provision for credit losses.
236
JPMorgan Chase & Co./2020 Form 10-K
Total
Wholesale
Credit card
Consumer, excluding
credit card
2,543
9,984
Total
(b)(c)
$
1,282
30,474
9,188
$
$
1,291
23,445
2,371
$
3,002
2,573
11,559
2018
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale (a)
$
53,919
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
945,601
Total (b)(c)
In response to the COVID-19 pandemic, the Firm has
temporarily suspended certain foreclosure activities. This
could delay recognition of foreclosed properties until the
foreclosure moratoriums are lifted.
234
JPMorgan Chase & Co./2020 Form 10-K
Loan portfolio
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
In conjunction with the adoption of CECL, the Firm revised its loan classes. Prior-period amounts have been revised to conform
with the current presentation:
•
•
The consumer, excluding credit card portfolio segment's residential mortgage and home equity loans and lending-related
commitments have been combined into a residential real estate class.
Upon adoption of CECL, the Firm elected to discontinue the pool-level accounting for PCI loans and to account for these
loans on an individual loan basis. PCI loans are considered PCD loans under CECL and are subject to the Firm's nonaccrual
and charge-off policies. PCD loans are now reported in the consumer, excluding credit card portfolio segment's residential
real estate class.
Risk-rated business banking and auto dealer loans and lending-related commitments held in CCB were reclassified from the
consumer, excluding credit card portfolio segment, to the wholesale portfolio segment, to align with the methodology
applied when determining the allowance. The remaining scored auto and business banking loans and lending-related
commitments have been combined into an auto and other class.
The wholesale portfolio segment's classes, previously based on the borrower's primary business activity, have been revised
to align with the loan classifications as defined by the bank regulatory agencies, based on the loan's collateral, purpose,
and type of borrower.
Consumer, excluding
credit card
(a)
• Residential real estate
• Auto and other(b)
Credit card
• Credit card loans
Securities sold under repurchase agreements
Securities loaned and other (a)
• Secured by real estate
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
estimated costs to sell. Each quarter the fair value of the
acquired property is reviewed and adjusted, if necessary, to
the lower of cost or fair value. Subsequent adjustments to
fair value are charged/credited to noninterest revenue.
Operating expense, such as real estate taxes and
maintenance, are charged to other expense.
• Commercial and industrial
Other
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
To the extent that certain modifications do not meet any of
the above criteria, the Firm accounts for them as TDRs.
As permitted by regulatory guidance, the Firm does not
place loans with deferrals granted due to COVID-19 on
nonaccrual status where such loans are not otherwise
reportable as nonaccrual. The Firm considers expected
losses of principal and accrued interest associated with all
COVID-19 related loan modifications in its allowance for
credit losses.
Refer to Note 3 for further information on the Firm's
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
JPMorgan Chase & Co./2020 Form 10-K
233
Notes to consolidated financial statements
Loan classification changes
Loans in the held-for-investment portfolio that
management decides to sell are transferred to the held-for-
sale portfolio at the lower of cost or fair value on the date
of transfer. Credit-related losses are charged against the
allowance for loan losses; non-credit related losses such as
those due to changes in interest rates or foreign currency
exchange rates are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at amortized cost on the date
of transfer. These loans are subsequently assessed for
impairment based on the Firm's allowance methodology.
Refer to Note 13 for a further discussion of the
methodologies used in establishing the Firm's allowance for
loan losses.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment delays, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments. Such modifications are accounted for and
reported as TDRs. Loans with short-term and other
insignificant modifications that are not considered
concessions are not TDRs.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
Loans modified in TDRs are generally measured for
impairment using the Firm's established asset-specific
allowance methodology, which considers the expected re-
default rates for the modified loans. A loan modified in a
TDR generally remains subject to the asset-specific
component of the allowance throughout its remaining life,
regardless of whether the loan is performing and has been
returned to accrual status. Refer to Note 13 for further
discussion of the methodology used to estimate the Firm's
asset-specific allowance.
The Firm has granted various forms of assistance to
customers and clients impacted by the COVID-19 pandemic,
including payment deferrals and covenant modifications.
The majority of the Firm's COVID-19 related loan
modifications have not been considered TDRs because:
.
•
they represent short-term or other insignificant
modifications, whether under the Firm's regular loan
modification assessments or as permitted by regulatory
guidance, or
the Firm has elected to apply the option to suspend the
application of accounting guidance for TDRs as provided
by the CARES Act and extended by the Consolidated
Appropriations Act.
Assistance provided in response to the COVID-19 pandemic
could delay the recognition of delinquencies, nonaccrual
status, and net charge-offs for those customers who would
have otherwise moved into past due or nonaccrual status.
Foreclosed property
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in CIB and Corporate.
(b) Includes scored auto and business banking loans and overdrafts.
(c) Includes loans held in CIB, CB, AWM, Corporate as well as risk-rated business banking and auto dealer loans held in CCB for which the wholesale
methodology is applied when determining the allowance for loan losses.
(d) Includes loans to financial institutions, states and political subdivisions, SPEs, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Wealth Management clients within AWM). Refer to Note 14 for more information on SPES.
Wholesale
$ 514,947
$
Total (b)(c)
960,506
15,147
$ 318,579
$ 144,216
5,784
29,327
$ 550,058
7,873
44,474
$ 1,012,853
Consumer, excluding
credit card
$ 294,999
$
Credit card
168,924
Wholesale
$ 481,678
Credit card
143,432
784
1,305
$
$ 302,127
JPMorgan Chase & Co./2020 Form 10-K
235
Notes to consolidated financial statements
The following tables summarize the Firm's loan balances by portfolio segment.
December 31, 2020
(in millions)
Retained
Consumer, excluding
credit card
$
Held-for-sale
Total
(a)
December 31, 2019
(in millions)
Retained
Held-for-sale
At fair value (a)
Total
At fair value
Liabilities
Net amounts (c)
$
$
8,282
$
8,011
$
Fair value
8,297
Average yield (a)
1.25 %
8,225
1.70 %
5,615
5,726
$
679
$
22,587
680
22,928
Amortized cost
0.68 %
Non-U.S. government debt securities
4.80 %
$
33
$
203
$
Fair value
33
211
Average yield(a)
4.11 %
4.59 %
1,047
1,111
4.84 %
$
17,710
$
18,993
20,396
4.80 %
Amortized cost
0.17 %
Corporate debt securities
$
554
$
2,569
$
554
2,591
1.31 %
2.00 %
5,987
5,990
1.33 %
$
7,119
7,162
$
16,229
16,297
1.48 %
1.50 %
1.45 %
1.24 %
216
%
Amortized cost
Fair value
Average yield (a)
Asset-backed securities
Amortized cost
Fair value
Average yield (a)
$
141
$
74
$
139
77
- %
1.21 %
1.92 %
215
Obligations of U.S. states and municipalities
0.57 %
199,910
201,951
(606)
$
802
$
258
$ (395)
$ 68
ΝΑ
ΝΑ
JPMorgan Chase & Co./2020 Form 10-K
227
Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2020, of JPMorgan Chase's investment
securities portfolio by contractual maturity.
By remaining maturity
December 31, 2020 (in millions)
Available-for-sale securities
(392)
Mortgage-backed securities
$ 211
2019
$ 650
HTM securities - credit risk
The adoption of the CECL accounting guidance requires
management to estimate expected credit losses on HTM
securities over the remaining expected life and recognize
this estimate as an allowance for credit losses. As a result of
the adoption of this guidance, the Firm recognized an
allowance for credit losses on HTM obligations of U.S. states
and municipalities of $10 million as a cumulative-effect
adjustment to retained earnings as of January 1, 2020.
Credit quality indicator
The primary credit quality indicator for HTM securities is the
risk rating assigned to each security. At December 31,
2020, all HTM securities were rated investment grade and
were current and accruing, with approximately 98% rated
at least AA+.
Allowance for credit losses
The allowance for credit losses on HTM obligations of U.S.
states and municipalities and commercial mortgage-backed
securities is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the amortized cost. The
credit loss factors are derived using a weighted average of
five internally developed eight-quarter macroeconomic
scenarios, followed by a single year straight-line
interpolation to revert to long run historical information for
periods beyond the forecast period. Refer to Note 13 for
further information on the eight-quarter macroeconomic
forecast.
The allowance for credit losses on HTM collateralized loan
obligations and U.S. residential mortgage-backed securities
is calculated as the difference between the amortized cost
and the present value of the cash flows expected to be
collected, discounted at the security's effective interest
rate. These cash flow estimates are developed based on
expectations of underlying collateral performance derived
using the eight-quarter macroeconomic forecast and the
single year straight-line interpolation, as well as considering
the structural features of the security.
The application of different inputs and assumptions into the
calculation of the allowance for credit losses is subject to
significant management judgment, and emphasizing one
input or assumption over another, or considering other
inputs or assumptions, could affect the estimate of the
allowance for credit losses on HTM securities.
The allowance for credit losses on HTM securities was $78
million as of December 31, 2020, reflecting $68 million
recognized in the provision for credit losses for the year
ended December 31, 2020.
Selected impacts of investment securities on the
Consolidated statements of income
Year ended December 31,
(in millions)
Realized gains
Realized losses
Net investment securities gains/
(losses)
Provision for credit losses
2020
$ 3,080
(2,278)
2018
Amortized cost
$
Due in one
year or less
Amortized cost
$
33,633
$
110,033
$
46,827
$
Fair value
33,678
111,014
Average yield (a)
0.42 %
0.53 %
47,675
0.79 %
9,417
9,584
0.48 %
$
U.S. Treasury and government agencies
2.51 %
2.57 %
1.67 %
Due after one year
through five years
Due after five years
through 10 years
Due after
10 years (b)
Total
Fair value
Average yield (a)
%
$
Total available-for-sale securities
741
756
7,797
8,139
$
115,257
117,495
$
123,795
126,390
1.66 %
$
Amortized cost
$
42,502
21,138
1.37 %
2.19 %
(a) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each
security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging
derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly,
actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. However, for certain callable
debt securities, the average yield is calculated to the earliest call date.
(b) Substantially all of the Firm's U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The
estimated weighted-average life, which reflects anticipated future prepayments, is approximately 5 years for agency residential MBS, 4 years for agency
residential collateralized mortgage obligations and 3 years for nonagency residential collateralized mortgage obligations.
228
JPMorgan Chase & Co./2020 Form 10-K
Note 11 - Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
"securities financing agreements") primarily to finance the
Firm's inventory positions, acquire securities to cover short
sales, accommodate customers' financing needs, settle
other securities obligations and to deploy the Firm's excess
cash.
Securities financing agreements are treated as
collateralized financings on the Firm's Consolidated balance
sheets. Where appropriate under applicable accounting
guidance, securities financing agreements with the same
counterparty are reported on a net basis. Refer to Note 1
for further discussion of the offsetting of assets and
liabilities. Fees received and paid in connection with
securities financing agreements are recorded over the life
of the agreement in interest income and interest expense
on the Consolidated statements of income.
The Firm has elected the fair value option for certain
securities financing agreements. Refer to Note 3 for further
information regarding the fair value option. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
Securities financing agreements not elected under the fair
value option are measured at amortized cost. As a result of
the Firm's credit risk mitigation practices described below,
the Firm did not hold any allowance for credit losses with
respect to resale and securities borrowed arrangements as
of December 31, 2020 and 2019.
Credit risk mitigation practices
Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and U.S. GSEs and government
agencies MBS) that it has received from or provided to its
counterparties compared to the value of cash proceeds and
exchanged collateral, and either requests additional
collateral or returns securities or collateral when
appropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements.
Refer to Note 29 for further information regarding assets
pledged and collateral received in securities financing
agreements.
JPMorgan Chase & Co./2020 Form 10-K
229
21,050
Notes to consolidated financial statements
$
1.40 %
$
12,211
$
12,808
67
565
12,638
13,270
- %
3.09 %
3.57 %
3.62 %
3.62 %
11,617
11,658
$
%
%
9,433
9,480
1.33 %
The table below summarizes the gross and net amounts of
the Firm's securities financing agreements, as of December
31, 2020 and 2019. When the Firm has obtained an
appropriate legal opinion with respect to a master netting
agreement with a counterparty and where other relevant
netting criteria under U.S. GAAP are met, the Firm nets, on
the Consolidated balance sheets, the balances outstanding
under its securities financing agreements with the same
counterparty. In addition, the Firm exchanges securities
and/or cash collateral with its counterparty to reduce the
economic exposure with the counterparty, but such
collateral is not eligible for net Consolidated balance sheet
presentation. Where the Firm has obtained an appropriate
legal opinion with respect to the counterparty master
netting agreement, such collateral, along with securities
financing balances that do not meet all these relevant
netting criteria under U.S. GAAP, is presented in the table
below as "Amounts not nettable on the Consolidated
balance sheets," and reduces the "Net amounts" presented.
Where a legal opinion has not been either sought or
obtained, the securities financing balances are presented
gross in the "Net amounts" below.
December 31, (in millions)
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2019
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets"
(b)
Net amounts (c)
December 31, (in millions)
Assets
Securities purchased under resale agreements
Securities borrowed
(d)
$
628,609 $
166,718
(379,463) $
(26,960)
249,146 $
139,758
(231,147)
(104,990)
(d)
44
15,897
$
207,877 $ (191,980)
8,301
(8,257)
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2020
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets (b)
Assets
Securities purchased under resale agreements
Securities borrowed
$
666,467 $
193,700
532
(370,183) $
(33,065)
(273,206)
(115,219)
$
23,078
45,416
Liabilities
Securities sold under repurchase agreements
Securities loaned and other (a)
$
578,060 $
41,366
(370,183) $
(33,065)
296,284 $
160,635
17,999
34,768
$
2.88 %
Fair value
Average yield(a)
- %
$
158
$
160
1.56 %
11,908
12,707
2.42 %
$
102,791
$
114,857
104,963
117,830
2.94 %
2.88 %
$
U.S. Treasury and government agencies
Amortized cost
Held-to-maturity securities
$
121,698
$
Fair value
42,562
122,936
67,347
68,718
$
Average yield (a)
0.59 %
0.65 %
1.00 %
150,182
153,962
2.64 %
$
381,729
388,178
1.49 %
Mortgage-backed securities
Amortized cost
$
501
Total held-to-maturity securities
Amortized cost
$
501
$
Fair value
501
Average yield(a)
1.86 %
42,700
42,738
0.60 %
$
34,263
35,152
$
124,435
127,081
$
201,899
205,472
1.65 %
Average yield(a)
Fair value
Amortized cost
Asset-backed securities
$
42,477
$
Fair value
501
42,511
Average yield(a)
1.86 %
65
0.60 %
$ - $ 53,184
%
53,234
0.67 %
Obligations of U.S. states and municipalities
Amortized cost
$
Fair value
Average yield(a)
10,206
10,222
0.94 %
19,041
Consumer, excluding credit card loan portfolio
1.03 %
0.95
1.87 %
1.68 %
0.92
9.89 %
3.05
1.60 %
0.90
% of 90+ days past due to total retained loans
% of 30+ days past due to total retained loans
Loan delinquency ratios
168,924
$
1,607
165,767
1,550
$
141,022
1,091
1,319
143,432
$
1,375
$
42
1,277
142,057
$
Total retained loans
90 or more days past due and still accruing
94
997
30-89 days past due and still accruing
(a) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period
and performing according to their modified terms are generally not considered delinquent.
$
(b) Represents TDRs.
The following table provides information on other credit quality indicators for retained credit card loans.
Michigan
Colorado
Pennsylvania
Ohio
New Jersey
9,579
8,006
10,830
9,562
14,544
11,919
Illinois
Florida
New York
16,728
25,783
$
20,921
14,544
Texas
$
California
Geographic region (a)
December 31, 2019
December 31, 2020
(in millions, except ratios)
Other credit quality indicators
5,927
1,239
139,783
1,721
1,924
1,490
2,163
1,347
2,465
1,798
2,646
2,443
3,768
3,025
4,668
5,457
8,235
3,706
8,824
7,795
12,302 $
146
151
December 31, 2019
Total Auto and other
December 31, 2020
$
All other
Colorado
1,910
$
1,247
21,653
$
Current and less than 30 days past due
and still accruing
Loan delinquency(a)
Total
December 31, 2019
Total
December 31, 2020
Converted to term loans (b)
Within the revolving period
(in millions, except ratios)
The following table provides information on delinquency, which is the primary credit quality indicator for retained credit card
loans.
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in the credit
score calculation.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator. The
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
Credit card loan portfolio
JPMorgan Chase & Co./2020 Form 10-K
242
The impact of these modifications, as well as new TDRs, were not material to the Firm for the years ended December 31,
2020, 2019 and 2018. Additional commitments to lend to borrowers whose loans have been modified in TDRs as of
December 31, 2020 and 2019 were not material.
Certain other consumer loan modifications are considered to be TDRs as they provide various concessions to borrowers who
are experiencing financial difficulty. Loans with short-term or other insignificant modifications that are not considered
concessions are not TDRs.
(d) The geographic regions presented in this table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020.
Loan modifications
(c) Interest income on nonaccrual loans recognized on a cash basis was not material for the years ended December 31, 2020 and 2019.
(b) All nonaccrual auto and other consumer loans generally have an allowance. Certain nonaccrual loans that are considered collateral-dependent have been
charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of the underlying collateral
improves subsequent to the charge down, the related allowance may be negative.
51,682
(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2020 and 2019.
$
Total retained loans
27,920
76,825 $
7,165
4,673
5,406
71,917
$
90,147 $ 96,611
$
(a)
Investment-grade
Loans by risk ratings
2019
2020
Total retained loans
2019
2020
Other(b)
2019
2020
Commercial and industrial
2019
2020
(in millions, except ratios)
December 31,
Secured by real estate
The following tables provide information on internal risk rating, which is the primary credit quality indicator for retained
wholesale loans.
Notes to consolidated financial statements
245
JPMorgan Chase & Co./2020 Form 10-K
$
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. Refer
to Note 4 for further detail on industry concentrations.
80,489
$ 186,344
15,304
1,126
1,079
904
4,399
844
1,931
183
483
Criticized nonaccrual
10,991
1,131
3,234
Criticized performing
110,521
117,052
27,591
33,053
60,437
57,870
22,493
26,129
Noncriticized
Noninvestment-grade:
$ 363,444
(a)
$ 379,273
$ 217,209
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
Noninvestment-grade ratings are further classified as
noncriticized and criticized, and the criticized portion is
further subdivided into performing and nonaccrual loans,
representing management's assessment of the collectibility
of principal and interest. Criticized loans have a higher PD
than noncriticized loans. The Firm's definition of criticized
aligns with the U.S. banking regulatory definition of
criticized exposures, which consist of special mention,
substandard and doubtful categories.
Management considers several factors to determine an
appropriate internal risk rating, including the obligor's debt
capacity and financial flexibility, the level of the obligor's
earnings, the amount and sources for repayment, the level
and nature of contingencies, management strength, and the
industry and geography in which the obligor operates. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., PD and LGD)
may differ as they reflect internal historical experiences and
assumptions. The Firm generally considers internal ratings
with qualitative characteristics equivalent to BBB-/Baa3 or
higher as investment grade, and these ratings have a lower
PD and/or lower LGD than non-investment grade ratings.
Notes to consolidated financial statements
243
JPMorgan Chase & Co./2020 Form 10-K
(a) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020.
0.6
0.2
No FICO available
15.4
84.0 %
85.9 %
13.9
Less than 660
168,924
$
143,432
$
Total retained loans
64,717
55,759
All other
4,164
3,553
4,763
4,092
5,245
4,476
Loan modifications
The Firm may offer one of a number of loan modification
programs granting concessions to credit card borrowers
who are experiencing financial difficulty. The Firm grants
concessions for most of the credit card loans under long-
term programs. These modifications involve placing the
customer on a fixed payment plan, generally for 60 months,
and typically include reducing the interest rate on the credit
card. Substantially all modifications under the Firm's long-
term programs are considered to be TDRs. Loans with
short-term or other insignificant modifications that are not
considered concessions are not TDRs.
If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm's standard charge-off policy. In most cases, the Firm
does not reinstate the borrower's line of credit.
Financial effects of modifications and redefaults
The primary credit quality indicator for wholesale loans is
the internal risk rating assigned to each loan. Risk ratings
are used to identify the credit quality of loans and
differentiate risk within the portfolio. Risk ratings on loans
consider the PD and the LGD. The PD is the likelihood that a
loan will default. The LGD is the estimated loss on the loan
that would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
Wholesale loan portfolio
JPMorgan Chase & Co./2020 Form 10-K
244
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. Defaulted modified
credit card loans remain in the modification program and
continue to be charged off in accordance with the Firm's
standard charge-off policy.
(a) Represents the outstanding balance prior to modification.
(b) Represents loans modified in TDRs that experienced a payment default
in the periods presented, and for which the payment default occurred
within one year of the modification. The amounts presented represent
the balance of such loans as of the end of the quarter in which they
defaulted.
110 $ 148 $ 116
$
redefaulted within one year of
modification (b)
5.16
4.70
Pennsylvania
4.64
18.04 % 19.07 %
866
961 $
818 $
$
2018
2019
2020
Balance of loans that
Year ended December 31,
(in millions, except
weighted-average data)
Balance of new TDRS"
Weighted-average interest rate
of loans before TDR
Weighted-average interest rate
of loans after TDR
(a)
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
17.98 %
Ohio
Arizona
New Jersey
Less than 660
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Less than 80% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
NO FICO/LTV available
U.S. government-guaranteed
$
10
$
31
18
38
72
65
25
134
132
2,365
5,953
Equal to or greater than 660
435
Greater than 125% and refreshed FICO scores:
Current estimated LTV ratios
0.22 %
0.20 %
0.17 %
2.86%
0.58 %
3.12 %
0.98 %
1.35 %
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $36 million and $17
million; 30-149 days past due included $16 million and $20 million; and 150 or more days past due included $24 million and $26 million at
December 31, 2020 and 2019, respectively.
(b) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period
and performing according to their modified terms are generally not considered delinquent.
(c) At December 31, 2020 and 2019, residential real estate loans excluded mortgage loans insured by U.S. government agencies of $40 million and $46
million, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
Approximately 35% of the total revolving loans are senior lien loans; the remaining balance are junior lien loans. The lien
position the Firm holds is considered in the Firm's allowance for credit losses. Revolving loans that have been converted to
term loans have higher delinquency rates than those that are still within the revolving period. That is primarily because the
fully-amortizing payment that is generally required for those products is higher than the minimum payment options available
for revolving loans within the revolving period.
238
JPMorgan Chase & Co./2020 Form 10-K
Nonaccrual loans and other credit quality indicators
The following table provides information on nonaccrual and other credit quality indicators for retained residential real estate
loans.
(in millions, except weighted-average data)
Nonaccrual loans (a)(b)(c)(d)(e)
90 or more days past due and government guaranteed (f)
$
December 31, 2020
5,313
$
33
December 31, 2019
2,780
38
(g)(h)
764
208,457
12,072
$
82,147
32,287
31,996
13,981
13,668
13,773
14,474
13,130
15,587
8,235
8,447
7,917
8,990
7,227
7,752
5,784
6,210
5,024
4,954
44,500
49,092
$
225,302
$
73,444
$
758
55 %
1,732
76
Total retained loans
$
225,302
$
Weighted average LTV ratio (g) (i)
54 %
Weighted average FICO (h) (i)
763
Geographic region()
California
0.12 %
New York
Texas
Illinois
Colorado
Washington
New Jersey
Massachusetts
Connecticut
All other(k)
Total retained loans
219,469
14,681
2,052
63
243,317
Florida
6,656
0.02 %
1,910
1,428
$243,317
$
$ 2,100
$ 4,575
$ 7,444
$12,936
$46,266
Total retained loans
10
18
8
Consumer loans, excluding credit card loans, consist
primarily of scored residential mortgages, home equity
loans and lines of credit, auto and business banking loans,
with a focus on serving the prime consumer credit market.
The portfolio also includes home equity loans secured by
junior liens, prime mortgage loans with an interest-only
payment period, and certain payment-option loans that may
result in negative amortization.
The following table provides information about retained
consumer loans, excluding credit card, by class.
December 31, (in millions)
Residential real estate
Auto and other (a)
Total retained loans
2020
2019
$225,302 $ 243,317
76,825
51,682
$ 302,127 $ 294,999
(a) At December 31, 2020, included $19.2 billion of loans in Business
Banking under the PPP.
Delinquency rates are the primary credit quality indicator
for consumer loans. Loans that are more than 30 days past
due provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is likely
to be unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
766
•
$ 2,555
183
Illinois
Florida
Texas
New York
(d)
California
Geographic region
(in millions, except ratios)
Nonaccrual loans (a)(b)(c)
The following table provides information on nonaccrual and other credit quality indicators for retained auto and other
consumer loans.
Nonaccrual and other credit quality indicators
(b) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP. PPP loans are guaranteed by the SBA. Other than in certain
limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans.
(a) At December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their deferral period
and performing according to their modified terms are generally not considered delinquent.
1.31 %
0.60 %
13.66%
1.49 %
3.13%
2.00 %
1.18 %
8
0.83 %
0.21 %
% of 30+ days past due to
total retained loans
$51,682
$76,825
$
•
For residential real estate loans, the current estimated
LTV ratio, or the combined LTV ratio in the case of junior
lien loans, is an indicator of the potential loss severity in
the event of default. Additionally, LTV or combined LTV
ratios can provide insight into a borrower's continued
willingness to pay, as the delinquency rate of high-LTV
loans tends to be greater than that for loans where the
borrower has equity in the collateral. The geographic
distribution of the loan collateral also provides insight as
to the credit quality of the portfolio, as factors such as
the regional economy, home price changes and specific
events such as natural disasters, will affect credit
quality. The borrower's current or "refreshed" FICO
score is a secondary credit quality indicator for certain
loans, as FICO scores are an indication of the borrower's
credit payment history. Thus, a loan to a borrower with a
low FICO score (less than 660) is considered to be of
higher risk than a loan to a borrower with a higher FICO
score. Further, a loan to a borrower with a high LTV
ratio and a low FICO score is at greater risk of default
than a loan to a borrower that has both a high LTV ratio
and a high FICO score.
For scored auto and business banking loans, geographic
distribution is an indicator of the credit performance of
$ 15,792
$223,064
$239,979
30-149 days past due
150 or more days past due
9
3
25
14
20
10
22
18
29
18
674
844
21
22
245
264
Total retained loans
$ 55,574
$ 31,859
$13,930
$ 20,450
$28,025
$ 51,750
$ 7,413
$ 16,301
1,045
1,193
$225,302
$ 7,370
$50,232
$27,978
$ 20,410
the portfolio. Similar to residential real estate loans,
geographic distribution provides insights into the
portfolio performance based on regional economic
activity and events.
JPMorgan Chase & Co./2020 Form 10-K
237
Notes to consolidated financial statements
Residential real estate
The following table provides information on delinquency, which is the primary credit quality indicator for retained residential
real estate loans.
December 31, 2020
Term loans by origination year
December
31, 2019
Within the
(in millions, except ratios)
Loan delinquency (a)(b)
% of 30+ days past due to
total retained loans (c)
2020
2018
2017
2016
Prior to
2016
revolving
period
Revolving loans
Converted
to term
loans
Total
Total
Current
$55,562
$ 31,820
$ 13,900
2019
30
Percentage of portfolio based on carrying value with estimated refreshed FICO scores
Equal to or greater than 660
29,846
(a)
$
7,304 $
Total retained loans
$ 36,271
$
8,636
15,940 $
2,934 $
5,131
8,065 $
1,748 $
2,104
1,032 $
497
1,263
$
36,424 $
1
$
21,211
15,060
Noninvestment-grade
$
Investment-grade
$ 90,147 $ 96,611
29,846
23,807
1 $ 119,993 $ 120,418
December
31, 2019
Revolving loans
Within the
2019
2018
2,439
2017
Prior to
2016
revolving
period
Converted
to term
loans
Total
Total
Loans by risk ratings
2016
36,852
3,852 $ 1,529 $
3,702
Prior to
2016
revolving
period
Converted to
term loans
Total
Total
Investment-grade
$
2016
Noninvestment-grade
31,389 $ 10,169 $
5,009
2,220
36,398 $ 12,389 $ 8,635 $
6,994 $
1,641
6,206 $
550
6,756 $
3,553 $
146
3,699 $
12,595
636
$ 145,524 $
24,710
13,231 $ 170,234 $
Total retained loans $
1
2017
2019
$
73
74
71,917
70,792
$
80,489
65,680
$ 142,709
$ 146,169
2018
Other(b)
December 31, 2020
31, 2019
(in millions)
Loans by risk ratings
Term loans by origination year
Revolving loans
Within the
2020
December
-
2020
(in millions)
(a) Includes collateral-dependent residential real estate loans that are charged down to the lower of amortized cost or the fair value of the underlying collateral less costs
to sell. The Firm reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not
reaffirmed by the borrower ("Chapter 7 loans") as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2020,
approximately 7% of Chapter 7 residential real estate loans were 30 days or more past due, respectively.
(b) At December 31, 2020, nonaccrual loans included $1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual loans excluded PCI loans as the Firm recognized
interest income on each pool of PCI loans as each of the pools was performing.
(c) Generally, all consumer nonaccrual loans have an allowance. In accordance with regulatory guidance, certain nonaccrual loans that are considered collateral-
dependent have been charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of the underlying
collateral improves subsequent to the charge down, the related allowance may be negative.
(d) Interest income on nonaccrual loans recognized on a cash basis was $161 million and $166 million for the years ended December 31, 2020 and 2019, respectively.
(e) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited COVID-19
payment deferral programs and are 90 or more days past due, predominantly all of which were also at least 150 days past due and therefore considered collateral-
dependent. Collateral-dependent loans are charged down to the lower of amortized cost or fair value of the underlying collateral less costs to sell.
(f) These balances are excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal balance of the loans is insured and
interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2020 and 2019, these balances
included $33 million and $34 million, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the remaining
balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or
more days past due and still accruing interest at December 31, 2020 and 2019.
(g) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and
forecasted data where actual data is not available. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as
unused lines, related to the property.
243,317
(h) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(j) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2020.
(k) At December 31, 2020 and 2019, included mortgage loans insured by U.S. government agencies of $76 million and $63 million, respectively. These amounts have
been excluded from the geographic regions presented based upon the government guarantee.
JPMorgan Chase & Co./2020 Form 10-K
239
Notes to consolidated financial statements
Loan modifications
Modifications of residential real estate loans, where the
Firm grants concessions to borrowers who are experiencing
financial difficulty are generally accounted for and reported
as TDRs. Loans with short-term or other insignificant
modifications that are not considered concessions are not
TDRs nor are loans for which the Firm has elected to apply
the option to suspend the application of accounting
guidance for TDRs as provided by the CARES Act and
extended by the Consolidated Appropriations Act. The
carrying value of new TDRS was $819 million, $490 million
and $736 million for the years ended December 31, 2020,
2019 and 2018, respectively. There were no additional
commitments to lend to borrowers whose residential real
estate loans have been modified in TDRs.
(i) Excludes loans with no FICO and/or LTV data available.
Nature and extent of modifications
% of total criticized to total
retained loans
1.09
Total noninvestment-grade
0.64
0.01
0.36
0.58
1.35
0.15
3.10
0.40
% of criticized nonaccrual to
1.60
3.62
0.54
0.79
3.59
9.05
total retained loans
779
124
The Firm's proprietary modification programs as well as
government programs, including U.S. GSE programs,
generally provide various concessions to financially
troubled borrowers including, but not limited to, interest
rate reductions, term or payment extensions and delays of
principal and/or interest payments that would otherwise
have been required under the terms of the original
agreement.
Year ended December 31,
Investment-grade
$
16,560 $
Noninvestment-grade
Total retained loans
$
3,327
19,887 $
Loans by risk ratings
19,575 $
4,339
23,914 $
11,017 $ 13,439 $
2,916
2,575
13,933 $ 16,014 $
16,266 $
11,994
28,260 $
1,098 $
489
1,587 $
Commercial and industrial
December 31, 2020
Term loans by origination year
12,192 $
4,205
16,397 $
The following table provides information about how residential real estate loans were modified in TDRs under the Firm's loss
mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the sole
concession granted is the discharge of debt, loans with short-term or other insignificant modifications that are not considered
concessions, and loans for which the Firm has elected to apply the option to suspend the application of accounting guidance
for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act.
(in millions)
Total
Number of loans approved for a trial modification
Number of loans permanently modified
0.22
Secured by real estate
December 31, 2020
Term loans by origination year
December
31, 2019
Total
Revolving loans
2019
2018
2017
2016
Prior to
2016
Within the
revolving
period
Converted to
term loans
2020
$ 217,209 $ 186,344
35,036
28,747
73,276 $
$ 252,245 $ 215,091
Within the
revolving
period
Revolving loans
Converted
to term
loans
Total
Total
(b)
$46,169
$12,829
Prior to
2016
$ 7,367
$ 2,058
$
742
$ 2,517
$
903
107
$ 4,521
77
2016
2018
At December 31, 2020 and 2019, the Firm had residential real estate loans, excluding those insured by U.S. government
agencies, with a carrying value of $846 million and $1.2 billion, respectively, that were not included in REO, but were in the
process of active or suspended foreclosure.
JPMorgan Chase & Co./2020 Form 10-K
241
Notes to consolidated financial statements
Auto and other
The following table provides information on delinquency, which is the primary credit quality indicator for retained auto and
other consumer loans.
December 31, 2020
2017
Term Loans by origination year
31, 2019
(in millions, except ratios)
2020
Loan delinquency(a)
Current
30-119 days past due
2019
December
Active and suspended foreclosure
53
23
1,057
118,234
$ 514,947
3,318
135,674
28,747
215,091
35,036
252,245 $
$
65,680
146,169
$ 481,678
$
$
$ 120,418
119,993
$
Total retained loans
70,792
23,807
142,709
42
% of investment-grade to
75.13 %
30
158
17
$76,361
$51,005
446
667
120 or more days past due
total retained loans
1
75.45 %
73.65 %
86.63 %
86.11 %
55.07 %
50.39 %
80.23 %
1
At December 31, 2020, the weighted-average estimated remaining lives of residential real estate loans permanently modified
in TDRs were 6 years. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and
involuntary (i.e., foreclosures and other forced liquidations).
97
161
77 %
54 %
49
71
62
14
13
50 %
29
5
7
66
63
51
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
(b) Includes variable interest rate to fixed interest rate modifications and payment delays that meet the definition of a TDR for the years ended December 31,
2020, 2019 and 2018.
2
240
Other (b)
Principal and/or interest deferred
(a) At December 31, 2020, included $8.0 billion of loans under the PPP, of which $7.4 billion is included in commercial and industrial. PPP loans are
guaranteed by the SBA and considered investment-grade. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs,
classify as nonaccrual nor record an allowance for loan losses on these loans.
(a) Represents loans permanently modified in TDRS that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such
loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it will generally be liquidated through foreclosure or another similar type of liquidation transaction.
Redefaults of loans modified within the last twelve months may not be representative of ultimate redefault levels.
246
JPMorgan Chase & Co./2020 Form 10-K
Concession granted:(a)
Interest rate reduction
2020
Principal forgiveness
5,522
2019
5,872
4,918
2018
7,175
7,853
Term or payment extension
6,850
JPMorgan Chase & Co./2020 Form 10-K
(b) Includes loans to financial institutions, states and political subdivisions, SPES, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Wealth Management clients within AWM). Refer to Note 14 for more information on SPES.
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans under the loss mitigation programs described above and about redefaults of certain loans
modified in TDRs for the periods presented. The following table presents only the financial effects of permanent modifications
and do not include temporary concessions offered through trial modifications. This table also excludes Chapter 7 loans where
the sole concession granted is the discharge of debt, loans with short-term or other insignificant modifications that are not
considered concessions, and loans for which the Firm has elected to apply the option to suspend the application of accounting
guidance for TDRs as provided by the CARES Act and extended by the Consolidated Appropriations Act.
$
1
$
2
Principal deferred
Financial effects of modifications and redefaults
19
5
30
5
7
17
Balance of loans that redefaulted within one year of permanent modification (a)
$
199
$
Principal forgiven
$
16
39
38
Year ended December 31,
(in millions, except weighted average data)
2020
2019
2018
Weighted-average interest rate of loans with interest rate reductions - before TDR
Weighted-average interest rate of loans with interest rate reductions - after TDR
5.09 %
166 $
5.68 %
3.81
5.50 %
3.60
Weighted-average remaining contractual term (in years) of loans with term or payment extensions - before TDR
Weighted-average remaining contractual term (in years) of loans with term or payment extensions - after TDR
Charge-offs recognized upon permanent modification
22
20
21
39
3.28
5. Always deal with reality.
II. LESSONS FROM LEADERSHIP
22
22
In business, this type of assessment should
also be applied to your competitors and to
those you deem to be future competitors, as
well as to your own strengths and weak-
nesses. In the next section, I describe the
evolving competitive landscape for banks.
all the important variables before you start
an assessment to ensure that they are all
carefully reviewed and that one's judgment
is not clouded early on by overfocusing on
just a few issues.
I frequently see people trying to understand
a complex situation without considering
all the factors involved. In the final section,
I attempt to analyze China as a strategic
competitor. It's critical to weigh all the
factors: cultural, psychological and historical.
Also, what are the legal factors, and how is
the rule of law applied? What is the coun-
try's situation with raw materials? What is
the country's geography and relationship
with its neighbors? It is important to lay out
Bureaucrats can torture people with analysis,
stifling innovation, new products, testing
and intuition.
-
In the last section, I go into further detail
about how certain analyses fail to guide us to
the right answer in public policy – particularly
around complex issues like healthcare, job
creation, mortgage markets and infrastructure.
- meaning there's no need to do analysis
at all. Think about banks adding the capa-
bility of opening new accounts digitally, for
example, or maintaining a strong technology
infrastructure and adopting new technolo-
gies, like cloud or artificial intelligence (AI).
These could be life-or-death decisions for
a company, so instead of focusing on net
present value, the emphasis should be on
getting the work done properly, efficiently
and quickly.
Sometimes a new product or an investment
should simply be considered table stakes
Even net present value analysis fails to
capture the true value of something after a
certain period of time. For instance, people
commonly look at the five-year net present
value of a customer acquisition, which
can mask the true compounding effect of
keeping that client for 20 years. And we have
often seen net present value analysis fail
to capture ancillary benefits (like customer
happiness) that can often be more important
than the analysis itself.
an outcome.
4. Before conducting an important analysis, assess all relevant factors involved.
While I am fanatical about detail and multi-
year analysis, it's important to be cautious
about its application. Assumptions are
frequently involved, and small changes
in a few variables can dramatically change
Earlier in this section, I mentioned that my number
one priority is to put a healthy and productive
succession process in place. As I will be increasingly
focused on this process, I would like to share my
thoughts about the essential qualities a leader
must have, particularly as they relate to a large
multinational corporation like JPMorgan Chase.
It also is often very difficult to capture the
inflection points in the economy. Most people
imagine the future as being roughly equiva-
lent to the past, give or take a bit. However, we
know there are significant inflection points,
which are sometimes easy to see in hindsight
but almost impossible to predict.
Leadership is an honor, a privilege and a deep
obligation. When leaders make mistakes, a lot of
people can get hurt. Being true to oneself and
avoiding self-deception are as important to a
leader as having people to turn to for thoughtful,
unbiased advice. I believe social intelligence
and "emotional quotient," or EQ, matter in
management. EQ can include empathy, clarity of
thought, compassion and strength of character.
3. Understand when analysis is necessary and when it impedes change.
Reprinted from my 2009 Letter to Shareholders
The Importance of Developing Leaders
24
In business, some decisions should be made
carefully for instance, putting the right
people in the right job. But others, such
as making pricing decisions, dealing with
customer problems and handling reputa-
tional issues, must be done quickly, for these
problems do not age well.
portant decision, which just wastes time and
slows things down.
Act at the speed of relevance. When leaders
have plenty of time to make decisions, they
should analyze all factors over and over -
take the necessary time, as choices can be
hard to reverse. And there are other deci-
sions that are more like “battlefield promo-
tions" where there's no luxury of time, and,
in fact, going slow may make things much
worse. I've also seen people take a tremen-
dous amount of time to make an unim-
Skip hierarchy. If everything in a large orga-
nization must go up and down the hierar-
chical ladder, bureaucratic arteriosclerosis
along with CYA sets in, and that company's
life expectancy is substantially shortened.
It should be routine that data, memos and
ideas are shared – skipping hierarchies - and
aren't vetted by all in the chain of command.
This makes people more responsible for
what they are doing, improves the dissem-
ination of new information and new ideas,
and speeds things up overall. In addition,
it's good to have a few mavericks who are
not afraid to shake things up. The ones who
challenge authority or convention often get
far more done than the ones who go along to
get along. Collaboration is wonderful, but it
can be overdone.
Have curiosity. It's important to ask questions
to try to understand varying points of view.
Be willing to change your mind. Read every-
thing. Don't defend decisions of the past.
Leaders should be happy when their people
prove them wrong. Do not have a rigid
mindset. And do not be complacent.
Respect and learn from your people. Managers
and leaders get spread pretty thin. While they
should have a wide grasp of many subjects,
they could not possibly know everything their
people know. Leaders should continually be
learning from their people. They should go to
a sales conference and ask lots of questions of
their salespeople. Gather technology people
in the room with branch managers and ask,
"How are things working?” Taking a road trip
should not be only for the purpose of showing
the flag but also for learning from your
employees and customers.
As companies get bigger and more complex,
leaders need to be more like coaches and
conductors than players. If CEOs are running
a smaller business, they can literally be
involved in virtually everything and make
most of the decisions - they often rely on
traditional command-and-control tactics.
This approach does not work as companies
get bigger the CEOs simply cannot be
involved in every major decision. Command
and constant feedback may be better than
command and control. Here is where leaders
would be better off providing clear direction
and letting people do their job, including
making mistakes along the way. Soft power
essentially trust and maturity - may become
more important than hard power. Soft power
creates respect among team members, with
the coach offering honest assessment and
support while allowing flexibility. Here the
boss makes fewer but tougher decisions, such
as removing people - when it must be done
- and even then, it is handled respectfully.
People will give to the best of their ability for
leaders they respect and who they know are
trying to help them succeed.
In addition to the above thoughts on anal-
ysis, assessment and good decision making,
some softer leadership lessons are equally
important.
6. Remain open to learning how to become a better leader.
II. LESSONS FROM LEADERSHIP
23
While we also try to keep things as stream-
lined as possible, making things simpler than
they really are is equally flawed. Too many
times people seek simple, cookie-cutter solu-
tions that sound good but just don't work.
For example, class size in schools matters
but not necessarily in all types of classes. In
Vietnam, when a major city once had a rat
population problem, the government devised
what it thought was an easy, foolproof solu-
tion: Pay people to kill rats. All people had to
do was bring in a rat tail to be paid. What the
government didn't consider was that people
would breed rats for a supply of rat tails to
sell. (All compensation schemes should be
continuously re-evaluated.)
In business, as in life, we must deal with
both certainty and uncertainty. A simple look
at history and our economic past illustrates
the rather unpredictable nature of things.
As a result, at the firm we try to look at all
the possibilities, as well as their probabili-
ties. For example, we conduct well over 100
stress tests each week to make sure we are
prepared for what we are not predicting.
We even evaluate the laws and regulations
we live under today and project how they
might be interpreted 10 years from now - we
call this "reinterpretation risk." We look at
a broad range of possibilities and probabil-
ities to ensure that we understand, as best
as we can, all of the possible outcomes -
recognizing that we are not trying to make a
forecast with certainty. Sometimes the action
you take may not be the one that gives you
the best outcome but the one that gives you
a good outcome and reduces the possibilities
of bad outcomes.
II. LESSONS FROM LEADERSHIP
climate performance is carbon intensity, which is a
measure of GHG emissions per unit of output. Using
intensity will enable us to evaluate the relative
efficiency of companies and to adjust for factors
such as size, clearly showing which are performing
the best (or getting better).
Being true to these principles requires
relentless discipline – which you should
expect of us.
There's huge opportunity in sustainable and
low-carbon technologies and businesses. While
many of these technologies and companies are
mature, many more are just getting started -
and more will need to be created in the coming
decades. In addition, all companies will need
capital and advice to help them innovate,
evolve and become more efficient while staying
competitive in a changing world.
Traditional energy resources play an essential
role in our global economy today. We can agree
on the need to make our energy system much less
carbon intensive. But abandoning companies that
produce and consume these fuels is not a solution.
Furthermore, it's economically counterproductive.
Instead, we must work with them.
When we cut through all the noise, here's what
we know to be true:
Companies are figuring out how to manage amid
these challenges. And many are also dealing with
a growing chorus of pressure from customers,
regulators, shareholders and activists with strong
perspectives on how corporations and other
institutions should address climate change.
The Paris Agreement is one such success, but we
must put a price on carbon. A carbon tax (with a
commensurate carbon dividend - directly returned
to the people) is an excellent way to dramatically
reduce carbon while investing in communities most
adversely affected by this much-needed transition.
Without a benchmark like this, businesses and
economies won't be able to properly factor the
cost of carbon and the benefit of alternatives into
their long-term strategic planning and capital
investment decisions.
Policymakers have taken some important steps.
While wind and solar technologies have made
huge strides, they're principally deployed for
electricity generation. We don't have clean
alternatives for industrial and manufacturing
energy needs, for example. Nor do we yet have
solutions for heavy transportation, such as
trucking and air travel. What's more, the projected
growth of technologies like electric vehicles is
going to place huge pressures on the need for rare
earth minerals - which also presents geopolitical
and environmental challenges.
The fact is we're long past debating whether
climate change is real. But we need to acknowledge
that the solution is not as simple as walking away
from fossil fuels. We will need resources such as
oil and natural gas until commercial, affordable
and low-carbon alternatives can be developed to
meet all of our global energy needs. This is where
business and government leaders need to focus
their time and attention.
The challenge we face is significant. While
continuing to generate power for all of our needs,
big and small lighting and heating our homes,
commuting to work, and charging our phones and
computers, as well as operating manufacturing
facilities that produce goods used around the
world each day - we also need to bring energy to
the nearly 800 million people who still don't have
reliable access to electricity. And we need to find a
way to do all of these things while setting a path for
achieving net-zero emissions by 2050.
-
Coal, oil and natural gas the primary sources of
GHG emissions - have powered the world's energy
economy for many decades, advancing significant
economic growth and social development for
billions around the world. But our reliance on
these resources now threatens the very growth
they have enabled.
-
Climate change is a critical issue of our time.
Reducing greenhouse gas (GHG) emissions - the
main cause of climate change - requires collective
ambition and cooperation across the public and
private sectors.
Our Sustainability Efforts
Good people want to work for good leaders. Bad
leaders can drive out almost anyone who's good
because they are corrosive to an organization; and
since many are manipulative and deceptive, it often
is a challenge to find them and root them out.
This is why we made a commitment in 2020 to
align our financing activities in three carbon-
intensive sectors - oil and gas, electric power
and automotive manufacturing - with the Paris
Agreement.
To do so, we will measure our clients' carbon
performance against sector-based GHG reduction
targets that we're setting for 2030 - with the goal
of helping them reduce emissions from their direct
operations and, in the case of oil and gas and
automotive companies, reduce GHGs from the use
of their products.
19
The key metric we plan to use for evaluating
Look at market share by customer segment
so as not to miss behavior shifts. Frequently,
raw data tell a different story from what
management may be saying: Too often
management teams use the facts to justify
what they already think or to celebrate what
they believe is a great success.
Applied to corporate operations, examine
the details. Many companies look at "net
new accounts," which could be going up
dramatically because of prices or marketing
- masking attrition or consumers' dissatis-
faction with the product. In detail, look at
errors, complaints, attrition, competitors and
other new entrants.
You always learn a lot more when you dig
deep into the numbers. Look at total car
sales, the number of people employed or
the actual price of goods compared with
calculated data like gross domestic product
(GDP), inflation or productivity. For the
latter, examine all of the methodologies and
assumptions that go into those calculations.
For instance, productivity tries to adjust for
(or simply sometimes can't adjust for) new
products that are superior to old products,
such as smartphones versus dumb phones;
similarly, calculations for inflation factor in
something called “owners' equivalent rent,”
which generally differs substantially from
actual home prices or rental costs.
It is helpful to try to separate and examine
actual raw data versus calculated numbers.
A few examples will suffice:
2. Examine raw data and focus on real numbers.
often the answer is simply waiting to be
found - and if you don't have to, don't rush.
While intuition matters, and it can be the
final deciding factor, intuition is not guessing
- it is usually based on years of experience,
hard work and practice.
A good decision-making process involves
having the right people in the room with all
information fully shared (all too often I have
seen precisely the opposite). There is also the
need for constant feedback and follow-up. A
bad decision-making process kills. If neces-
sary, review the information over and over
21
1. Enforce a good decision-making process.
Great management is critical to the long-term
success of any large organization. Strong
management is disciplined and rigorous.
Facts, analysis, detail ... facts, analysis, detail
... repeat. You can never do enough, and
it does not end. Complex activity requires
hard work and no uneducated guesswork.
Test, test, test and learn, learn, learn. And
accept failure as a “normal” recurring
II. LESSONS FROM LEADERSHIP
20
We have an opportunity to make the world a
better place for ourselves, for our children and
grandchildren, and for all living things that share
this planet with us.
Currently, we have plans to install 40 megawatts of
solar capacity across our corporate office buildings
in the United States and the United Kingdom. This
includes a 14.8-megawatt rooftop and carport solar
installation at our corporate campus in Columbus,
Ohio, which will produce about 75% of its power
needs. We're also installing 30 megawatts of solar
capacity at 900 retail branch locations across the
United States, which will provide approximately
35% of each branch's power needs.
We're also working to make our own company
as sustainable as possible. We've committed
to becoming carbon neutral for the emissions
generated to power our buildings, branches and
data centers, as well as those related to employee
travel. A big focus of our strategy is to generate our
own power using solar.
We also want to take advantage of the huge
opportunity to support existing and new green
companies and to help others lower their
carbon footprint - all while advancing economic
development and standards of living for people
around the world. This includes helping our clients
invest in significant and continuous performance
improvements, new technologies, alternative
energy solutions, and research and development
(R&D). Through our recently launched Center
for Carbon Transition, clients will have access to
information resources, as well as advisory and
financing solutions that will help them evolve in a
changing world.
outcome. Develop great models but under-
stand they are not the answer - judgment
has to be involved in matters related to
human beings and extraordinary events.
You need to have good decision-making
processes. Force urgency and kill compla-
cency. Know that there is competition
everywhere, all the time. But even if you do
all of this well, it is not enough.
At many of the best companies throughout history,
the constant creation of good leaders is what has
enabled the organizations to stand the true test of
greatness the test of time.
Total U.S. broker dealer inventories
Below are some essential hallmarks of a good
leader. While we cannot be great at all of these
traits - I know I'm not – to be successful, a leader
needs to get most of them right.
Shadow banks
30.8
13.6
6.9
Total U.S. passives and ETFs6
18.4
13.8
7.6
Total private direct credit
18.8
15.8
13.3
Total U.S. GDP5
Market size
118.4
57.2
33.6
Total U.S. debt and equity market
7.0
2.8
1.1
U.S. bank liquid assets², 4
1.5
1.0
0.4
Total U.S. money market funds
1.8
2.8
4.3
28
Some regulators will look at the chart above
and point out that risk has been moved out
of the banking system, which they wanted
and which clearly makes banks safer. That
may be true, but there is a flip side - banks
are reliable, less-costly and consistent
credit providers throughout good times
and in bad times, whereas many of the
credit providers listed in the chart above
are not. More important, transactions made
by well-controlled, well-supervised and
well-capitalized banks may be less risky to
the system than those transactions that are
pushed into the shadows.
Whether you look at the chart above over 10
or 20 years, U.S. banks have become much
smaller relative to U.S. financial markets and
to the size of most of the shadow banks. You
can also see the rapid growth of payment
and fintech companies and the extraordinary
size of Big Tech companies. (As an aside,
capital and global systemically important
financial institution (G-SIFI) capital rules
were supposed to reflect the economy's
increased size and banks' reduced size within
the economy. This simply has not happened
in the United States.)
-
NM = Not material
NA Not applicable
Sources: FactSet, S&P Global Market Intelligence, Federal Reserve Z.1, Federal Reserve H.8, Preqin and Federal Reserve Economic Data (FRED)
GSIB Global Systemically Important Banks
28
0.8
NA
50
NA
U.S. bank common equity³
1.2
ΝΑ
5.6
0.5
NM
Private and public fintech companies⁹
Payments⁹
Size of evolving
competitors
Google, Amazon, Facebook, Apple
8.0
3.0
0.6
Hedge fund and private equity AUM
0.1
3.7
For footnoted information, refer to page 67 in this Annual Report.
2.0
III. BANKS' ENORMOUS COMPETITIVE
26
Leaders need to acknowledge those who came
before them and helped shape the enterprise -
it's not all their own doing. There's a lot of luck
involved in anyone's success, and a little humility is
important. The overall goal must be to help build
a great company - then we can do more for our
employees, our customers and our communities.
Humility
The best leaders treat all people properly and
respectfully, from clerks to CEOs. Everyone needs
to help everyone else at the company because
everyone's collective purpose is to serve clients.
When strong leaders consider promoting people,
they pick those who are respected and ask
themselves, Would I want to work for him? Would I
want my kid to report to her?
Fair Treatment
While I deeply believe in loyalty, it often is
misused. Loyalty should be to the principles for
which someone stands and to the institution:
Loyalty to an individual frequently is another
form of cronyism. Leaders demand a lot from
their employees and should be loyal to them
― but loyalty and mutual respect are two-way
streets. Loyalty to employees does not mean that
a manager owes them a particular job. Loyalty
to employees means building a healthy, vibrant
company; telling them the truth; and giving them
meaningful work, training and opportunities. If
employees fall down, we should get them the help
they need. Meritocracy and teamwork also are
critical but frequently misunderstood. Meritocracy
means putting the best person in the job, which
promotes a sense of justice in the organization
rather than the appearance of cynicism: "Here
they go again, taking care of their friends."
Finally, while teamwork is important and often
code for "getting along," equally important is an
individual's ability to have the courage to stand
alone and do the right thing.
Loyalty, Meritocracy and Teamwork
High morale is developed through fixing problems,
dealing directly and honestly with issues, earning
respect and winning. It does not come from
overpaying people or delivering sweet talk, which
permits the avoidance of hard decision making and
fosters passive-aggressive behaviors.
-
Morale-Building
-
THREATS FROM VIRTUALLY EVERY ANGLE
Setup for Success
Sharing information all the time is vital - we should
debate the issues and alternative approaches, not
the facts. The best leaders kill bureaucracy - it
can cripple an organization – and watch for signs
of politics, like sidebar meetings after the real
meeting because people wouldn't speak their mind
at the right time. Equally important, leaders get
out in the field regularly so as not to lose touch.
Anyone in a meeting should feel free to speak his
or her mind without fear of offending anyone else.
I once heard someone describe the importance of
having "at least one truth-teller at the table." Well,
if there is just one truth-teller at the table, you're in
trouble everyone should be a truth-teller.
-
Openness
In a cold-blooded, honest way, leaders emphasize
the negatives at management meetings and focus
on what can be improved (of course, it's okay to
celebrate the successes, too). All reporting must be
accurate, and all relevant facts must be reported,
with full disclosure and on one set of books.
Ability to Face Facts
Leaders must set high standards of performance all
the time, at a detailed level and with a real sense
of urgency. Leaders must compare themselves with
the best. Huge institutions have a tendency toward
slowing things down, which demands that leaders
push forward constantly. True leaders must set the
highest standards of integrity - those standards
are not embedded in the business but require
conscious choices. Such standards demand that we
treat customers and employees the way we would
want to be treated ourselves or the way we would
want our own mother to be treated.
High Standards
This attribute often is missing in leaders: They need
to have a fierce resolve to act. It means driving
change, fighting bureaucracy and politics, and
taking ownership and responsibility.
Fortitude
This means holding regular business reviews, talent
reviews and team meetings and constantly striving
for improvement - from having a strong work ethic
to making lists and doing real, detailed follow-up.
Leadership is like exercise; the effect has to be
sustained for it to do any good.
Discipline
3.5
25
To fairly assess the competitive landscape
for banks, you must fairly evaluate their
strengths and weaknesses to deal with both
the current competition and evolving compe-
tition. Banks have significant strengths
- brand, economies of scale, profitability,
and deep roots with their customers and
within their communities. Many companies,
including banks, have flaws of their own
making – usually due to bureaucracy, compla-
cency and lack of a deep competitive spirit.
Banks have other weaknesses, born somewhat
out of their success - for example, inflexible
"legacy systems" that need to be moved to the
cloud if they are to remain competitive. Banks
are also required to deal with extensive regu-
lations, which can hinder new competition
and/or create an opening for both existing and
evolving competitors. Banks fiercely compete
with each other and now face fierce competi-
tion from multiple vectors.
An effective leader makes sure all the right
people are in the room from Legal, Systems and
Operations to Human Resources, Finance and Risk.
It's also necessary to set up the right structure.
When tri-heads report to co-heads, all decisions
become political – a setup for failure, not success.
I am completely in favor of open compe-
tition, and much of the competition that
I cover in this section will be good for
America. One of the necessities for a healthy
economy, and one at the core of America's
success, is a strong, vibrant financial system.
The disciplined allocation of capital, and the
constant search for new opportunities for
capital, is critical to growth (a corollary of the
free and intelligent movement of capital is
the free movement of human talent, which,
ultimately, may be even more important).
America's financial system is the best the
world has ever seen, from our regulatory
system and rule of law to exchanges, venture
capital and private capital, banks and shadow
banks. As our system changes, our govern-
ment and regulators need to understand
that maintaining the vibrancy, safety and
soundness of this system is critical - and
this includes maintaining a relatively fair
and balanced playing field. While I am still
confident that JPMorgan Chase can grow and
earn a good return for its shareholders, the
competition will be intense, and we must get
faster and be more creative.
($ in trillions)
2010
2020
U.S. banks market capitalization¹
1.2
10.5
1.3
2.2
U.S. GSIB market capitalization
0.9
0.8
1.2
European banks market capitalization¹
1.1
1.5
1.1
Size of banks
U.S. bank loans²
3.7
6.6
Banks already compete against a large and
powerful shadow banking system. And
they are facing extensive competition from
Silicon Valley, both in the form of fintechs
and Big Tech companies (Amazon, Apple,
Facebook, Google and now Walmart), that is
here to stay. As the importance of cloud, AI
and digital platforms grows, this competi-
tion will become even more formidable. As
a result, banks are playing an increasingly
smaller role in the financial system.
Size of the Financial Sector / Industry
In the chart below, you will see that U.S. banks (and European banks) have become much
smaller in size relative to multiple measures, ranging from shadow banks to fintech competi-
tors and to markets in general.
2000
1. Banks are playing an increasingly smaller role in the financial system.
III. BANKS' ENORMOUS COMPETITIVE THREATS FROM VIRTUALLY EVERY ANGLE
27
Collateral-dependent loans
(c)
Total allowance for lending-related commitments"
$
$
2,295
143,432
302,127
$
ΝΑ
ΝΑ
ΝΑ
NA
938,877
$
2,108
187
Portfolio-based
960,506
$
514,947
Loans measured at fair value of collateral less cost to sell
$
133 $
4,956
21,629
76
188
$
209
5,144
Allowance for lending-related commitments by impairment methodology
Asset-specific
$
- $ - $
114
$
114
Net charge-offs
$
$
$
ΝΑ
ΝΑ
PCI
27,020
6,210
17,167
3,643
ΝΑ
Portfolio-based
$
682
$
633
(7) $
$
Allowance for loan losses by impairment methodology
Asset-specific (b)
1,308
ΝΑ
Total allowance for loan losses
$
1,375
142,057
285,479
$
16,648
$
Total retained loans
PCI
Portfolio-based
Asset-specific (b)
Loans by impairment methodology
28,328
187
6,892
$
17,800
$
3,636
3,606
511,341
$
Credit card
2,222
(173)
(1,493)
366
4,848
415
NA
ΝΑ
(493)
13,604
4,828
$
4,884
$
3,892
$
13,445
$
$
(827)
(57)
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
902
(1,181)
5,436
6,810
977
5,011
361
6,349
(536)
(588)
472
4,827
$
5,184
$
426,871
427,448
$
$
37,783
37,783
$
Total lending-related commitments
464,654
465,231
Portfolio-based (d)
$
577
$ - $ - $
Lending-related commitments by impairment methodology
Asset-specific
2,409
30,737
$
577
250
JPMorgan Chase & Co./2020 Form 10-K
(a) Prior to the adoption of CECL, write-offs of PCI loans were recorded against the allowance for loan losses when actual losses for a pool exceeded estimated
losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan was recognized when the underlying
loan was removed from a pool.
$
3,434
$
Total
Wholesale
2018
Credit card
Consumer,
excluding
credit card
Total
Wholesale
2019
credit card
excluding
Consumer,
(table continued from previous page)
(e) Excludes HTM securities, which had an allowance for credit losses of $78 million and a provision for credit losses of $68 million as of and for the year
ended December 31, 2020.
(b) Includes modified PCD loans and loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that
have been placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loans modified, or reasonably
expected to be modified, in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(c) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(d) At December 31, 2020, 2019 and 2018, lending-related commitments excluded $19.5 billion, $9.8 billion and $8.7 billion, respectively, for the
consumer, excluding credit card portfolio segment; $658.5 billion, $650.7 billion and $605.4 billion, respectively, for the credit card portfolio segment;
and $22.4 billion, $24.1 billion and $24.8 billion, respectively, for the wholesale portfolio segment, which were not subject to the allowance for lending-
related commitments.
$
$
JPMorgan Chase & Co./2020 Form 10-K
$
37
20
1
15
(c)
90 or more days past due and still accruing"
449
658
115
601
30-89 days past due and still accruing
$144,839
$140,100
$120,119
Current and less than 30 days past due and still accruing $118,894
Criticized nonaccrual
$380,302
101,376
$481,678
483
1,931
$120,418
$ 119,993
$
Net charge-offs/(recoveries)
Total retained loans
43
57
5
30
979
2,865
415
$479,599
$508,707
$214,641
$249,713
1,606
22
904
844
183
$406,846
108,101
$514,947
$150,512
64,579
$215,091
$ 180,583
71,662
$252,245
Total retained loans
Total non-U.S.
Total U.S.
Loans by geographic distribution (a)
(in millions)
December 31,
The following table provides additional information about retained wholesale loans, including geographic distribution,
delinquency and net charge-offs.
183
0.15 %
0.40 %
483 $
$
1.09 %
1,314
$ 120,418
2019
Loan delinquency(b)
Secured by real estate
Commercial
and industrial
2020
$111,954
34,215
$146,169
$109,273
33,436
$142,709
$ 120,418
$119,993
$117,836
2,582
3,003
$ 116,990
$142,709
2019
2019
Total
retained loans
Other
2020
2019
2020
2019
2020
2020
$ 119,993
3,717
3.10 %
$146,169
$215,091
2,818 $
500
2
28 $
800 $
104
156
$
688
1,667 $
264
14
169 $
351 $
132
Without an allowance (b)
$
With an allowance
Nonaccrual loans (a)
885
2019
172
(c)
JPMorgan Chase & Co./2020 Form 10-K
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing
financial difficulty. Loans with short-term or other insignificant modifications that are not considered concessions are not TDRS
nor are loans for which the Firm has elected to apply the option to suspend the application of accounting guidance for TDRs as
provided by the CARES Act and extended by the Consolidated Appropriations Act. The carrying value of TDRs was $954 million
and $501 million as of December 31, 2020 and 2019, respectively. The carrying value of new TDRS was $734 million,
$407 million and $718 million for the years ended December 31, 2020, 2019 and 2018, respectively. The impact of these
modifications, as well as new TDRs, were not material to the Firm for the years ended December 31, 2020, 2019 and 2018.
Loan modifications
(c) Interest income on nonaccrual loans recognized on a cash basis were not material for the years ended December 31, 2020 and 2019.
(b) When the discounted cash flows, collateral value or market price equals or exceeds the amortized cost of the loan, the loan does not require an allowance. This
typically occurs when the loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(a) Loans that were modified in response to the COVID-19 pandemic continue to be risk-rated in accordance with the Firm's overall credit risk management framework.
As of December 31, 2020, predominantly all of these loans were considered performing.
1,057
3,318 $
30 $
904 $
844 $
1,931 $
183 $
483 $
$
Total nonaccrual loans"
2020
Total
retained loans
2019
0.01 %
% of net charge-offs/(recoveries) to end-of-period
retained loans
415
1,057
$481,678
3,318
$514,947
$ 799 $
36
$
52
$
$ 335
737
$
44
$
10
0.04 %
0.52 %
0.23 %
0.02 %
2020
Other
2019
2020
Commercial
and industrial
2019
Secured by real estate
2020
$252,245
(in millions)
The following table provides information on retained wholesale nonaccrual loans.
Nonaccrual loans
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations rather than
relying on the past due status, which is generally a lagging indicator of credit quality. Generally excludes loans under payment deferral programs offered in response
to the COVID-19 pandemic.
0.09 %
0.16 %
0.02 %
December 31,
$ 46,915 $ 46,578
2,573
974
2.09 %
155
0.33 %
5.48 %
427 $
0.91 %
$
Provision for loan losses
974
10,886
4,431
16,291
Other
1
-
1
Ending balance at December 31,
$
3,636
$
17,800
$
ΝΑ
6,892
ΝΑ
NA
805
5,077
954
6,836
Gross recoveries collected
(631)
(791)
(155)
(1,577)
Net charge-offs
174
4,286
799
5,259
Write-offs of PCI loans (a)
NA
$
28,328
Allowance for lending-related commitments
(1)
256
Ending balance at December 31,
$
187
$
$
2,222
$
2,409
Total allowance for credit losses
$
3,823
$
17,800
(1)
(
--
Other
Beginning balance at January 1,
$
12
$
$
1,179
$
Gross charge-offs
1,191
133
(35)
98
Provision for lending-related commitments
42
1,079
1,121
Cumulative effect of a change in accounting principle
4,172
13,123
$
Effective January 1, 2020, the Firm adopted the CECL
accounting guidance. The adoption of this guidance
established a single allowance framework for all financial
assets measured at amortized cost and certain off-balance
sheet credit exposures. This framework requires that
management's estimate reflects credit losses over the
instrument's remaining expected life and considers expected
future changes in macroeconomic conditions. Refer to Note
1 for further information.
JPMorgan Chase's allowance for credit losses comprises:
the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
•
⚫ the allowance for credit losses on investment securities,
which covers the Firm's HTM and AFS securities and is
recognized within Investment Securities on the
Consolidated balance sheets.
The income statement effect of all changes in the allowance
for credit losses is recognized in the provision for credit
losses.
Determining the appropriateness of the allowance for credit
losses is complex and requires significant judgment by
management about the effect of matters that are inherently
uncertain. At least quarterly, the allowance for credit losses
is reviewed by the CRO, the CFO and the Controller of the
Firm. Subsequent evaluations of credit exposures,
considering the macroeconomic conditions, forecasts and
other factors then prevailing, may result in significant
changes in the allowance for credit losses in future periods.
The Firm's policies used to determine its allowance for loan
losses and its allowance for lending-related commitments
are described in the following paragraphs. Refer to Note 10
for a description of the policies used to determine the
allowance for credit losses on investment securities.
Methodology for allowances for loan losses and lending-
related commitments
The allowance for loan losses and allowance for lending-
related commitments represents expected credit losses over
the remaining expected life of retained loans and lending-
related commitments that are not unconditionally
cancellable. The Firm does not record an allowance for
future draws on unconditionally cancellable lending-related
commitments (e.g., credit cards). Expected losses related to
accrued interest on credit card loans and certain
performing, modified loans to borrowers impacted by
COVID-19 are considered in the Firm's allowance for loan
losses. However, the Firm does not record an allowance on
other accrued interest receivables, due to its policy to write
these receivables off no later than 90 days past due by
reversing interest income.
The expected life of each instrument is determined by
considering its contractual term, expected prepayments,
cancellation features, and certain extension and call options.
The expected life of funded credit card loans is generally
estimated by considering expected future payments on the
credit card account, and determining how much of those
amounts should be allocated to repayments of the funded
loan balance (as of the balance sheet date) versus other
account activity. This allocation is made using an approach
that incorporates the payment application requirements of
the Credit Card Accountability Responsibility and Disclosure
Act of 2009, generally paying down the highest interest rate
balances first.
The estimate of expected credit losses includes expected
recoveries of amounts previously charged off or expected to
be charged off, even if such recoveries result in a negative
allowance.
Collective and Individual Assessments
When calculating the allowance for loan losses and the
allowance for lending-related commitments, the Firm
assesses whether exposures share similar risk
characteristics. If similar risk characteristics exist, the Firm
estimates expected credit losses collectively, considering the
risk associated with a particular pool and the probability
that the exposures within the pool will deteriorate or
default. The assessment of risk characteristics is subject to
significant management judgment. Emphasizing one
characteristic over another or considering additional
characteristics could affect the allowance.
•
•
Relevant risk characteristics for the consumer portfolio
include product type, delinquency status, current FICO
scores, geographic distribution, and, for collateralized
loans, current LTV ratios.
Note 13 - Allowance for credit losses
The following table presents additional information on retained loans secured by real estate within the Wholesale portfolio,
which consists of loans secured wholly or substantially by a lien or liens on real property at origination. Multifamily lending
includes financing for acquisition, leasing and construction of apartment buildings. Other commercial lending largely includes
financing for acquisition, leasing and construction, largely for office, retail and industrial real estate. Included in secured by real
estate loans is $6.4 billion and $6.3 billion as of December 31, 2020 and 2019, respectively, of construction and development
loans made to finance land development and on-site construction of commercial, industrial, residential, or farm buildings.
Other Commercial
Total retained loans secured
by real estate
340
0.46 %
28
0.04 %
56 $
0.08 %
% of criticized nonaccrual loans to total retained loans secured by real estate
$
1,144
1.57 %
% of total criticized to total retained loans secured by real estate
Criticized nonaccrual
$ 73,078 $ 73,840
Relevant risk characteristics for the wholesale portfolio
include LOB, geography, risk rating, delinquency status,
level and type of collateral, industry, credit enhancement,
product type, facility purpose, tenor, and payment terms.
The majority of the Firm's credit exposures share risk
characteristics with other similar exposures, and as a result
are collectively assessed for impairment (“portfolio-based
component"). The portfolio-based component covers
consumer loans, performing risk-rated loans and certain
lending-related commitments.
2019
2019
2020
Criticized
Retained loans secured by real estate
(in millions, except ratios)
December 31,
Multifamily
2020
9,114
If an exposure does not share risk characteristics with other
exposures, the Firm generally estimates expected credit
losses on an individual basis, considering expected
repayment and conditions impacting that individual
exposure ("asset-specific component"). The asset-specific
component covers modified PCD loans, loans modified or
reasonably expected to be modified in a TDR, collateral-
dependent loans, as well as, risk-rated loans that have been
placed on nonaccrual status.
Portfolio-based component
248
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Allowance for loan losses
Beginning balance at January 1,
$
2,538
$
5,683
$
Cumulative effect of a change in accounting principle
297
5,517
4,902
(1,642)
(in millions)
Year ended December 31,
2020(e)
(Table continued on next page)
JPMorgan Chase & Co./2020 Form 10-K
estimated exposure at default. The credit loss factors
incorporate the probability of borrower default as well as
loss severity in the event of default. They are derived using a
weighted average of five internally developed
macroeconomic scenarios over an eight-quarter forecast
period, followed by a single year straight-line interpolation
to revert to long run historical information for periods
beyond the eight-quarter forecast period. The five
macroeconomic scenarios consist of a central, relative
adverse, extreme adverse, relative upside and extreme
upside scenario, and are updated by the Firm's central
forecasting team. The scenarios take into consideration the
Firm's overarching economic outlook, internal perspectives
from subject matter experts across the Firm, and market
consensus and involve a governed process that incorporates
feedback from senior management across LOBS, Corporate
Finance and Risk Management.
The COVID-19 pandemic has stressed many MEVS to degrees
not experienced in recent history, which has created
additional challenges in the use of modeled credit loss
estimates and increased the reliance on management
judgment. In periods where certain MEVS are outside the
range of historical experience on which the Firm's models
have been trained, the Firm makes adjustments to
appropriately address these economic circumstances. The
Firm also considers the impact of other events, such as
government unemployment benefits or other stimulus
programs, when determining whether adjustments are
necessary.
The quantitative calculation is adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet reflected in the calculation. These adjustments are
accomplished in part by analyzing the historical loss
experience, including during stressed periods, for each
major product or model. Management applies judgment in
making this adjustment, including taking into account
uncertainties associated with the economic and political
conditions, quality of underwriting standards, borrower
behavior, credit concentrations or deterioration within an
industry, product or portfolio, as well as other relevant
internal and external factors affecting the credit quality of
the portfolio. In certain instances, the interrelationships
between these factors create further uncertainties.
Throughout 2020, the Firm made adjustments to its
quantitative calculation which placed significant weighting
on its adverse scenarios, as a result of continued uncertainty
related to the COVID-19 pandemic.
The application of different inputs into the quantitative
calculation, and the assumptions used by management to
adjust the quantitative calculation, are subject to significant
management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
loan losses and the allowance for lending-related
commitments.
Asset-specific component
To determine the asset-specific component of the allowance,
collateral-dependent loans (including those loans for which
foreclosure is probable) and larger, nonaccrual risk-rated
loans in the wholesale portfolio segment are generally
evaluated individually, while smaller loans (both scored and
risk-rated) are aggregated for evaluation using factors
relevant for the respective class of assets.
The portfolio-based component begins with a quantitative
calculation that considers the likelihood of the borrower
changing delinquency status or moving from one risk rating
to another. The quantitative calculation covers expected
credit losses over an instrument's expected life and is
estimated by applying credit loss factors to the Firm's
The Firm generally measures the asset-specific allowance as
the difference between the amortized cost of the loan and
the present value of the cash flows expected to be collected,
discounted at the loan's original effective interest rate.
Subsequent changes in impairment are generally recognized
as an adjustment to the allowance for loan losses. For
collateral-dependent loans, the fair value of collateral less
estimated costs to sell is used to determine the charge-off
amount for declines in value (to reduce the amortized cost
of the loan to the fair value of collateral) or the amount of
negative allowance that should be recognized (for
recoveries of prior charge-offs associated with
improvements in the fair value of collateral).
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry-, portfolio-, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors. All of these
estimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
JPMorgan Chase & Co./2020 Form 10-K
249
Notes to consolidated financial statements
Allowance for credit losses and related information
The table below summarizes information about the allowances for loan losses and lending-related commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology. Refer to Note 10 for further information
on the allowance for credit losses on investment securities.
The adoption of the CECL accounting guidance resulted in a change in the accounting for PCI loans, which are considered PCD
loans. In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from
the consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology
applied when determining the allowance. Prior-period amounts have been revised to conform with the current presentation.
Refer to Note 1 for further information.
The asset-specific component of the allowance for loan
losses for loans that have been or are expected to be
modified in TDRs incorporates the effect of the modification
on the loan's expected cash flows (including forgone
interest, principal forgiveness, as well as other concessions),
and also the potential for redefault. For residential real
estate loans modified in or expected to be modified in TDRS,
the Firm develops product-specific probability of default
estimates, which are applied at a loan level to compute
expected losses. In developing these probabilities of default,
the Firm considers the relationship between the credit
quality characteristics of the underlying loans and certain
assumptions about housing prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified in
or expected to be modified in TDRs, expected losses
incorporate projected delinquencies and charge-offs based
on the Firm's historical experience by type of modification
program. For wholesale loans modified or expected to be
modified in TDRs, expected losses incorporate
management's expectation of the borrower's ability to repay
under the modified terms.
247
Notes to consolidated financial statements
24,037
268,675
167,472
1,123
480,555
$
8,536 $
916,702
20,363
$
294,999
$
168,924
$
481,678
$
20,363
945,601 $
6,665
305,077
24,034
335,776
$
1,319
$
1,459
$
9,443
155,297
$
475,561
1,452
5,961
479
5,348
(378)
187
187
151
151
4,856
188
4,518
150
5,629
4,902
$
13,123 $
3,434
$
5,184
$
4,827
$
13,445
$
$
935,935
3
12
$
$
99
$
99
12
1,077
1,089
12
944
956
$
12
$
$
1,179
$
1,191 $
12
$
$
1,043
$
102 $
$
102
$
$
156,616
$
477,023
$
969,415
$
46
2,053
$
$
36
5,449
$
82 $
2,140
16
$
2,076
$
29
$
206
45
2,282
$
$
87
(121)
4,818
188
1,179
$
1,191 $
12
$
$
1,043
$
1,055
$
2,550
$
5,683
$
6,081
$
14,314 $
3,446
$
5,184
$
5,870
$
$
$
12
$
$
1,043
$
1,055 $
12
$
$
1,056
$
1,068
ΝΑ
14,500
ΝΑ
NA
ΝΑ
ΝΑ
ΝΑ
ΝΑ
136
136
(14)
(14)
1
1
ΝΑ
1,055
$
$
13,445
$
4,827
$
5,184
$
3,434
$
13,123
$
4,902
$
5,683
$
2,538
$
(1)
(1)
9
11
(1)
(1)
4,885
$
5,683
$
2,538
477
$
295
$
1,476
5,206
4,607
847 $
11,289
143
$
440
75
$
$
933
1,503
4,744
4,477
10,724
987
987
1,788
1,788
$
350
$
$
$
(b) Consists of securities backed by commercial real estate loans and non-mortgage-related consumer receivables purchased from third parties.
(a) Excludes U.S. GSES and government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 259-260 of this Note for information
on the Firm's loan sales and securitization activity related to U.S. GSES and government agencies.
2,966
241 $
1,327 $ 1,398 $
$
1,799
241
773
785
7
1,160
$
625 $
535 $
7
$
48,734
13,490
80,878
143,102
2,796 $
$ 186,912 $
Total
2,796 $
60,348 $
14,661
111,903
Commercial and other (b)
(c) Excludes the following: retained servicing (refer to Note 15 for a discussion of MSRS); securities retained from loan sales and securitization activity related to U.S. GSES
and government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities
(refer to Note 5 for further information on derivatives); senior and subordinated securities of $105 million and $40 million, respectively, at December 31, 2020, and
$106 million and $94 million, respectively, at December 31, 2019, which the Firm purchased in connection with CIB's secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
$
(e) As of December 31, 2020 and 2019, 73% and 63%, respectively, of the Firm's retained securitization interests, which are predominantly carried at fair value and
include amounts required to be held pursuant to credit risk retention rules, were risk-rated "A" or better, on an S&P-equivalent basis. The retained interests in prime
residential mortgages consisted of $1.3 billion and $1.1 billion of investment-grade retained interests, and $41 million and $72 million of noninvestment-grade
retained interests at December 31, 2020 and 2019, respectively. The retained interests in commercial and other securitization trusts consisted of $2.0 billion and
$1.2 billion of investment-grade retained interests, and $753 million and $575 million of noninvestment-grade retained interests at December 31, 2020 and 2019,
respectively.
JPMorgan Chase & Co./2020 Form 10-K
2020
Nonconsolidated
re-securitization VIES
The following table presents information on the Firm's
interests in nonconsolidated re-securitization VIES.
Notes to consolidated financial statements
255
JPMorgan Chase & Co./2020 Form 10-K
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored re-securitizations and generally
purchases these interests in the secondary market. In these
circumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the re-
securitization trust, either because it was not involved in
the initial design of the trust, or the Firm is involved with an
independent third-party sponsor and demonstrates shared
power over the creation of the trust; therefore, the Firm
does not consolidate the re-securitization VIE.
The Firm did not transfer any private label securities to re-
securitization VIES during 2020, 2019 and 2018,
respectively, and retained interests in any such Firm-
sponsored VIES as of December 31, 2020 and 2019 were
immaterial.
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
$ 46,123 $ 25,852 $ 15,532
2018
2019
2020
Transfers of securities to VIES
U.S. GSES and government
agencies
Year ended December 31,
(in millions)
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both U.S. GSES and government agency
sponsored VIES, which are backed by residential mortgages.
The Firm's consolidation analysis is largely dependent on
the Firm's role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIES.
Re-securitizations
information on interests held in nonconsolidated
securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. Treasury and CIO
may choose to invest in these securitizations as well. For
commercial mortgage securitizations the power to direct
the significant activities of the VIE generally is held by the
servicer or investors in a specified class of securities
("controlling class"). The Firm generally does not retain an
interest in the controlling class in its sponsored commercial
mortgage securitization transactions. Refer to the table on
page 257 of this Note for more information on the
consolidated commercial mortgage securitizations, and the
table on the previous page of this Note for further
The Firm does not consolidate residential mortgage
securitizations (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. Refer to the table on
page 257 of this Note for more information on the
consolidated residential mortgage securitizations, and the
table on the previous page of this Note for further
information on interests held in nonconsolidated residential
mortgage securitizations.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by Treasury and CIO or CCB, when
considered together with the servicing arrangements
entered into by CCB, the Firm is deemed to be the primary
beneficiary of certain securitization trusts. Refer to the
table on page 257 of this Note for more information on
consolidated residential mortgage securitizations.
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
Residential mortgage
254
Prime/Alt-A and option ARMS
Subprime
$
Residential mortgage:
$ 182,272 $
Total
1,693 $
46
12,896
119,732
Commercial and other (b)
Subprime
49,644 $
$
Prime/Alt-A and option ARMS
Residential mortgage:
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm's only continuing involvement is servicing the loans. The Firm's maximum loss exposure from retained and
purchased interests is the carrying value of these interests. Refer to Securitization activity on page 259 of this Note for further
information regarding the Firm's cash flows associated with and interests retained in nonconsolidated VIES, and pages
259-260 of this Note for information on the Firm's loan sales and securitization activity related to U.S. GSEs and government
agencies.
December 31, 2020
(in millions)
Securitization-related (a)
Principal amount outstanding
Assets
Total assets
held in
held by
consolidated
securitization securitization
VIES
VIES
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES (c)(d)(e)
Assets held in
nonconsolidated
securitization
VIES with
continuing
involvement
Trading
assets
1,739 $
41,265
12,154
92,351
145,770
$
574 $
Securitization-related (a)
held by
JPMorgan
Chase
Other
Investment financial
securities assets
Trading
assets
securitization
VIES with
continuing
involvement
Total
interests
nonconsolidated
Assets held in
nonconsolidated VIES (c)(d)(e)
VIES
Total assets
Assets
held in
held by
consolidated
securitization securitization
VIES
December 31,
Principal amount outstanding
JPMorgan Chase interest in securitized assets in
262 $ 4,073
2,766
262
1,549
2,273 $
955
1,538 $
$
9
9 ..
$ 1,298
724 $
December 31, 2019
(in millions)
(in millions)
U.S. GSES and government agencies
Interest in VIES
Due to elevated uncertainty in the near term outlook, driven
by the potential for increased infection rates and related
lock downs resulting from the pandemic, as well as the
prospect that government and other consumer relief
measures set to expire may not be extended, the Firm has
placed significant weighting on its adverse scenarios. These
scenarios incorporate more punitive macroeconomic factors
than the central case assumptions, resulting in weighted
average U.S. unemployment rates remaining elevated
throughout 2021 and 2022, ending the fourth quarter of
2022 at approximately 6%, and in U.S. GDP ending 2022
approximately 0.9% higher than fourth quarter 2019
actual pre-pandemic levels.
The Firm's central case assumptions reflected U.S.
unemployment rates and U.S. real GDP as follows:
Assumptions at January 1, 2020
2Q20
4Q20(b)
2Q21
U.S. unemployment rate (a)
Cumulative change in U.S.
real GDP from
12/31/2019
3.7%
3.8%
4.0%
0.9%
1.7%
2.4%
Assumptions at December 31, 2020
2Q21
4Q21
2Q22
U.S. unemployment rate
Cumulative change in U.S.
real GDP from
12/31/2019
(a)
6.8%
5.7%
5.1%
(1.9)%
As of December 31, 2020, the Firm's central case reflected
U.S. unemployment rates of approximately 7% through the
second quarter of 2021 and remaining above 5% until the
second half of 2022. This compared with relatively low
levels of unemployment of approximately 4% throughout
2020 and 2021 in the Firm's January 1, 2020 central case.
Further, while the Firm's January 1, 2020 central case U.S.
GDP forecast reflected a 1.7% expansion in 2020, actual
U.S. GDP contracted approximately 2.5% in 2020. As of
December 31, 2020, the Firm's central case assumptions
reflect a return to pre-pandemic GDP levels in the fourth
quarter of 2021.
Discussion of changes in the allowance during 2020
The increase in the allowance for loan losses and lending-
related commitments was primarily driven by an increase in
the provision for credit losses, reflecting the deterioration
in and uncertainty around the future macroeconomic
environment as a result of the impact of the COVID-19
pandemic.
Notes to consolidated financial statements
251
474
$
30,417
392,967
474 $
423,384
$
$
469
$
469
26,502
0.6%
374,996
30,417
$
$ 393,441
$ 423,858 $
26,502
$
$
375,465
$
401,498
401,967
JPMorgan Chase & Co./2020 Form 10-K
$
Other
Investment financial
securities assets
2.0%
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
Significant Firm-sponsored variable interest entities
Credit card securitizations
CCB's Card business may securitize originated credit card
loans, primarily through the Chase Issuance Trust (the
“Trust”). The Firm's continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller's interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.
The Firm consolidates the assets and liabilities of its
sponsored credit card trusts as it is considered to be the
primary beneficiary of these securitization trusts based on
the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
JPMorgan Chase & Co./2020 Form 10-K
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of
December 31, 2020 and 2019, the Firm held undivided
interests in Firm-sponsored credit card securitization trusts
of $5.4 billion and $5.3 billion, respectively. The Firm
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 39%
and 50% for the years ended December 31, 2020 and
253
Notes to consolidated financial statements
2019. The Firm did not retain any senior securities and
retained $1.5 billion and $3.0 billion of subordinated
securities in certain of its credit card securitization trusts as
of December 31, 2020 and 2019, respectively. The Firm's
undivided interests in the credit card trusts and securities
retained are eliminated in consolidation.
Municipal bond vehicles or tender option bond ("TOB")
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("floaters") and (2) inverse floating-rate
residual interests ("residuals"). The floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the residual is held by a third-party
investor are typically known as customer TOB trusts, and
non-customer TOB trusts are transactions where the
Residual is retained by the Firm. Customer TOB trusts are
sponsored by a third party; refer to page 258 of this Note
for further information. The Firm serves as sponsor for all
non-customer TOB transactions. The Firm may provide
various services to a TOB trust, including remarketing
agent, liquidity or tender option provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the floaters, conducting the initial placement and
remarketing tendered floaters. The remarketing agent may,
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2020 and 2019.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
Municipal bond vehicles
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$12.2 billion and $8.9 billion at December 31, 2020 and
2019, respectively, and are reported as off-balance sheet
lending-related commitments in other unfunded
commitments to extend credit. Refer to Note 28 for more
information on off-balance sheet lending-related
commitments.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$13.5 billion and $16.3 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2020 and 2019, respectively, which have
been eliminated in consolidation. The Firm's investments
reflect the Firm's funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. Refer to
page 257 of this Note for further information on
consolidated VIE assets and liabilities.
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
Multi-seller conduits
As of December 31, 2020 and 2019, the Firm did not
consolidate any U.S. GSE and government agency re-
securitization VIES or any Firm-sponsored private-label re-
securitization VIES.
2,928
2019
2,631 $
$
In addition, CIB also invests in and provides financing and other services to VIES sponsored by third parties. Refer to page 258
of this Note for more information on the VIES sponsored by third parties.
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIES (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm's investment securities portfolio.
Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB's maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
252
JPMorgan Chase & Co./2020 Form 10-K
Note 14 - Variable interest entities
Refer to Note 1 on page 167 for a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES.
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
Transaction Type
Activity
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
Line of Business
Credit card securitization trusts
CCB
Mortgage securitization trusts
Mortgage and other securitization trusts
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) 4Q20 actual U.S. unemployment rate (quarterly average) was 6.8%.
4Q20 actual cumulative change in U.S. real GDP from 4Q19 was
(2.5%).
Securitization of both originated and purchased
residential and commercial mortgages, and other
consumer loans
253-254
254-256
254-256
CIB
Multi-seller conduits
Municipal bond vehicles
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
Financing of municipal bond investments
256
256-257
The Firm's other business segments are also involved with VIES (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
2020 Form 10-K
page references
Total
interests
held by
JPMorgan
Chase
1,367
2,035
448.0
1.8
522.0
521.0
2.0
3.0
(a) Includes excess MSRS transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS"). In each transaction, a portion
of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and
expected prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a
short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right
to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if
they were not made in accordance with applicable rules and agreements.
(e) The decrease in projected cash flows was largely related to default servicing assumption updates.
JPMorgan Chase & Co./2020 Form 10-K
263
Notes to consolidated financial statements
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2020, 2019 and 2018.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
Net production revenue
Net mortgage servicing revenue:
2020
2019
2018
$ 2,629
$ 1,618 $ 268
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2020 and 2019, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)
December 31,
Third-party mortgage loans serviced at December 31, (in billions)
230
15
Discount rates
Prepayment model changes and other (c)
199
153
24
(117)
(107)
(109)
Total changes in valuation due to other inputs and assumptions
28
(287)
(70)
Total changes in valuation due to inputs and assumptions
(1,540)
(1,180)
230
Fair value at December 31,
$
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
$
3,276 $ 4,699 $
(1,540) $ (1,180) $
1,325
1,639
6,130
1,778
(in millions, except rates)
Weighted-average prepayment speed
assumption (constant prepayment rate)
Impact on fair value of 10% adverse change
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread (a)
Impact on fair value of 100 basis points
adverse change
2020
(1,568)
(893)
300
Other changes in MSR asset fair
value due to other inputs and
assumptions in model (b)
28
(287)
(70)
Change in derivative fair value
and other
1,522
1,015
(341)
Total risk management
(18)
(165)
(111)
Total net mortgage servicing
revenue
450
417
984
Total CCB mortgage fees and related
income
3,079
and other (a)
due to market interest rates
Changes in MSR asset fair value
Risk management:
2019
14.90 %
$ (206)
11.67 %
$ (200)
(392)
7.19 %
(384)
7.93 %
$ (134)
$ (169)
Impact on fair value of 200 basis points
adverse change
(258)
1,252
(326)
Loan servicing revenue
1,533
1,835
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
(899)
Total operating revenue
468
(951)
582
(740)
1,095
Operating revenue:
Total
374,514
266
$ 33,812 $ 44,127
50,523 50,840
Total
Non-U.S. offices
U.S. offices
2019
2020
$ 84,335 $ 94,967
December 31, (in millions)
At December 31, 2020 and 2019, time deposits in
denominations of $250,000 or more were as follows.
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. Refer to Note 3 for further discussion.
Total deposits
Total deposits in non-U.S. offices
(a)
$1,438 at fair value)"
JPMorgan Chase & Co./2020 Form 10-K
At December 31, 2020, the maturities of interest-bearing
time deposits were as follows.
December 31, 2020
(in millions)
210
2024
266
7
259
2023
$ 92,927
1,626
$ 48,142
175
1,451
2022
$ 44,785
2021
Total
Non-U.S.
U.S.
$1,562,431
36
$ 2,144,257
(333)
U.S. offices
December 31, (in millions)
At December 31, 2020 and 2019, noninterest-bearing and
interest-bearing deposits were as follows.
Note 17 - Deposits
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remainder of the lease
term, or estimated useful life of the improvements.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
Note 16-Premises and equipment
2020
JPMorgan Chase & Co./2020 Form 10-K
(a) Includes the impact of operational risk and regulatory capital.
Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In this table, the effect that a change in a particular
assumption may have on the fair value is calculated without
changing any other assumption. In reality, changes in one
factor may result in changes in another, which would either
magnify or counteract the impact of the initial change.
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
$ 1,254
$ 3,091 $ 2,036
Mortgage fees and related income
2
264
2019
Noninterest-bearing (included $9,873 and
$22,637 at fair value) (a)
270,521
351,079
Interest-bearing (included $558 and
20,087
23,435
Noninterest-bearing (included $1,486 and
$1,980 at fair value) (a)
Non-U.S. offices
Total deposits in U.S. offices
(a)
876,156
1,271,823
1,769,743
1,197,032
Interest-bearing (included $2,567 and
$2,534 at fair value)"
$ 395,667
$ 572,711
290,608
246
2025
197
2021
Year ended December 31, (in millions)
The following table presents future payments under
operating leases as of December 31, 2020:
1,873
1,928 $
$
2022
(184)
Sublease rental income
Net rental expense
2,057
2,094 $
$
Gross rental expense
2019
(166)
2023
2024
2025
In addition to the table above, as of December 31, 2020,
the Firm had additional future operating lease
commitments of $1.2 billion that were signed but had not
yet commenced. These operating leases will commence
between 2021 and 2023 with lease terms up to 25 years.
8,508
$
(1,475)
9,983
3,602
947
1,123
1,270
1,435
$ 1,606
All other
Less: Imputed interest
Total future minimum lease payments
After 2025
2020
$ 1,350 $ 1,413
$ 1,626 $ 1,572
8.8
3.68 %
At December 31, 2020, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable leases, predominantly operating leases for
premises and equipment used primarily for business
purposes. These leases generally have terms of 20 years or
less, determined based on the contractual maturity of the
lease, and include periods covered by options to extend or
terminate the lease when the Firm is reasonably certain
that it will exercise those options. All leases with lease
terms greater than twelve months are reported as a lease
liability with a corresponding right-of-use ("ROU”) asset.
None of these lease agreements impose restrictions on the
Firm's ability to pay dividends, engage in debt or equity
financing transactions or enter into further lease
agreements. Certain of these leases contain escalation
clauses that will increase rental payments based on
maintenance, utility and tax increases, which are non-lease
components. The Firm elected not to separate lease and
non-lease components of a contract for its real estate
leases. As such, real estate lease payments represent
payments on both lease and non-lease components.
Operating lease liabilities and ROU assets are recognized at
the lease commencement date based on the present value
of the future minimum lease payments over the lease term.
The future lease payments are discounted at a rate that
represents the Firm's collateralized borrowing rate for
financing instruments of a similar term and are included in
accounts payable and other liabilities. The operating lease
ROU asset, included in premises and equipment, also
includes any lease prepayments made, plus initial direct
costs incurred, less any lease incentives received. Rental
expense associated with operating leases is recognized on a
straight-line basis over the lease term, and generally
included in occupancy expense in the Consolidated
statements of income.
Firm as lessee
Note 18 - Leases
Notes to consolidated financial statements
265
$ 96,644
$ 49,291
$ 47,353
Total
749
298
451
After 5 years
830
633
The following tables provide information related to the
Firm's operating leases:
JPMorgan Chase & Co./2020 Form 10-K
December 31,
Lease liabilities
8.7
3.48 %
8,505
8,508
$ 8,190
$ 8,006
2019
2020
Rental expense
Year ended December 31,
(in millions)
Right-of-use assets obtained in exchange
for operating lease obligations
Supplemental non-cash information
Cash paid for amounts included in the
measurement of lease liabilities - operating
cash flows
Supplemental cash flow information
Weighted average discount rate
Weighted average remaining lease term (in
years)
(in millions, except where otherwise noted)
Right-of-use assets
(54)
$
(e)
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that own and operate affordable housing, energy, and other
projects. These entities are primarily considered VIES. A
third party is typically the general partner or managing
member and has control over the significant activities of the
tax credit vehicles, and accordingly the Firm does not
consolidate tax credit vehicles. The Firm generally invests in
these partnerships as a limited partner and earns a return
primarily through the receipt of tax credits allocated to the
projects. The maximum loss exposure, represented by
equity investments and funding commitments, was $24.9
billion and $19.1 billion, of which $8.7 billion and $5.5
billion was unfunded at December 31, 2020 and 2019,
respectively. In order to reduce the risk of loss, the Firm
assesses each project and withholds varying amounts of its
capital investment until the project qualifies for tax credits.
Refer to Note 25 for further information on affordable
housing tax credits. Refer to Note 28 for more information
on off-balance sheet lending-related commitments.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third-party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle. The
Firm's maximum exposure as a liquidity provider to
customer TOB trusts at December 31, 2020 and 2019, was
$6.7 billion and $5.5 billion, respectively. The fair value of
assets held by such VIES at December 31, 2020 and 2019
was $10.5 billion and $8.6 billion, respectively. Refer to
Note 28 for more information on off-balance sheet lending-
related commitments.
Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, and commercial
mortgage. The purposes of these securitization transactions
were to satisfy investor demand and to generate liquidity
for the Firm.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
258
JPMorgan Chase & Co./2020 Form 10-K
Securitization activity
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2020,
2019 and 2018, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
Year ended December 31,
(in millions)
Principal securitized
2020
2019
2018
Residential
mortgage
(d)
VIES sponsored by third parties
Notes to consolidated financial statements
257
JPMorgan Chase & Co./2020 Form 10-K
Other
66
663
2,762
64
192
2,892
855
276
130
406
$
272
Total
$
2,633 $ 42,931 $
881 $ 46,445 $
17,841 $
447 $
18,288
(a) Includes residential and commercial mortgage securitizations.
(b) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIES and exclude intercompany balances that eliminate in consolidation.
(d) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests generally do not have recourse to the
general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $5.2 billion and $6.7 billion at
December 31, 2020 and 2019, respectively. Refer to Note 20 for additional information on interest-bearing long-term beneficial interests.
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
272
Commercial
and other
7,103 $ 6,624
Residential
Commercial
287
2
319
2
Cash flows received on interests
801
239
507
237
10,218
411
(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) Represents prime mortgages. Excludes loan securitization activity related to U.S. GSES and government agencies.
(e) Includes commercial mortgage and other consumer loans.
Key assumptions used to value retained interests originated
during the year are shown in the table below.
Year ended December 31,
7.6
3.6 %
2020
2019
2018
301
(a)
6,449 $
9,544
(e)
(d)
mortgage and other(e)
Residential
mortgage
(d)
$
9,957 $
9,390
$
$
6,431 $
All cash flows during the period: (a)
Proceeds received from loan sales as financial
instruments (b)(c)
$
7,321 $
Servicing fees collected
211
6,865
1
$
10,238 $
Commercial
and other
or
(e)
10,159
Mortgage securitization entities
1,884
3
23,787
188
12,110 $
23,977
Municipal bond vehicles
1,930
-
2
1,932
4,943 $
10,523
1,902
2
3 $
4,946
10,556
-
Mortgage securitization entities (a)
1,694
94
1,788
210
Other
2
33
Total
Firm-administered multi-seller conduits
11,962 $
perform is conditional and is limited by certain events
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Consolidated VIE assets and liabilities
Holders of the floaters may "put," or tender, their floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the floaters, or it directly
purchases the tendered floaters.
TOB trusts are considered to be variable interest entities.
The Firm consolidates non-customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2020 and 2019.
Assets
Liabilities
December 31, 2020
(in millions)
148 $
Trading
assets
Other (b)
Total
assets(c)
Beneficial
interests in
VIE assets (d)
Other(e)
Total
liabilities
VIE program type
Firm-sponsored credit card trusts
$
$
Loans
Residential mortgage retained interest:
$
176
37,619 $
Firm-sponsored credit card trusts
$
-
$
Firm-administered multi-seller conduits
1
14,986 $
25,183
266 $
355
Total
liabilities
Municipal bond vehicles
4
15,252
25,539
1,907
$
6,461 $
9,223
6 $
6,467
36
9,259
1,881
1,903
1,934 $
Other(e)
Beneficial
interests in
VIE assets"
249
427
681 $
40,234
$
17,578 $
108
89
233 $
1,902
318
(d)
89
Assets
Liabilities
December 31, 2019
(in millions)
VIE program type
Trading assets
Loans
Other(b)
Total
(c)
assets
17,811
Weighted-average life (in years)
4.7
4.8
Balance at December 31,
2020
$ 47,823
2019
$ 47,471
2018
$ 47,507
1,412
13
349
3
$ 49,248 $ 47,823
(36)
OtherD
$ 47,471
(b) Primarily relates to foreign currency adjustments.
Goodwill impairment testing
The Firm's goodwill was not impaired at December 31,
2020, 2019 and 2018.
Effective January 1, 2020, the Firm adopted new
accounting guidance related to goodwill impairment testing.
The adoption of the guidance requires recognition of an
impairment loss when the estimated fair value of a
reporting unit falls below its carrying value. It eliminated
the requirement that an impairment loss be recognized only
if the estimated implied fair value of the goodwill is below
its carrying value.
The goodwill impairment test is performed by comparing
the current fair value of each reporting unit with its
carrying value. If the fair value is in excess of the carrying
value, then the reporting unit's goodwill is considered not
to be impaired. If the fair value is less than the carrying
value, then an impairment charge is recognized for the
amount by which the reporting unit's carrying value
exceeds its fair value, up to the amount of goodwill
allocated to that reporting unit.
The Firm uses the reporting units' allocated capital plus
goodwill and other intangible assets as a proxy for the
carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the LOBS which takes into consideration a variety of factors
including capital levels of similarly rated peers and
applicable regulatory capital requirements. Proposed LOB
capital levels are incorporated into the Firm's annual
budget process, which is reviewed by the Firm's Board of
Directors. Allocated capital is further reviewed periodically
and updated as needed.
The primary method the Firm uses to estimate the fair value
of its reporting units is the income approach. This approach
projects cash flows for the forecast period and uses the
perpetuity growth method to calculate terminal values.
These cash flows and terminal values are then discounted
using an appropriate discount rate. Projections of cash
flows are based on the reporting units' earnings forecasts
which are reviewed with senior management of the Firm.
The discount rate used for each reporting unit represents
an estimate of the cost of equity for that reporting unit and
is determined considering the Firm's overall estimated cost
of equity (estimated using the Capital Asset Pricing Model),
as adjusted for the risk characteristics specific to each
reporting unit (for example, for higher levels of risk or
uncertainty associated with the business or management's
forecasts and assumptions). To assess the reasonableness
of the discount rates used for each reporting unit,
management compares the discount rate to the estimated
cost of equity for publicly traded institutions with similar
businesses and risk characteristics. In addition, the
weighted average cost of equity (aggregating the various
reporting units) is compared with the Firm's overall
estimated cost of equity to ensure reasonableness. The
valuations derived from the discounted cash flow analysis
are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the overall reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
JPMorgan Chase & Co./2020 Form 10-K
(a) For 2020, represents estimated goodwill associated with the
acquisitions of cxLoyalty in CCB and 55ip in AWM. For 2019,
represents goodwill associated with the acquisition of InstaMed. This
goodwill was allocated to CIB, CB and CCB.
261
(b)
Balance at beginning of period
Changes during the period from:
445
1,556
260
JPMorgan Chase & Co./2020 Form 10-K
Note 15 - Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired, and can be
adjusted up to one year from the acquisition date as more
information is obtained about the fair value of assets
acquired and liabilities assumed. Subsequent to initial
recognition, goodwill is not amortized but is tested for
impairment during the fourth quarter of each fiscal year, or
more often if events or circumstances, such as adverse
changes in the business climate, indicate that there may be
an impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm's businesses are
managed and how they are reviewed. The following table
presents goodwill attributed to the business segments.
December 31, (in millions)
Consumer & Community Banking (a)
Corporate & Investment Bank (a)
Commercial Banking
Business combinations (a)
Asset & Wealth Management (a)
Total goodwill
2020
2019
7,913
2,985
7,039
$ 31,311 $ 30,133 $30,084
7,901 7,721
2,982 2,860
6,807 6,806
$ 49,248 $47,823 $47,471
(a) In 2020, goodwill of $959 million was transferred from CCB to CIB and
$51 million from AWM to CCB related to business realignments. Prior-
period amounts have been revised to conform with the current
presentation. Refer to Note 32 for additional information on these
realignments.
The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (in
millions)
2018
532
Notes to consolidated financial statements
Mortgage servicing rights
1,384
931
248
105
315
(176)
(789)
(636)
1,016
944
700
(899)
(951)
(740)
Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)
(1,568)
(893)
300
Changes in valuation due to other inputs and assumptions:
610
execution risk that would exist at the Firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Unanticipated declines in business performance, increases
in credit losses, increases in capital requirements, as well as
deterioration in economic or market conditions, adverse
regulatory or legislative changes or increases in the
estimated market cost of equity, could cause the estimated
fair values of the Firm's reporting units to decline in the
future, which could result in a material impairment charge
to earnings in a future period related to some portion of the
associated goodwill.
Changes due to collection/realization of expected cash flows
Disposition of MSRs (a)
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
262
JPMorgan Chase & Co./2020 Form 10-K
The fair value of MSRS is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
and certain derivatives (e.g., those for which the Firm
receives fixed-rate interest payments) increase in value
when interest rates decline. JPMorgan Chase uses
combinations of derivatives and securities to manage the
risk of changes in the fair value of MSRs. The intent is to
offset any interest-rate related changes in the fair value of
MSRs with changes in the fair value of the related risk
management instruments.
The following table summarizes MSR activity for the years ended December 31, 2020, 2019 and 2018.
As of or for the year ended December 31, (in millions, except where otherwise noted)
2020
2019
Net additions/(Dispositions)
2018
$
4,699
$
6,130
$
6,030
MSR activity:
Originations of MSRs
Purchase of MSRS
Fair value at beginning of period
Projected cash flows (e.g., cost to service)
179
30
421 $
4,449
$
45 $
73 $
9
Proceeds from loan sales as
securities (a)(b)
80,186
91,422
43,671
Total proceeds received from
loan sales(c)
Proceeds received from loan
sales as cash
1
Gains/(losses) on loan sales $
80,231 $
6 $
91,495 $
499 $
43,680
(93)
(a) Includes securities from U.S. GSES and Ginnie Mae that are generally
sold shortly after receipt or retained as part of the Firm's investment
securities portfolio.
(b) Included in level 2 assets.
(c) Excludes the value of MSRS retained upon the sale of loans.
(d) Gains/(losses) on loan sales include the value of MSRs.
(d)(e)
(e) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
81,153 $ 92,349 $ 44,609
Carrying value of loans sold
Weighted-average discount rate
8.2 %
7.4 %
Weighted-average life (in years)
Weighted-average discount rate
Commercial mortgage retained interest:
6.9
6.4
3.0 %
$
4.1 %
Loans and excess MSRS sold to U.S. government-
sponsored enterprises and loans in securitization
transactions pursuant to Ginnie Mae guidelines
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRS on a nonrecourse basis,
predominantly to U.S. GSES. These loans and excess MSRs
are sold primarily for the purpose of securitization by the
U.S. GSES, who provide certain guarantee provisions (e.g.,
credit enhancement of the loans). The Firm also sells loans
into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 28 for additional
information about the Firm's loan sales- and securitization-
related indemnifications. Refer to Note 15 for additional
information about the impact of the Firm's sale of certain
excess MSRs.
JPMorgan Chase & Co./2020 Form 10-K
259
Notes to consolidated financial statements
The following table summarizes the activities related to
loans sold to the U.S. GSES, and loans in securitization
transactions pursuant to Ginnie Mae guidelines.
Year ended December 31,
(in millions)
2020
2019
2018
5.3
4.0 %
$
Options to repurchase delinquent loans
Loan delinquencies and liquidation losses
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMS
Subprime
Commercial and other
Total loans securitized
$
41,265 $
12,154
Net liquidation losses
2020
2019
92,351
$
2,406
5,958
4,988 $ 2,449
1,813
187
$
212 $
579
$ 145,770 $ 143,102 $
13,352 $
48,734
13,490
80,878
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 28, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
90 days past due
2020
2019
2020
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. Refer to Note 12 for additional information.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm's Consolidated balance sheets
as of December 31, 2020 and 2019. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies.
December 31,
(in millions)
Loans repurchased or option to repurchase (a) $
Real estate owned
Foreclosed government-guaranteed residential
mortgage loans (b)
2020
2019
2019
9
41
64
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
198
The table below includes information about components of and delinquencies related to nonconsolidated securitized financial
assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement as of
December 31, 2020 and 2019.
Securitized assets
As of or for the year ended December 31, (in millions)
1,413 $ 2,941
12
JPMorgan Chase & Co./2020 Form 10-K
JPMorgan Chase & Co./2020 Form 10-K
2,123
Total long-term debt (b)(c)(d)
$
26,934
$ 97,268
$ 157,483
$ 281,685
(f)(g)
$
291,498
Long-term beneficial
interests:
Fixed rate
$
Variable rate
Interest rates
625
1,924
0.36-2.77%
$
1,744
650
0.00-2.39%
$
$ 2,369
$
$
2,990
$ 2,035
$
68,301
$
94,398
$
$
738
$
738
$
693
1,297
1,297
1,430
(a)
Interest rates
-%
-%
0.71-8.75%
0.71-8.75%
2.41-8.75%
Subtotal $
$ 2,035
$
210
0.00-3.75%
3,748
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's
credit ratings, financial ratios, earnings or stock price.
270
JPMorgan Chase & Co./2020 Form 10-K
Note 21 - Preferred stock
At December 31, 2020 and 2019, JPMorgan Chase was authorized to issue 200 million shares of preferred stock, in one or
more series, with a par value of $1 per share. In the event of a liquidation or dissolution of the Firm, JPMorgan Chase's
preferred stock then outstanding takes precedence over the Firm's common stock with respect to the payment of dividends
and the distribution of assets.
Notes to consolidated financial statements
Shares (a)
Carrying value
(in millions)
December 31,
2020
2019
2020
December 31,
2019
Contractual rate
in effect at
December 31,
Issue date
2020
Earliest
redemption
date
Floating
annualized
rate of
three-month
Dividend declared per share(c)
Year ended December 31,
LIBOR/Term
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including structured notes. These
guarantees rank on parity with the Firm's other unsecured
and unsubordinated indebtedness. The amount of such
guaranteed long-term debt and structured notes was $13.8
billion and $14.4 billion at December 31, 2020 and 2019,
respectively.
2,784
0.00-3.75%
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 2.89% and 3.13% as of December 31,
2020 and 2019, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm's interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 1.58% and 3.19%
as of December 31, 2020 and 2019, respectively.
269
0.00-4.06%
Total long-term beneficial
interests (e)
$
2,549
$
2,394
$
210
$
5,153
$
6,738
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2020 and 2019, respectively, including non-U.S. dollar fixed-and
variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of
these derivative instruments modifies the Firm's exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge
accounting derivatives, the range of modified rates in effect at December 31, 2020, for total long-term debt was (0.40)% to 7.28%, versus the contractual
range of 0.17% to 8.75% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value.
(b) Included long-term debt of $17.2 billion and $32.0 billion secured by assets totaling $166.4 billion and $186.1 billion at December 31, 2020 and 2019,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(c) Included $76.8 billion and $75.7 billion of long-term debt accounted for at fair value at December 31, 2020 and 2019, respectively.
(d) Included $16.1 billion and $14.0 billion of outstanding zero-coupon notes at December 31, 2020 and 2019, respectively. The aggregate principal amount
of these notes at their respective maturities is $45.3 billion and $39.7 billion, respectively. The aggregate principal amount reflects the contractual principal
payment at maturity, which may exceed the contractual principal payment at the Firm's next call date, if applicable.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $41 million and $36 million accounted for at
fair value at December 31, 2020 and 2019, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $12.4 billion
and $11.1 billion at December 31, 2020 and 2019, respectively.
(f) At December 31, 2020, long-term debt in the aggregate of $151.3 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to
maturity, based on the terms specified in the respective instruments.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2020 is $26.9 billion in 2021, $18.4 billion in 2022, $32.2
billion in 2023, $29.6 billion in 2024 and $17.1 billion in 2025.
(h) Prior-period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
19,213
$
32,959
2.96-8.00%
3.38-8.00%
Subtotal $
10,805
$ 64,309
$ 136,235
$ 211,349
$
194,977
Subsidiaries
Federal Home Loan Banks
advances:
Fixed rate
$
7
$
45
$
71
$
123
$
2.96-8.00%
135
3.38-7.75%
Interest rates
$ 114,296
$ 173,508
$
8,353
0.17-6.40%
18,577
161,198
18,615
0.17-6.40%
0.15-6.40%
Subordinated debt:
Fixed rate
$
$ 5,678
$
Variable rate
13,577
9
$ 19,255
$
15,155
9
9
(a)
-%
Variable rate
3,000
11,000
$
19,597
38,111
1.00-7.28%
45,861
1.00-9.43%
$
$
309
$
305
(a)
Junior subordinated debt:
Fixed rate
Variable rate
Interest rates
Subtotal $
$
- %
8.25 %
- %
8.25 %
8.25 %
16,129
$
$ 15,758
$ 11,534
7,608
1.00-1.30%
7.28%
309
$
Interest rates (a)
0.57-0.60%
0.19-0.24%
4.66-7.73%
14,000
0.19-7.73%
28,500
1.67-8.31%
(h)
Senior debt:
Fixed rate
SOFR plus:
$
$
Variable rate
12,055
3,157
18,448
(a)
Interest rates
-%
Subordinated debt:
Fixed rate
Variable rate
$
1,067
2020
2019
2018
3,000
-
1/23/2020
4.600
LIBOR + 3.47% 4/30/2018 LIBOR + 3.47%
5.150 5/1/2023 LIBOR +3.25
6.000 8/1/2023 LIBOR + 3.30
6.750 2/1/2024 LIBOR + 3.78
6.125 4/30/2024 LIBOR + 3.33
7/1/2019
10/1/2024
5/1/2020
11/1/2022
8/1/2024
2/1/2025
$428.03
515.00
$593.23
$646.38
(g)
515.00
515.00
600.00
600.00
600.00
675.00
675.00
675.00
612.50
612.50
612.50
LIBOR + 3.32
300,000
436.85
Series HH
4.625
1,600
1,600
Series Z
200,000
200,000
2,000
2,000
Series CC
125,750
125,750
1,258
1,258
Series FF
225,000
225,000
2,250
2,250
$ 2,934 $ 2,934 4/23/2008
1,500 1,500 4/23/2013
1,500 7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
4/21/2015
10/20/2017
7/31/2019
LIBOR + 3.32%
6.100
LIBOR + 3.80%
5.000
534.09
500.00
(h)
ΝΑ
ΝΑ
(1)
341.11
ΝΑ
ΝΑ
Total
preferred
stock
3,006,250 2,699,250 $ 30,063 $ 26,993
(a) Represented by depositary shares.
(b) Fixed-to-floating rate notes convert to a floating rate at the earliest redemption date.
(c) Dividends are declared quarterly. Dividends are payable quarterly on fixed-rate preferred stock. Dividends are payable semiannually on fixed-to-floating-
rate preferred stock while at a fixed rate, and payable quarterly after converting to a floating rate.
(d) Dividends in the amount of $111.81 per share were declared on December 1, 2018 and include dividends from the original issue date of September 21,
2018 through November 30, 2018.
(e) Dividends in the amount of $211.67 per share were declared on April 12,2019 and include dividends from the original issue date of January 24, 2019
through May 31, 2019. Dividends in the amount of $150.00 per share were declared thereafter on July 10, 2019 and October 9, 2019.
(f) No dividends were declared for Series GG from the original issue date of November 7, 2019 through December 31, 2019.
(g) The dividend rate for Series I preferred stock became floating and payable quarterly starting on April 30, 2018; prior to which the dividend rate was fixed
at 7.90% or $395.00 per share payable semi annually.
(h) The dividend rate for Series V preferred stock became floating and payable quarterly starting on July 1, 2019; prior to which the dividend rate was fixed at
5% or $250.00 per share payable semi annually. The Firm declared a dividend of $144.11 and $139.98 per share on outstanding Series V preferred
stock on August 15, 2019 and November 15, 2019, respectively.
(i) Prior to May 1, 2020, the dividend rate was fixed at 5.3%.
(j) Dividends in the amount of $126.39 per share were declared on September 9, 2019 and include dividends from the original issue date of July 31, 2019
through October 31, 2019. Dividends in the amount of $125.00 per share were declared thereafter on December 10, 2019.
(k) Dividends in the amount of $125.22 per share were declared on March 13, 2020 and include dividends from the original issue date of January 23, 2020
through April 30, 2020. Dividends in the amount of $115.00 per share were declared quarterly thereafter.
(I) Dividends in the amount of $141.11 per share were declared on May 15, 2020 and include dividends from the original issue date of February 24, 2020
through June 30, 2020. Dividends in the amount of $100.00 per share were declared quarterly thereafter.
470.22
(k)
ΝΑ
251.39
LIBOR + 3.33
610.00
610.00
610.00
(i)
LIBOR + 3.80
453.52
530.00
530.00
LIBOR + 2.58
160,000
462.50
462.50
(j)
Series II
150,000
1,500
2/24/2020
4.000
4/1/2025
SOFR + 3.38
SOFR + 3.125
SOFR + 2.745
500.00
462.50
49,987
8,644
0.50-4.50%
160,000
2,500
3/1/2020
NA
153.13
612.52
612.52
Series AA 142,500
142,500
1,425
1,425 6/4/2015
6.100
9/1/2020
ΝΑ
610.00
610.00
610.00
Series BB
115,000
115,000
1,150
1,150 7/29/2015
6.150
2/12/2015
9/1/2020
1,430
Series Y
Fixed-rate:
Series P
-- $ - $ -
2/5/2013
- % 3/1/2018
ΝΑ
$-
$545.00
$545.00
Series T
1/30/2014
3/1/2019
ΝΑ
167.50
670.00
Series W
6/23/2014
9/1/2019
NA
472.50
630.00
143,000
ΝΑ
615.00
615.00
NA
Fixed-to-floating-rate:
Series I
Series Q
Series R
293,375 293,375
150,000 150,000
150,000
150,000
1,500
Series S
200,000
200,000
2,000
Series U
100,000
100,000
1,000
2,000
1,000
Series V
250,000
250,000
2,500
NA
506.67
ΝΑ
(f)
615.00
(d)
Series DD 169,625
Series EE 185,000
Series GG 90,000
169,625
185,000
1,696
1,850
90,000
900
1,696 9/21/2018
1,850 1/24/2019
900 11/7/2019
5.750
Series X
12/1/2023
575.00
575.00
111.81
(e)
6.000
4.750
3/1/2024
12/1/2024
ΝΑ
600.00
511.67
ΝΑ
NA
1.33-4.63%
(a)
Interest rates"
(1,132)
$
$ (112) $ 2,383
(473)
$
$ 8,180 (b)
Balance at December 31,
2020
6,417
(491)
212
2,320
1,569
$
(369)
$
(1,344)
$
63
(131) $
19
$
(707)
234
$
$
(860)
7,986
$ (2,160)
$ (2,825) $ 665
$ 4,025 $ (974) $ 3,051
$ (1,495) $ 4,733
$ 6,228
Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income (a)
After-tax
Tax
effect
Pre-tax
effect After-tax
effect After-tax Pre-tax
Pre-tax
Year ended December 31, (in millions)
2018
2019
Tax
2020
Tax
The following table presents the pre-tax and after-tax changes in the components of OCI.
Notes to consolidated financial statements
JPMorgan Chase & Co./2020 Form 10-K
275
(a) Represents the adjustment to AOCI as a result of the accounting standards adopted in the first quarter of 2018. Refer to Note 1 for additional information.
(b) Includes after-tax net unamortized unrealized gains of $3.3 billion related to AFS securities that have been transferred to HTM. Refer to Note 10 for
further information.
$
$ 4,057
4,123
Net change
Balance at December 31,
2019
(79)
(414)
16
(54)
(277)
20
896
(1,858)
Net change
changes in accounting
principles (a)
(119)
$
(368)
$
(1,521)
$
76
$
$
(470)
$
$ 2,164
Cumulative effect of
88
(107)
(201)
(373)
3,076
(965)
964
172
30
20
2,855
Net change
(1,507)
$
(802)
5,426
596
(2,308)
$
(109)
(161) $
$
$ (727)
$ 1,202
Balance at December 31,
2018
(1,476)
1,043
$
Balance at December 31,
2017
192
(1,303)
(258)
(14)
4
(18)
78
(25)
103
(433)
137
(570)
Reclassification adjustment for realized (gains)/losses
included in net income(d)
(187)
58
(245)
94
(28)
122
2,753
(870)
3,623
Net unrealized gains/(losses) arising during the period
Cash flow hedges:
3,053
(107)
(733) 2,320
(53)
276
(d) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of income.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment of hedge
effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of the accrual of interest
on the cross-currency swap.
DVA on fair value option elected liabilities, net change: $ (648) $ 157 $ (491)
Total other comprehensive income/(loss)
$ 8,066 $ (1,649) $ 6,417 $ 3,921 $ (845) $ 3,076 $ (1,761) $ 285
(a) The pre-tax amount is reported in Investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated
statements of income. During the year ended December 31, 2020, the Firm reclassified a net pre-tax gain of $6 million to other income related to the liquidation of
legal entities, $3 million related to net investment hedge gains and $3 million related to cumulative translation adjustments. During the year ended December 31,
2019, the Firm reclassified net pre-tax gains of $7 million to other income and $1 million to other expense, respectively. These amounts, which related to the
liquidation of certain legal entities, are comprised of $18 million related to net investment hedge gains and $10 million related to cumulative translation
adjustments. During the year ended December 31, 2018, the Firm reclassified a net pre-tax loss of $168 million to other expense related to the liquidation of
certain legal entities, $17 million related to net investment hedge losses and $151 million related to cumulative translation adjustments.
$ (1,476)
$ (1,264) $ 299 $ (965) $1,364 $ (321) $1,043
Defined benefit pension and OPEB plans, net change:
Net change
(373)
77
(450)
964
(193)
1,157
212
(2)
214
(201)
62
(263)
172
225
33
(140)
30
33
(49)
1,304
(103)
1,407
Fair value hedges, net change(c):
Net change
Hedges
Translation
Translation adjustments (b):
Net change
(1,858)
572
302
(93)
395
(2,430)
(196)
2,855
(912)
3,767
4,123
62
(16)
(1,078)
156
(922)
(9)
39
19
(6)
25
20
(138)
158
20
23
(610)
(3)
238
(4)
942
(294)
1,236
36
(10)
46
341 (1,070)
(1,411)
234
271
Accumulated
other
comprehensive
income/(loss)
Defined benefit
pension and OPEB
plans
depreciation
Accumulated depreciation
$
21,155 $ 23,587
6,388
6,121
The following table presents the Firm's operating lease
income and the related depreciation expense on the
Consolidated statements of income:
Year ended December 31,
(in millions)
2020
2019
2018
Operating lease income $
5,539 $
5,455 $ 4,540
Depreciation expense
4,257
4,157
3,522
The following table presents future receipts under
operating leases as of December 31, 2020:
operating leases, net of accumulated
Year ended December 31, (in millions)
2019
Carrying value of assets subject to
2020
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2020,
2019 and 2018. There were no Warrants repurchased
during 2018.
Common shares issued (reissuances from treasury) by
JPMorgan Chase during the years ended December 31,
2020, 2019 and 2018 were as follows.
At December 31, 2020 and 2019, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Note 22 - Common stock
JPMorgan Chase & Co./2020 Form 10-K
272
Each series of the Firm's preferred stock may be redeemed on any dividend payment date on or after the earliest redemption
date for that series. All outstanding preferred stock series except Series I may also be redeemed following a "capital treatment
event," as described in the terms of each series. Any redemption of the Firm's preferred stock is subject to non-objection from
the Board of Governors of the Federal Reserve System (the "Federal Reserve").
Redemption rights
On September 1, 2019, the Firm redeemed all $880 million of its 6.30% non-cumulative preferred stock, Series W.
On March 1, 2019, the Firm redeemed all $925 million of its 6.70% non-cumulative preferred stock, Series T.
On October 30, 2019, the Firm redeemed $1.37 billion of its fixed-to-floating rate non-cumulative perpetual preferred stock,
Series I.
On March 1, 2020, the Firm redeemed all $1.43 billion of its 6.125% non-cumulative preferred stock, Series Y.
On December 1, 2019, the Firm redeemed all $900 million of its 5.45% non-cumulative preferred stock, Series P.
Each series of preferred stock has a liquidation value and redemption price per share of $10,000, plus accrued but unpaid
dividends. The aggregate liquidation value was $30.5 billion at December 31, 2020.
Notes to consolidated financial statements
Firm as lessor
The Firm provides auto and equipment lease financing to its
customers through lease arrangements with lease terms
that may contain renewal, termination and/or purchase
options. Generally, the Firm's lease financings are operating
leases. These assets subject to operating leases are
recognized in other assets on the Firm's Consolidated
balance sheets and are depreciated on a straight-line basis
over the lease term to reduce the asset to its estimated
residual value. Depreciation expense is included in
technology, communications and equipment expense in the
Consolidated statements of income. The Firm's lease
income is generally recognized on a straight-line basis over
the lease term and is included in other income in the
Consolidated statements of income.
On a periodic basis, the Firm assesses leased assets for
impairment, and if the carrying amount of the leased asset
exceeds the undiscounted cash flows from the lease
payments and the estimated residual value upon disposition
of the leased asset, an impairment loss is recognized.
The risk of loss on auto and equipment leased assets
relating to the residual value of the leased assets is
monitored through projections of the asset residual values
at lease origination and periodic review of residual values,
and is mitigated through arrangements with certain
manufacturers or lessees.
The following table presents the carrying value of assets
subject to leases reported on the Consolidated balance
sheets:
December 31,
(in millions)
2020
2021
$
3,686
(a) Includes credit card rewards liability of $7.7 billion and $6.4 billion at
December 31, 2020 and 2019, respectively.
268
JPMorgan Chase & Co./2020 Form 10-K
Note 20 - Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2020.
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
Total
2019
Total
2020
Under 1 year
1-5 years
After 5 years
Fixed rate
$
Variable rate
9,225
1,580
$
$ 232,599 $ 210,407
$ 140,291 $ 118,375
92,308
92,032
Total accounts payable and other
liabilities
(a)
2022
2,084
2023
613
2024
52
2025
24
After 2025
34
2019
Total future minimum lease receipts
JPMorgan Chase & Co./2020 Form 10-K
267
Notes to consolidated financial statements
Note 19 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which include payables to customers and
payables related to security purchases that did not settle, as
well as other accrued expenses, such as income tax
payables, operating lease liabilities, credit card rewards
liability, and litigation reserves.
The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
2020
2019
Brokerage payables
Other payables and liabilities
$ 6,493
DVA on fair value
option elected
liabilities
2018
213.0
3,082.4 3,221.5
$ 27,410 $ 34,642 $ 30,709
214
202
138
30,923
27,548 34,844
1,551
$ 29,131 $ 36,431 $ 32,474
1,583 1,587
Add: Dilutive impact of SARS and
employee stock options, unvested
PSUs and nondividend-earning
Total weighted-average basic shares
outstanding
Net income applicable to common
stockholders
Diluted earnings per share
Net income per share
Total weighted-average basic shares
outstanding
Net income applicable to common
stockholders
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
equity
Less: Preferred stock dividends
Net income
Basic earnings per share
3,396.4
2018
$ 8.89 $ 10.75 $ 9.04
3,082.4 3,221.5 3,396.4
hedges
Fair value Cash flow
hedges
Translation
adjustments,
net of hedges
securities
on investment
Year ended December 31,
(in millions)
Unrealized
gains/(losses)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges,
cash flow hedging activities, net loss and prior service costs/(credit) related to the Firm's defined benefit pension and OPEB
plans, and fair value option-elected liabilities arising from changes in the Firm's own credit risk (DVA).
Note 24 - Accumulated other comprehensive income/(loss)
JPMorgan Chase & Co./2020 Form 10-K
274
3,230.4 3,414.0
8.88 $ 10.72 $ 9.00
$
Net income per share
3,087.4
shares outstanding
Total weighted-average diluted
17.6
8.9
5.0
RSUS, and warrants
$ 27,410 $ 34,642 $ 30,709
2019
2020
except per share amounts)
14.2
compensation plans
Employee benefits and
Reissuance:
4,104.9
(679.6)
(181.5)
(213.0)
(50.0)
Repurchase
(829.1)
(1,020.9)
Treasury - balance at January 1
4,104.9
4,104.9
January 1
Total issued - balance at
2018
2019
2020
(in millions)
Year ended December 31,
181.5
20.4
21.7
Warrant exercise
9.4
Year ended December 31,
(in millions,
The following table presents the calculation of net income
applicable to common stockholders and basic and diluted
EPS for the years ended December 31, 2020, 2019 and
2018.
Diluted EPS incorporates the potential impact of
contingently issuable shares, including awards which
require future service as a condition of delivery of the
underlying common stock. Diluted EPS is calculated under
both the two-class and treasury stock methods, and the
more dilutive amount is reported. For each of the periods
presented in the table below, diluted EPS calculated under
the two-class method was more dilutive.
Basic earnings per share ("EPS") is calculated using the
two-class method. Under the two-class method, all earnings
(distributed and undistributed) are allocated to common
stock and participating securities. JPMorgan Chase grants
RSUS under its share-based compensation programs,
predominantly all of which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to dividends paid to holders of the Firm's
common stock. These unvested RSUs meet the definition of
participating securities based on their respective rights to
receive nonforfeitable dividends, and they are treated as a
separate class of securities in computing basic EPS.
Participating securities are not included as incremental
shares in computing diluted EPS; refer to Note 9 for
additional information.
Note 23 - Earnings per share
Notes to consolidated financial statements
JPMorgan Chase & Co./2020 Form 10-K
273
As of December 31, 2020, approximately 62.1 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and
stock purchase plans, and directors' compensation plans.
The authorization to repurchase common shares is utilized
at management's discretion, and the timing of purchases
and the exact amount of common shares that may be
repurchased is subject to various factors, including market
conditions; legal and regulatory considerations affecting the
amount and timing of repurchase activity; the Firm's capital
position (taking into account goodwill and intangibles);
internal capital generation; and alternative investment
opportunities. The repurchase program does not include
specific price targets or timetables; may be suspended by
management at any time; and may be executed through
open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans, which are
written trading plans that the Firm may enter into from
time to time under Rule 10b5-1 of the Securities Exchange
Act of 1934 and which allow the Firm to repurchase its
common shares during periods when it may otherwise not
be repurchasing common shares -for example, during
internal trading blackout periods.
50.0
$ 6,397 $24,121 $19,983
There were no warrants to purchase shares of common
stock ("Warrants") outstanding at December 31, 2020 and
December 31, 2019 as any Warrants that were not
exercised on or before October 29, 2018 have expired.
On March 15, 2020, in response to the economic
disruptions caused by the COVID-19 pandemic, the Firm
temporarily suspended repurchases of its common stock.
Subsequently, the Federal Reserve directed all large banks,
including the Firm, to discontinue net share repurchases
through the end of 2020. On December 18, 2020, the
Federal Reserve announced that all large banks, including
the Firm, could resume share repurchases commencing in
the first quarter of 2021, subject to certain restrictions. The
Firm's Board of Directors has authorized a new common
share repurchase program for up to $30 billion.
(1,055.5) (1,020.9) (829.1)
3,049.4 3,084.0 3,275.8
Outstanding at December 31
Total treasury - balance at
December 31
Total reissuance
0.9
32.0
21.2
0.8
1.2
15.4
Employee stock purchase
plans
Aggregate purchase price of common
stock repurchases
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2020 and
2019.
JPMorgan Chase & Co./2020 Form 10-K
Mortgage servicing rights, net of
(93)
(671)
220
455
(3,981)
U.S. state and local
Total deferred income tax
expense/(benefit)
Total income tax expense
949
1,721
$ 6,276 $ 8,114 $ 8,290
Total income tax expense includes $72 million, $1.1 billion
and $54 million of tax benefits recorded in 2020, 2019,
and 2018, respectively, resulting from the resolution of tax
audits.
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity. The tax effect of all items recorded
directly to stockholders' equity resulted in a decrease of
$827 million and $862 million in 2020 and 2019,
respectively, and an increase of $172 million in 2018.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense.
Year ended December 31,
(in millions)
2.5
3.5
20
(1.6)
(126)
1,359
Current income tax expense/(benefit)
U.S. federal
$ 5,759
$ 3,284
$ 2,854
2,705
2,103
2,077
U.S. state and local
1,793
1,778
1,638
Total current income tax expense/
(benefit)
10,257
7,165
6,569
Deferred income tax expense/(benefit)
U.S. federal
(3,184)
709
Non-U.S.
(in millions)
(1.4)
U.S.
2018
$26,904
8,503
$35,407
$36,670
7,875
$33,052
7,712
$44,545
$40,764
(a) Represents changes in the estimates related to the remeasurement of
certain deferred taxes and the deemed repatriation tax on non-U.S.
earnings under SEC Staff Accounting Bulletin No. 118 which was
completed in 2018.
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
The Firm will recognize any U.S. income tax expense it may
incur on global intangible low tax income as income tax
expense in the period in which the tax is incurred.
JPMorgan Chase & Co./2020 Form 10-K
277
Notes to consolidated financial statements
Affordable housing tax credits
The Firm recognized $1.5 billion of tax credits and other tax
benefits associated with investments in affordable housing
projects within income tax expense for each of the three
years ended 2020, 2019 and 2018. The amount of
amortization of such investments reported in income tax
expense was $1.2 billion, $1.1 billion and $1.2 billion,
respectively. The carrying value of these investments, which
are reported in other assets on the Firm's Consolidated
balance sheets, was $9.7 billion and $8.6 billion at
December 31, 2020 and 2019, respectively. The amount of
commitments related to these investments, which are
reported in accounts payable and other liabilities on the
Firm's Consolidated balance sheets, was $3.8 billion and
$2.8 billion at December 31, 2020 and 2019, respectively.
Deferred taxes
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table.
2020
2019
2019
4.0
(1.5)
2020
18.2 %
Non-U.S. (a)
Non-U.S. earnings
1.4
1.8
0.6
Income before income tax expense
Business tax credits
(6.3)
(4.4)
(3.5)
Tax audit resolutions
(2.3)
(0.1)
Impact of the TCJA (a)
Other, net
(0.7)
0.7
0.5
Effective tax rate
17.7 %
20.3 %
2018
2019
2020
(in millions, except ratios)
December 31, 2020
The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and JPMorgan Chase Bank,
N.A. under both the Basel III Standardized and Basel III Advanced Approaches. As of December 31, 2020, the capital metrics
are presented applying the CECL capital transition provisions. As of December 31, 2020 and 2019, JPMorgan Chase and
JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which each was subject.
The impacts of the CECL capital transition provisions have
also been incorporated into Tier 2 capital, adjusted average
assets, and total leverage exposure. Refer to Note 1 for
further information on the CECL accounting guidance.
retained earnings and 25% of the $12.2 billion increase in
the allowance for credit losses (excluding allowances on
PCD loans).
allowance for credit losses (excluding allowances on PCD
loans). The cumulative day 2 transition amount as at
December 31, 2021 that is not recognized in CET1 capital,
as well as the $2.7 billion day 1 impact, will be phased into
CET1 capital at 25% per year beginning January 1, 2022.
The Firm has elected to apply the CECL capital transition
provisions, and accordingly, for the year ended December
31, 2020, the capital metrics of the Firm exclude
$5.7 billion, which is the $2.7 billion day 1 impact to
Notes to consolidated financial statements
281
JPMorgan Chase & Co./2020 Form 10-K
The final rule provides a uniform approach for estimating
the effects of CECL compared to the legacy incurred loss
model during the first two years of the transition period
(the "day 2" transition amount), whereby the Firm may
exclude from CET1 capital 25% of the change in the
Effective January 1, 2020, the Firm adopted the Financial
Instruments - Credit Losses guidance under U.S. GAAP. AS
permitted under the U.S. capital rules issued by the federal
banking agencies in 2019, the Firm initially elected to
phase-in the January 1, 2020 ("day 1") CECL adoption
impact to retained earnings of $2.7 billion to CET1 capital,
at 25% per year in each of 2020 to 2023. As part of their
response to the impact of the COVID-19 pandemic, on
March 31, 2020, the federal banking agencies issued an
interim final rule (issued as final on August 26, 2020) that
provided the option to delay the effects of CECL on
regulatory capital for two years, followed by a three-year
transition period.
Current Expected Credit Losses
(f) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
(e) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(d) Represents requirements for JPMorgan Chase's IDI subsidiaries. The
CET1, Tier 1 and Total capital minimum capital ratios include a fixed
capital conservation buffer requirement of 2.5% that is applicable to
the IDI subsidiaries. The IDI subsidiaries are not subject to the GSIB
surcharge.
supplementary leverage buffer requirements of 2.0% and 3.0% for
BHC and IDI, respectively.
(c) Represents minimum SLR requirement of 3.0%, as well as
(b) For the period ended December 31, 2019, the CET1, Tier 1, Total, Tier
1 leverage and SLR minimum capital ratios under Basel III
Standardized applicable to the Firm were 10.5%, 12.0%, 14.0%,
4.0%, and 5.0%, respectively.
(a) Represents the minimum capital ratios applicable to the Firm. The
CET1, Tier 1 and Total capital minimum capital ratios each include a
respective minimum requirement plus a GSIB surcharge of 3.5% as
calculated under Method 2; plus a 3.3% SCB for Basel III Standardized
ratios and a fixed 2.5% capital conservation buffer for Basel III
Advanced ratios. The countercyclical buffer is currently set to 0% by
the federal banking agencies.
Risk-based capital metrics:
Note: The table above is as defined by the regulations issued by the
Federal Reserve, OCC and FDIC and to which the Firm and its IDI
subsidiaries are subject.
CET1 capital
Total capital
$
234,235
234,237
252,045
$
205,078
234,844
269,923
$
JPMorgan
Chase Bank, N.A."
JPMorgan
Chase & Co. (c)
JPMorgan
Chase Bank, N.A. (c)
Chase & Co. (c)
Basel III Advanced
Basel III Standardized
JPMorgan
December 31, 2019
Tier 1 leverage ratio
Total leverage exposure (b)
SLR(b)
Adjusted average assets (a)
Leverage-based capital metrics:
Total capital ratio
Tier 1 capital ratio
CET1 capital ratio
Risk-weighted assets
Tier 1 capital
6.0
ΝΑ
6.0
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
Effective tax rate and expense
The following table presents a reconciliation of the
applicable statutory U.S. federal income tax rate to the
effective tax rate.
Effective tax rate
Year ended December 31,
Statutory U.S. federal tax rate
Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
Tax-exempt income
2018
2020
2019
21.0 %
21.0 %
21.0 %
The following table reflects the components of income tax
expense/(benefit) included in the Consolidated statements
of income.
Income tax expense/(benefit)
Year ended December 31,
Non-U.S.
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Note 25 - Income taxes
12.8
8.5
5.0
ΝΑ
ΝΑ
ΝΑ 5.0
4.0
4.0
4.0
4.0
SLR
Similarly, certain non-U.S. NOL carryforwards will expire
between 2026 and 2036 whereas others have an unlimited
carryforward period. The FTC carryforwards will expire
between 2029 and 2030, and the state and local capital loss
carryforwards will expire between 2021 and 2022.
Tier 1
leverage
10.5
14.0
10.5
14.8
Total capital
8.0
6.0
8.5
12.0
10.0 10.0
The valuation allowance at December 31, 2020, was due to
the state and local capital loss carryforwards, FTC
carryforwards, and certain non-U.S. deferred tax assets,
including NOL carryforwards.
Unrecognized tax benefits
At December 31, 2020, 2019 and 2018, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.3 billion, $4.0 billion and
$4.9 billion, respectively, of which $3.1 billion, $2.8 billion
and $3.8 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary differences,
the portion of gross state and local unrecognized tax
benefits that would be offset by the benefit from associated
U.S. federal income tax deductions, and the portion of gross
non-U.S. unrecognized tax benefits that would have offsets
in other jurisdictions. JPMorgan Chase is presently under
audit by a number of taxing authorities, most notably by the
Internal Revenue Service as summarized in the Tax
examination status table below. As JPMorgan Chase is
presently under audit by a number of taxing authorities, it is
reasonably possible that over the next 12 months the
resolution of these examinations may increase or decrease
the gross balance of unrecognized tax benefits by as much
as approximately $300 million. Upon settlement of an audit,
the change in the unrecognized tax benefit would result
from payment or income statement recognition.
securities and cleared derivative
customers
2020
2019
$ - $ 26.6
Cash reserves at non-U.S. central
banks and held for other general
purposes
Total restricted cash (b)
$
19.3
16.0
5.1
24.4 $
(a) Effective March 26, 2020, the Federal Reserve eliminated reserve
requirements for depository institutions
3.9
46.5
(b) Comprises $22.7 billion and $45.3 billion in deposits with banks, and
$1.7 billion and $1.2 billion in cash and due from banks on the
Consolidated balance sheets as of December 31, 2020 and 2019,
respectively.
Also, as of December 31, 2020 and 2019, the Firm had the
following other restricted assets:
•
Cash and securities pledged with clearing organizations
Segregated for the benefit of
for the benefit of customers of $37.2 billion and $24.7
billion, respectively.
December 31, (in billions)
Cash reserves - Federal Reserve
Banks
The Firm is required to maintain cash reserves at certain
non-US central banks.
Field Examination
York State
JPMorgan Chase - New
2012-2014
Field Examination
York City
JPMorgan Chase -
2011 - 2012
Field Examination
California
JPMorgan Chase - U.K.
2006-2018
Field examination of
certain select entities
JPMorgan Chase & Co./2020 Form 10-K
279
Notes to consolidated financial statements
Note 26 - Restricted cash, other restricted
assets and intercompany funds transfers
Restricted cash and other restricted assets
Certain of the Firm's cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm's subsidiaries.
The business of JPMorgan Chase Bank, N.A. is subject to
examination and regulation by the OCC. The Bank is a
member of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject to
applicable limits.
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm's broker-dealers (principally J.P. Morgan Securities
LLC in the U.S and J.P. Morgan Securities plc in the U.K.) are
subject to certain restrictions on cash and other assets.
The following table presents the components of the Firm's
restricted cash:
• Securities with a fair value of $1.3 billion and $8.8
billion, respectively, were also restricted in relation to
customer activity.
Intercompany funds transfers
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. ("Parent Company") and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate (collectively referred to as
"covered transactions"), are generally limited to 10% of
the banking subsidiary's total capital, as determined by the
risk-based capital guidelines; the aggregate amount of
covered transactions between any banking subsidiary and
all of its affiliates is limited to 20% of the banking
subsidiary's total capital.
Tier 1
capital
Under the risk-based capital and leverage-based guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1 capital, Tier 1 capital,
Total capital, Tier 1 leverage and the SLR. Failure to meet
these minimum requirements could cause the Federal
Reserve to take action. IDI subsidiaries are also subject to
these capital requirements established by their respective
primary regulators.
The following table presents the minimum and well-
capitalized ratios to which the Firm and its IDI subsidiaries
were subject as of December 31, 2020 and 2019.
Capital
ratios
CET1 capital
Tier 1
Standardized
Minimum capital
ratios
Advanced
Minimum capital
ratios
Well-capitalized
BHC (a)(b)(c)
IDI (c)(d)
ratios
BHC (a)(c)
IDI (c)(d)
BHC(e)
IDI (f)
11.3 %
7.0 %
10.5 %
7.0 %
Tier 2
capital
• Qualifying allowance for
credit losses
• Long-term debt qualifying as
Tier 2
Add'l
-Tier 1
capital
The Parent Company's two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the “IHC"). The IHC
holds the stock of substantially all of JPMorgan Chase's
subsidiaries other than JPMorgan Chase Bank, N.A. and its
subsidiaries. The IHC also owns other assets and owes
intercompany indebtedness to the holding company. The
Parent Company is obligated to contribute to the IHC
substantially all the net proceeds received from securities
issuances (including issuances of senior and subordinated
debt securities and of preferred and common stock).
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator's opinion, payment
of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends or
extending credit to the Parent Company if certain capital or
liquidity "thresholds" are breached or if limits are otherwise
imposed by the Parent Company's management or Board of
Directors.
At January 1, 2021, the Parent Company's banking
subsidiaries could pay, in the aggregate, approximately $13
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2021
will be supplemented by the banking subsidiaries' earnings
during the year.
280
JPMorgan Chase & Co./2020 Form 10-K
Note 27 - Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
principal IDI subsidiary, JPMorgan Chase Bank, N.A.
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries, including
JPMorgan Chase Bank, N.A. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach ("Basel III Standardized"), and an advanced
approach ("Basel III Advanced"). For each of the risk-based
capital ratios, the capital adequacy of the Firm and
JPMorgan Chase Bank, N.A. is evaluated against the lower of
the Standardized or Advanced approaches compared to
their respective minimum capital ratios.
The three components of regulatory capital under the Basel
III rules are as illustrated below:
Common stockholder's equity
2012-2014
including capital for AOCI related to:
• Defined benefit pension and OPEB
plans
CET1
capital
Less certain deductions for:
• Goodwill
• MSRs
• Deferred tax assets that arise from
NOL and tax credit carryforwards
Total
capital
Perpetual preferred stock
• AFS debt securities
205,078
234,844
257,228
JPMorgan Chase - New
2014-2016
12,752 $
8,203
Deferred tax liabilities
Depreciation and amortization
$
3,329 $
2,852
Year ended December 31,
(in millions)
2020
2019
2018
capital
hedges
2,184
2,354
Balance at January 1,
$ 4,024
$ 4,861
$ 4,747
$
Leasing transactions
allowance
(557)
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits.
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
$
Employee benefits
7,270 $
1,104
Accrued expenses and other
3,332
3,400
1,039
2,767
Non-U.S. operations
849
Tax attribute carryforwards
757
Gross deferred tax assets
13,312
949
605
8,760
Valuation allowance
(560)
Deferred tax assets, net of valuation
5,124
5,598
Increases based on tax positions
related to prior periods
(705)
(706)
(1,249)
Decreases related to cash settlements
with taxing authorities
(116)
(1,012)
(266)
Balance at December 31,
278
JPMorgan Chase & Co./2020 Form 10-K
Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2020.
Periods under
examination
Status
JPMorgan Chase - U.S.
2009-2013
JPMorgan Chase - U.S.
At December 31, 2020 and 2019, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $966
million and $817 million, respectively, for income tax-
related interest and penalties.
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$147 million, $(52) million and $192 million in 2020, 2019
and 2018, respectively.
$ 4,250 $ 4,024 $ 4,861
JPMorgan Chase has recorded deferred tax assets of $757
million at December 31, 2020, in connection with U.S.
federal and non-U.S. NOL carryforwards, FTC carryforwards,
and state and local capital loss carryforwards. At
December 31, 2020, total U.S. federal NOL carryforwards
were $799 million, non-U.S. NOL carryforwards were $139
million, FTC carryforwards were $444 million, state and
local capital loss carryforwards were $1.1 billion, and other
federal tax attributes were $393 million. If not utilized, a
portion of the U.S. federal NOL carryforwards and other U.S.
federal tax attributes will expire between 2022 and 2037
whereas others have an unlimited carryforward period.
related to the current period
685
871
980
Other, net
6,025
4,683
Increases based on tax positions
Gross deferred tax liabilities
Field examination of
amended returns
Field Examination
16,662
related to prior periods
362
10
649
Net deferred tax (liabilities)/assets
$
(3,910) $
(7,284)
Decreases based on tax positions
15,487
ΝΑ
$
234,237
(i) Prior-period amounts have been revised to conform with the current presentation.
(h) At December 31, 2020 and 2019, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded
commitments related to certain tax-oriented equity investments.
(g) At December 31, 2020 and 2019, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and
commitments and guarantees associated with the Firm's membership in certain clearing houses.
(f) At December 31, 2020 and 2019, collateral held by the Firm in support of securities lending indemnification agreements was $264.3 billion and $216.2
billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSES and government
agencies.
(e) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans, which resulted in
a corresponding reclassification of commitments from Other guarantees and commitments to Wholesale other unfunded commitments to extend credit.
Prior-period amounts have been revised to conform with the current presentation.
(b) Also includes commercial card lending-related commitments primarily in CB and CIB.
(c) Predominantly all consumer and wholesale lending-related commitments are in the U.S.
(d) At December 31, 2020 and 2019, reflected the contractual amount net of risk participations totaling $72 million and $76 million, respectively, for other
unfunded commitments to extend credit; $8.5 billion and $9.8 billion, respectively, for standby letters of credit and other financial guarantees; and $357
million and $546 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk
participations.
(66)
52
(i)
206,432
6,334
142,003
6,330
2,541
758
574
21
(a) Includes certain commitments to purchase loans from correspondents.
142,003
2,457
(e)(h)
Other guarantees and commitments
(j) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, and lending-related commitments for which the fair value option was elected, the carrying value represents the fair value.
Ng
284
Other unfunded commitments to extend credit
$
Investment-grade (a)
of credit
Other letters
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
(in millions)
December 31,
2019
2020
Standby letters of credit, other financial guarantees and other letters of credit
The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2020 and 2019.
The contractual amount and carrying value of guarantees
and indemnifications are included in the table on page 284.
For additional information on the guarantees, see below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as commercial
paper facilities, bond financings, acquisition financings,
trade and similar transactions.
Non-lending-related contingent obligations are recognized
when the liability becomes probable and reasonably
estimable. These obligations are not recognized if the
estimated amount is less than the carrying amount of any
non-contingent liability recognized at inception (adjusted
for any amortization). Examples of non-lending-related
contingent obligations include indemnifications provided in
sales agreements, where a portion of the sale proceeds is
allocated to the guarantee, which adjusts the gain or loss
that would otherwise result from the transaction. For these
indemnifications, the initial liability is amortized to income
as the Firm's risk is reduced (i.e., over time or when the
indemnification expires).
or other assets (for premiums receivable). Any premium
receivable recorded in other assets is reduced as cash is
received under the contract, and the fair value of the
liability recorded at inception is amortized into income as
lending and deposit-related fees over the life of the
guarantee contract. The lending-related contingent
obligation is recognized based on expected credit losses in
addition to, and separate from, any non-contingent
obligation.
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnification
agreements included within third-party contractual
arrangements, certain derivative contracts and the
guarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the non-
contingent obligation assumed (e.g., the amount of
consideration received or the net present value of the
premium receivable). For these obligations, the Firm
records this fair value amount in other liabilities with an
offsetting entry recorded in cash (for premiums received),
Guarantees
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
JPMorgan Chase & Co./2020 Form 10-K
22,850
27
944
Loan sale and securitization-related
612
104,289
Unsettled repurchase and securities loaned
agreements
1,764
95,084
agreements
Unsettled resale and securities borrowed
159
322
$
$
$ 204,827
53,089
$ 250,418
54,415
39,203
12,182
541
2,489
Derivatives qualifying as guarantees
indemnifications:
23
96,848
2
59
84
ΝΑ
NA
889
NA
NA
NA
금금
NA
금금
ΝΑ
NA
NA
NA
Exchange & clearing house guarantees and
commitments(8)
Loans sold with recourse
Mortgage repurchase liability
(1)
73,351
104,901
117,951
$
2,263
$
54,415
$
2019
December 31, December 31,
2020
(in millions)
Notional amounts
Derivative guarantees
The following table summarizes the derivatives qualifying
as guarantees as of December 31, 2020 and 2019.
The fair value of derivative guarantees reflects the
probability, in the Firm's view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
The notional value of derivatives guarantees generally
represents the Firm's maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
The Firm transacts in certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products", that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty's reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
Derivatives qualifying as guarantees
The cash collateral held by the Firm may be invested on
behalf of the client in indemnified resale agreements,
whereby the Firm indemnifies the client against the loss of
principal invested. To minimize its liability under these
agreements, the Firm obtains collateral with a market value
exceeding 100% of the principal invested.
Through the Firm's securities lending program,
counterparties' securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
Securities lending indemnifications
Notes to consolidated financial statements
285
JPMorgan Chase & Co./2020 Form 10-K
(a) The ratings scale is based on the Firm's internal risk ratings. Refer to Note 12 for further information on internal risk ratings.
728
$
$
17,853
53,089
27,752
286
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
Loans sold with recourse
Refer to Note 30 for additional information regarding
litigation.
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
Private label securitizations
In connection with the Firm's mortgage loan sale and
securitization activities with U.S. GSES the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm.
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. These agreements generally do not meet the
definition of a derivative, and therefore, are not recorded
on the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. Refer to Note 11 for a further discussion
of securities financing agreements.
Unsettled securities financing agreements
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. Refer to Note 5 for a further discussion of credit
derivatives.
159
322
Derivative payables
Fair value
2,967
2,803
Maximum exposure of stable
value contracts with
contractually limited exposure
28,877
Stable value contracts with
contractually limited exposure
$
498
$
Allowance for lending-related commitments
2,961
$
34,242
$
3,053
$
30,982
$
Total contractual amount
824
7,362
790
8,132
Noninvestment-grade
(a)
2,137
$
26,880
$
80
$
14
17,238
$
Commitments with collateral
4
$
618
$
14
$
$ 250,418 $ - $ - $ - $ 2
443
Total carrying value
402
-
363
Guarantee liability
4
$
216
$
$
Securities lending indemnification agreements and
guarantees
$ 2,753 $1,586
1,574
1,397,878
1,457,689
1,515,869
Risk-weighted assets
214,091
206,851
206,848
$
187,753
214,432
232,112
224,390
242,589
Total capital
206,851
214,432
Tier 1 capital
$
206,848
$
187,753
1,269,991
$
CET1 capital ratio
Tier 1 capital ratio
$
2,353,432
2,730,239 $
7.9 %
ΝΑ
$
SLR
Total leverage exposure
Tier 1 leverage ratio
Adjusted average assets (a)
Leverage-based capital metrics:
Total capital ratio
16.9
16.6
15.4
16.0
16.3
16.3 %
13.4 %
15.3
14.2 %
14.2
14.1
12.4 %
CET1 capital
Risk-based capital metrics:
(in millions, except ratios)
$
3,353,319
$
17.8
17.3
16.9
17.3
17.4
15.8
17.4 %
13.8 %
15.7 %
15.7
15.0
13.1 %
1,343,185
1,484,431
1,492,138
1,560,609
239,673
2,970,285
$
3,353,319
$
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase & Co.
JPMorgan
Basel III Advanced
Basel III Standardized
6.3 %
6.9 %
2,730,239
ΝΑ
3,688,797
7.9 %
7.0 %
3,401,542 $
$
ΝΑ
NA
7.9 %
7.0 %
2,970,285
ΝΑ
234,235
NA
$
7.9 %
3,423,431 $
6.3 %
Other letters of credit(d)
Standby letters of credit and other financial
guarantees
Other unfunded commitments to extend credit"
Wholesale:
12
148
690,889
715,825
14,492
3,970
1,598
-
12
148
40,169
650,720
658,506
57,319
-
12
Total wholesale (c)
148
Total lending-related
+(d)(e)
2,605
4
14
618
443
34,242
2,961
417,510
$1,108,399
30,982
3,053
449,863
116,950 182,366 132,813 17,734
$812,715 $183,964 $136,783 $ 32,226 $1,165,688
-
1,467
4,051
26
7,986
45
17,478
2,982
952
2,148
380,307
415,828
16,267
96,490 174,335 128,736
Other guarantees and commitments
46,047 $ 30,217
11,272
9,952
3,962 $13,700 $
792
3,970 14,492
1,598
Expires
after
Contractual amount
Off-balance sheet lending-related financial instruments, guarantees and other commitments
In conjunction with the adoption of CECL, the Firm reclassified risk-rated loans and lending-related commitments from the
consumer, excluding credit card portfolio segment to the wholesale portfolio segment, to align with the methodology applied
in determining the allowance. Prior-period amounts have been revised to conform with the current presentation. Refer to Note
1 for further information.
Notes to consolidated financial statements
283
JPMorgan Chase & Co./2020 Form 10-K
To provide for expected credit losses in wholesale and
certain consumer lending-related commitments, an
allowance for credit losses on lending-related commitments
is maintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments, including the impact of the Firm's adoption
of CECL accounting guidance on January 1, 2020. The
following table summarizes the contractual amounts and
carrying values of off-balance sheet lending-related
financial instruments, guarantees and other commitments
at December 31, 2020 and 2019. The amounts in the table
below for credit card and home equity lending-related
commitments represent the total available credit for these
products. The Firm has not experienced, and does not
anticipate, that all available lines of credit for these
products will be utilized at the same time. The Firm can
reduce or cancel credit card lines of credit by providing the
borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Most
of these commitments and guarantees have historically
been refinanced, extended, cancelled, or expired without
being drawn or a default occurring. As a result, the total
contractual amount of these instruments is not, in the
Firm's view, representative of its expected future credit
exposure or funding requirements.
Note 28 - Off-balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase & Co./2020 Form 10-K
282
(c) As of December 31, 2020, the capital metrics for the Firm reflect the exclusion of assets purchased from money market mutual fund clients pursuant to
nonrecourse advances provided under the MMLF. Additionally, loans originated under the PPP for the Firm and JPMorgan Chase Bank, N.A. receive a zero
percent risk weight.
(b) As of December 31, 2020, JPMorgan Chase's total leverage exposure for purposes of calculating the SLR, excludes on-balance sheet amounts of U.S.
Treasury securities and deposits at Federal Reserve Banks, as provided by the interim final rule issued by the Federal Reserve on April 1, 2020. On June 1,
2020, the Federal Reserve, OCC and FDIC issued an interim final rule that provides IDI subsidiaries with an option to apply this temporary exclusion
subject to certain restrictions. As of December 31, 2020, JPMorgan Chase Bank, N.A. has not elected to apply this exclusion.
(a) Adjusted average assets, for purposes of calculating the leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that
are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
6.8 %
3,044,509
8.8 %
2,353,432
2020
Expires
after
2019
Expires in
By remaining maturity at December 31,
(in millions)
8
1,597 $
1
10,471
37,259
658,506
695,765
$ 26,788 $
Total consumer(b)(c)
Credit card (b)
Total consumer, excluding credit card
Auto and other
Residential Real Estate (a)
8.8 %
ΝΑ $
ΝΑ
Consumer, excluding credit card:
Carrying value
2020 2019
Total
Total
Expires
after 5
years
5 years
through
3 years
1 year
through
3 years
1 year or
less
Lending-related
6.5 %
Other off-balance sheet arrangements
Indemnification agreements - general
$ 125.2
59
263
129
296
2,113
(60)
277
13,427
13,591
14,240
9,336
9,264
9,313
37,382
49,284 39,265
2,726
4,754
4,954
12,312
Provision for credit losses
51,271
55,133
51,268
Total net revenue
52
Noninterest expense
27,990
28,276
3,800
3,785
4,020
5,580
5,233
15,566
23,020 16,544
19,349
21,903
5,362
2,749
Income tax expense/(benefit)
3,375
10,966
Income/(loss) before income
9,575
9,747
9,957
3,627
3,735
3,798
21,876
22,444
23,538
27,168
tax expense/(benefit)
4,642
3,355
6,716
2018
2019
2020
Noninterest revenue
(in millions, except ratios)
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
Consumer & Community Banking (b)
December 31,
As of or for the year ended
In connection with the alignment of Wholesale Payments, the
assets, liabilities and headcount associated with the Merchant
Services business were realigned to CIB from CCB, and the
revenue and expenses of the Merchant Services business are
reported across CCB, CIB and CB based primarily on client
relationships. In the fourth quarter of 2020, payment
processing-only clients along with the associated revenue and
expenses were realigned to CIB's Wholesale Payments
business from CCB and CB. Payment processing-only clients
are those that only use payment services offered by Merchant
Services, and in general do not currently utilize other services
offered by the Firm. Prior-period amounts have been revised
to reflect this realignment and revised allocation
methodology.
Merchant Services, which was realigned from CCB to CIB
Treasury Services and Trade Finance in CIB. Trade Finance
was previously reported in Lending in CIB.
•
•
In the first quarter of 2020, the Firm began reporting a
Wholesale Payments business unit within CIB following a
realignment of the Firm's wholesale payments businesses.
The Wholesale Payments business comprises:
In the fourth quarter of 2020, the Firm transferred certain
assets, liabilities, revenue, expense and headcount associated
with certain wealth management clients from AWM to the J.P.
Morgan Wealth Management business unit within CCB. Prior-
period amounts have been revised to conform with the
current presentation, including the transfer of approximately
1,650 technology and support staff during the second and
third quarters of 2020. Ultra-high-net-worth and certain
high-net-worth client relationships remained in AWM.
Business segment changes
(Table continued on next page)
Segment results and reconciliation (a)
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. The assumptions and methodologies used to
allocate capital are periodically assessed and as a result,
the capital allocated to the LOBS may change from time to
time.
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
Business segment capital allocation
2020
2019
2018
2020
6,554
$ 10,052
$ 10,236
$ 10,822
$ 2,620
$ 2,710
$ 3,067
6,246
9,528
9,205
14,164
35,933
3,418
37,337
Net interest income
$30,060 $27,854
$ 35,120
$ 15,338
$ 17,796
$ 17,740
2018
2019
2020
2018
2019
33,528
5,926
4,590
3,767
Collateral
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and other
securities financing agreements, prime brokerage-related
held-for-investment customer receivables and derivative
contracts. Collateral is generally used under repurchase and
other securities financing agreements, to cover short sales,
and to collateralize derivative contracts and deposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
2020
2019
Collateral permitted to be sold or
repledged, delivered, or otherwise used
$ 1,451.7
$1,282.5
2020
2019
Assets that may be sold or repledged or
otherwise used by secured parties
Collateral sold, repledged, delivered or
otherwise used
(a)
1,038.9
JPMorgan Chase & Co./2020 Form 10-K
296
71
72
70
39
40
41
59
December 31, (in billions)
The following table presents the Firm's pledged assets.
The Firm pledges financial assets that it owns to maintain
potential borrowing capacity at discount windows with
Federal Reserve banks, various other central banks and
FHLBS. Additionally, the Firm pledges assets for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
Pledged assets
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with the
licensing of software to clients ("software licensees") or
when it sells a business or assets to a third party ("third-
party purchasers"), pursuant to which it indemnifies
software licensees for claims of liability or damages that
may occur subsequent to the licensing of the software, or
third-party purchasers for losses they may incur due to
actions taken by the Firm prior to the sale of the business or
assets. It is difficult to estimate the Firm's maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firm
that have not yet occurred. However, based on historical
experience, management expects the risk of loss to be
remote.
Merchant charge-backs
Under the rules of payment networks, the Firm, in its role as
a merchant acquirer, retains a contingent liability for
disputed processed credit and debit card transactions that
result in a charge-back to the merchant. If a dispute is
resolved in the cardholder's favor, Merchant Services will
(through the cardholder's issuing bank) credit or refund the
amount to the cardholder and will charge back the
transaction to the merchant. If Merchant Services is unable
to collect the amount from the merchant, Merchant Services
will bear the loss for the amount credited or refunded to the
cardholder. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or obtaining other collateral. In addition, Merchant
Services recognizes a valuation allowance that covers the
payment or performance risk to the Firm related to charge-
backs. The carrying value of the valuation allowance was
$12 million and $11 million at December 31, 2020 and
2019, respectively.
For the years ended December 31, 2020, 2019 and 2018,
Merchant Services processed an aggregate volume of
$1,597.3 billion, $1,511.5 billion, and $1,366.1 billion,
respectively.
Clearing Services - Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPs, including ETDs such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin: variation margin is posted
on a daily basis based on the value of clients' derivative
contracts and initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPs; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
Refer to Note 5 for information on the derivatives that the
Firm executes for its own account and records in its
Consolidated Financial Statements.
JPMorgan Chase & Co./2020 Form 10-K
57
287
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services to its clients.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to the amount (or a multiple of
the amount) of the Firm's contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of a
member default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share of
losses that may result from the clearing house's investment
of guarantee fund contributions and initial margin,
unrelated to and independent of the default of another
member. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to
absorb the losses in the first instance. In certain cases, it is
difficult to estimate the Firm's maximum possible exposure
under these membership agreements, since this would
require an assessment of future claims that may be made
against the Firm that have not yet occurred. However,
based on historical experience, management expects the
risk of loss to the Firm to be remote. Where the Firm's
maximum possible exposure can be estimated, the amount
is disclosed in the table on page 284, in the Exchange &
clearing house guarantees and commitments line.
Sponsored member repo program
The Firm acts as a sponsoring member to clear eligible
overnight resale and repurchase agreements through the
Government Securities Division of the Fixed Income Clearing
Corporation ("FICC") on behalf of clients that become
sponsored members under the FICC's rules. The Firm also
guarantees to the FICC the prompt and full payment and
performance of its sponsored member clients' respective
obligations under the FICC's rules. The Firm minimizes its
liability under these overnight guarantees by obtaining a
security interest in the cash or high-quality securities
collateral that the clients place with the clearing house;
therefore, the Firm expects the risk of loss to be remote.
The Firm's maximum possible exposure, without taking into
consideration the associated collateral, is included in the
Exchange & clearing house guarantees and commitments
line on page 284. Refer to Note 11 for additional
information on credit risk mitigation practices on resale
agreements and the types of collateral pledged under
repurchase agreements.
Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm's
counterparties. The obligations of the subsidiaries are
included on the Firm's Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC ("JPMFC"), a 100%-owned
and consolidated finance subsidiary. All securities issued by
JPMFC are fully and unconditionally guaranteed by the
Parent Company and no other subsidiary of the parent
company guarantees these securities. These guarantees,
which rank on a parity with the Firm's unsecured and
unsubordinated indebtedness, are not included in the table
on page 284 of this Note. Refer to Note 20 for additional
information.
288
JPMorgan Chase & Co./2020 Form 10-K
Note 29 - Pledged assets and collateral
Notes to consolidated financial statements
48
53
51
$ 2,945
$ 2,867
$ 2,992
$ 4,264
$ 20,000
$ 3,958
$ 22,000
$ 22,000
$2,578
$ 11,799
$ 70,000
$11,954
$80,000
$ 17,094
$ 80,000
$ 14,707
$ 51,000
$ 10,500
$ 16,541
$ 52,000
541,367
Total assets
$ 52,000
Average equity
$ 8,217
Net income/(loss)
855
918
1,028
1,316
1,275
824
496,705
The following table provides a summary of the Firm's
segment results as of or for the years ended December 31,
2020, 2019 and 2018, on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the
reportable business segments) on an FTE basis.
Accordingly, revenue from investments that receive tax
credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. This allows management to
assess the comparability of revenue from year-to-year
arising from both taxable and tax-exempt sources. The
corresponding income tax impact related to tax-exempt
items is recorded within income tax expense/(benefit).
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
$ 10,500
560,177
55
Overhead ratio
32 %
26 %
28 %
20%
17 %
11 %
16 %
14 %
20%
$ 9,000
28 %
15%
Return on equity
161,047
173,175
203,384
220,229
220,514
228,932
909,292
914,705
1,097,219
31 %
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2020 and 2019, the
unpaid principal balance of loans sold with recourse totaled
$889 million and $944 million, respectively. The carrying
value of the related liability that the Firm has recorded in
accounts payable and other liabilities on the Consolidated
balance sheets, which is representative of the Firm's view of
the likelihood it will have to perform under its recourse
obligations, was $23 million and $27 million at
December 31, 2020 and 2019, respectively.
Segment results
295
293
JPMorgan Chase & Co./2020 Form 10-K
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase's operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase's income for that period.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other legal
proceedings currently pending against it should not have a
material adverse effect on the Firm's consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upward or downward, as appropriate, based on
management's best judgment after consultation with
counsel. The Firm's legal expense was $1.1 billion, $239
million and $72 million for the years ended December 31,
2020, 2019 and 2018, respectively. There is no assurance
that the Firm's litigation reserves will not need to be
adjusted in the future.
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
*
*
ordonnance de renvoi and in January 2020 ordered the
annulment of the ordonnance de renvoi referring JPMorgan
Chase Bank, N.A. to the French tribunal correctionnel. The
Court of Appeal found in January 2021 that it had no power
to take further action against JPMorgan Chase following the
Court of Cassation's ruling. At the opening of a trial of the
managers of Wendel in January 2021, the tribunal
correctionnel directed the criminal authorities to clarify
whether a further investigation should be opened against
JPMorgan Chase, pending which the trial was postponed. In
addition, a number of the managers have commenced civil
proceedings against JPMorgan Chase Bank, N.A. The claims
are separate, involve different allegations and are at
various stages of proceedings.
JPMorgan Chase & Co./2020 Form 10-K
292
Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior managers of Wendel Investissement ("Wendel")
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to a
number of managers of Wendel in 2007. JPMorgan Chase
has cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi in November 2016,
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel for alleged complicity in tax fraud. In January
2018, the Paris Court of Appeal issued a decision cancelling
the mise en examen of JPMorgan Chase Bank, N.A. The Court
of Cassation, France's highest court, ruled in September
2018 that a mise en examen is a prerequisite for an
Several putative class action complaints have been filed in
the United States District Court for the Southern District of
New York against the Firm and certain former employees,
alleging a precious metals futures and options price
manipulation scheme in violation of the Commodity
Exchange Act. Some of the complaints also allege unjust
enrichment and deceptive acts or practices under the
General Business Law of the State of New York. The Court
consolidated these putative class actions in February 2019,
and the consolidated action is stayed through May 2021. In
addition, several putative class actions have been filed in
the United States District Courts for the Northern District of
Illinois and Southern District of New York against the Firm,
alleging manipulation of U.S. Treasury futures and options,
and bringing claims under the Commodity Exchange Act.
Some of the complaints also allege unjust enrichment. The
actions in the Northern District of Illinois have been
transferred to the Southern District of New York. The Court
consolidated these putative class actions in October 2020
and set a deadline of February 2021 for the filing of a
consolidated complaint. Two putative class action
complaints have also been filed under the Securities
Exchange Act of 1934 in the United States District Court for
the Eastern District of New York against the Firm and
certain individual defendants on behalf of shareholders who
acquired shares during the putative class period alleging
that certain SEC filings of the Firm were materially false or
misleading in that they did not disclose certain information
relating to the above-referenced investigations. Plaintiffs
have filed a stipulation seeking consolidation of the actions
and the appointment of co-lead plaintiffs and counsel,
which is pending Court approval.
Across the three resolutions with the DOJ, CFTC and SEC,
JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and J.P.
Morgan Securities LLC agreed to pay a total monetary
amount of approximately $920 million. A portion of the
total monetary amount includes victim compensation
payments.
of the DPA, the criminal information will be dismissed after
three years, provided that JPMorgan Chase & Co., JPMorgan
Chase Bank, N.A. and J.P. Morgan Securities LLC fully
comply with all of their obligations.
The Firm entered into a Deferred Prosecution Agreement
("DPA") with the DOJ in which it agreed to the filing of a
criminal information charging JPMorgan Chase & Co. with
two counts of wire fraud and agreed, along with JPMorgan
Chase Bank, N.A. and J.P. Morgan Securities LLC, to certain
terms and obligations as set forth therein. Under the terms
Metals and U.S. Treasuries Investigations and Litigation and
Related Inquiries. The Firm previously reported that it and/
or certain of its subsidiaries had entered into resolutions
with the U.S. Department of Justice ("DOJ"), the U.S.
Commodity Futures Trading Commission (“CFTC”) and the
U.S. Securities and Exchange Commission (“SEC”), which,
collectively, resolved those agencies' respective
investigations relating to historical trading practices by
former employees in the precious metals and U.S.
treasuries markets and related conduct from 2008 to
2016.
In addition to the actions pending or consolidated in the
Southern District of New York, in August 2020, a group of
individual plaintiffs filed a lawsuit asserting antitrust claims
in the United States District Court for the Northern District
of California, alleging that the Firm and other defendants
were engaged in an unlawful agreement to set LIBOR and
conspired to monopolize the market for LIBOR-based
consumer loans and credit cards. The complaint seeks
injunctive relief and monetary damages.
In actions related to U.S. dollar LIBOR during the period that
it was administered by the BBA, the Firm has resolved
certain of these actions, and others are in various stages of
litigation. The District Court dismissed certain claims,
including antitrust claims brought by some plaintiffs whom
the District Court found did not have standing to assert such
claims, and permitted certain claims to proceed, including
antitrust, Commodity Exchange Act, Section 10(b) of the
Securities Exchange Act and common law claims. The
plaintiffs whose antitrust claims were dismissed for lack of
standing have filed an appeal. The District Court granted
class certification of antitrust claims related to bonds and
interest rate swaps sold directly by the defendants and
denied class certification motions filed by other plaintiffs. In
the consolidated putative class action related to the time
period that U.S. dollar LIBOR was administered by ICE
Benchmark Administration, the District Court granted
defendants' motion to dismiss plaintiffs' complaint, and the
plaintiffs have appealed. The Firm's settlements of putative
class actions related to Swiss franc LIBOR, the Singapore
Interbank Offered Rate and the Singapore Swap Offer Rate
("SIBOR"), and the Australian Bank Bill Swap Reference
Rate, and one of the putative class actions related to U.S.
dollar LIBOR remain subject to court approval. In the class
actions related to SIBOR and Swiss franc LIBOR, the District
Court concluded that the Court lacked subject matter
jurisdiction, and plaintiffs' appeals of those decisions are
pending.
changes in these rates and assert a variety of claims
including antitrust claims seeking treble damages.
Notes to consolidated financial statements
291
JPMorgan Chase & Co./2020 Form 10-K
Notes to consolidated financial statements
Note 31 - International operations
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
booking location or the location of the trading desk.
However, many of the Firm's U.S. operations serve
international businesses.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 32.
1,590
2,740
5,579 $
3,731
5,558
9,289
(e)
10,987 $
16,566 $
$
Total assets
Net income
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions related to benchmarks, including U.S. dollar LIBOR
during the period that it was administered by the BBA and,
in a separate consolidated putative class action, during the
period that it was administered by ICE Benchmark
Administration. These actions have been filed, or
consolidated for pre-trial purposes, in the United States
District Court for the Southern District of New York. In these
actions, plaintiffs make varying allegations that in various
periods, starting in 2000 or later, defendants either
individually or collectively manipulated various benchmark
rates by submitting rates that were artificially low or high.
Plaintiffs allege that they transacted in loans, derivatives or
other financial instruments whose values are affected by
Income before
income tax
expense
Revenue (c)
Total
North America (a)
Total international
Latin America/Caribbean
Asia-Pacific
Europe/Middle East/Africa
2020
(in millions)
As of or for the year ended December 31,
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
Expense(d)
1,150
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has responded to inquiries from
various governmental agencies and entities around the
world relating primarily to the British Bankers Association's
London Interbank Offered Rate ("LIBOR") for various
currencies and the European Banking Federation's Euro
Interbank Offered Rate ("EURIBOR"). The Swiss Competition
Commission's investigation relating to EURIBOR, to which
the Firm and other banks are subject, continues. In
December 2016, the European Commission issued a
decision against the Firm and other banks finding an
infringement of European antitrust rules relating to
EURIBOR. The Firm has filed an appeal of that decision with
the European General Court, and that appeal is pending.
The original class action was divided into two separate
actions, one seeking primarily monetary relief and the other
seeking primarily injunctive relief. In September 2018, the
parties to the class action seeking monetary relief finalized
an agreement which amends and supersedes the prior
settlement agreement. Pursuant to this settlement, the
defendants collectively contributed an additional $900
million to the approximately $5.3 billion previously held in
escrow from the original settlement. In December 2019,
the amended agreement was approved by the District
Court. Certain merchants appealed the District Court's
approval order, and those appeals are pending. Based on
the percentage of merchants that opted out of the amended
class settlement, $700 million has been returned to the
defendants from the settlement escrow in accordance with
the settlement agreement. The class action seeking
primarily injunctive relief continues separately.
Total pledged assets
188.0
235.1
Trading assets and other
460.4
420.5
Loans
80.2 $ 35.9
$
Investment securities
2019
2020
December 31, (in billions)
Total pledged assets do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIES. Refer to Note 11
for additional information on the Firm's securities financing
activities. Refer to Note 20 for additional information on the
Firm's long-term debt. The significant components of the
Firm's pledged assets were as follows.
$ 735.8 $ 684.3
478.9
455.3
Total pledged assets
Assets pledged at Federal Reserve banks and
FHLBS
(a) Includes collateral repledged to the Federal Reserve under the Federal
Reserve's open market operations.
80.2
113.9
Assets that may not be sold or repledged or
otherwise used by secured parties
$ 735.8
$ 684.3
JPMorgan Chase & Co./2020 Form 10-K
289
network rules. In 2017, after the approval of that
settlement was reversed on appeal, the case was remanded
to the United States District Court for the Eastern District of
New York for further proceedings consistent with the
appellate decision.
Interchange Litigation. Groups of merchants and retail
associations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted related rules in violation of
antitrust laws. In 2012, the parties initially settled the cases
for a cash payment, a temporary reduction of credit card
interchange, and modifications to certain credit card
In August 2018, the United States District Court for the
Southern District of New York granted final approval to the
Firm's settlement of a consolidated class action brought by
U.S.-based plaintiffs, which principally alleged violations of
federal antitrust laws based on an alleged conspiracy to
manipulate foreign exchange rates and also sought
damages on behalf of persons who transacted in FX futures
and options on futures. Certain members of the settlement
class filed requests to the Court to be excluded from the
class, and certain of them filed a complaint against the Firm
and a number of other foreign exchange dealers in
November 2018. A number of these actions remain
pending. Further, putative class actions have been filed
against the Firm and a number of other foreign exchange
dealers on behalf of certain consumers who purchased
foreign currencies at allegedly inflated rates and purported
indirect purchasers of FX instruments; these actions also
remain pending in the District Court. In 2020, the Court
approved a settlement by the Firm and 11 other defendants
of a class action filed by purported indirect purchasers for a
total of $10 million. In addition, some FX-related individual
and putative class actions based on similar alleged
underlying conduct have been filed outside the U.S.,
including in the U.K., Israel and Australia.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange (“FX") sales and
trading activities and controls related to those activities.
Among those resolutions, in May 2015, the Firm pleaded
guilty to a single violation of federal antitrust law. In
January 2017, the Firm was sentenced, with judgment
entered thereafter and a term of probation ending in
January 2020. The term of probation has concluded, with
the Firm remaining in good standing throughout the
probation period. The Department of Labor granted the
Firm a five-year exemption of disqualification that allows
the Firm and its affiliates to continue to rely on the
Qualified Professional Asset Manager exemption under the
Employee Retirement Income Security Act ("ERISA") until
January 2023. The Firm will need to reapply in due course
for a further exemption to cover the remainder of the ten-
year disqualification period. A South Africa Competition
Commission matter is the remaining FX-related
governmental inquiry, and is currently pending before the
South Africa Competition Tribunal.
notice that the payments may be fraudulent. JPMorgan
Chase Bank, N.A. applied for summary judgment and was
unsuccessful. The claim is ongoing and a trial has been
scheduled to commence in February 2022.
JPMorgan Chase & Co./2020 Form 10-K
20
290
Federal Republic of Nigeria Litigation. JPMorgan Chase Bank,
N.A. operated an escrow and depository account for the
Federal Government of Nigeria (“FGN") and two major
international oil companies. The account held
approximately $1.1 billion in connection with a dispute
among the clients over rights to an oil field. Following the
settlement of the dispute, JPMorgan Chase Bank, N.A. paid
out the monies in the account in 2011 and 2013 in
accordance with directions received from its clients. In
November 2017, the Federal Republic of Nigeria ("FRN")
commenced a claim in the English High Court for
approximately $875 million in payments made out of the
accounts. The FRN, claiming to be the same entity as the
FGN, alleges that the payments were instructed as part of a
complex fraud not involving JPMorgan Chase Bank, N.A., but
that JPMorgan Chase Bank, N.A. was or should have been on
Amrapali. India's Enforcement Directorate ("ED") is
investigating JPMorgan India Private Limited in connection
with investments made in 2010 and 2012 by two offshore
funds formerly managed by JPMorgan Chase entities into
residential housing projects developed by the Amrapali
Group ("Amrapali"). In 2017, numerous creditors filed civil
claims against Amrapali including petitions brought by
home buyers relating to delays in delivering or failure to
deliver residential units. The home buyers' petitions have
been overseen by the Supreme Court of India since 2017
pursuant to its jurisdiction over public interest litigation. In
July 2019, the Supreme Court of India issued an order
making preliminary findings that Amrapali and other
parties, including unspecified JPMorgan Chase entities and
the offshore funds that had invested in the projects,
violated certain currency control and money laundering
provisions, and ordering the ED to conduct a further inquiry
under India's Prevention of Money Laundering Act ("PMLA")
and Foreign Exchange Management Act ("FEMA"). In May
2020, the Enforcement Directorate issued a provisional
attachment order as part of the criminal PMLA proceedings
freezing approximately $25 million held by JPMorgan India
Private Limited. In June 2020, the funds were transferred
to an account held by the Supreme Court of India. A
separate civil proceeding relating to alleged FEMA
violations is ongoing. The Firm is responding to and
cooperating with the investigation.
Advisory and Other Activities. In November 2020, JPMorgan
Chase Bank, N.A. entered into a resolution with the Office of
the Comptroller of the Currency ("OCC") regarding
historical deficiencies in internal controls and internal audit
for certain fiduciary activities. In connection with the
resolution, JPMorgan Chase Bank, N.A. paid a $250 million
Civil Money Penalty. The OCC found that JPMorgan Chase
Bank, N.A. has remediated the deficiencies that led to the
penalty.
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks, and some of those
actions remain pending.
Set forth below are descriptions of the Firm's material legal
proceedings.
the attendant uncertainty of the various potential
outcomes of such proceedings, including where the Firm
has made assumptions concerning future rulings by the
court or other adjudicator, or about the behavior or
incentives of adverse parties or regulatory authorities,
and those assumptions prove to be incorrect.
the numerous yet-unresolved issues in many of the
proceedings, including issues regarding class
certification and the scope of many of the claims, and
the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability
(if any) has yet to be determined,
the number, variety and varying stages of the
proceedings, including the fact that many are in
preliminary stages,
•
•
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.5 billion at December 31, 2020. This
estimated aggregate range of reasonably possible losses
was based upon information available as of that date for
those proceedings in which the Firm believes that an
estimate of reasonably possible loss can be made. For
certain matters, the Firm does not believe that such an
estimate can be made, as of that date. The Firm's estimate
of the aggregate range of reasonably possible losses
involves significant judgment, given:
As of December 31, 2020, the Firm and its subsidiaries and
affiliates are defendants, putative defendants or
respondents in numerous legal proceedings, including
private, civil litigations and regulatory/government
investigations. The litigations range from individual actions
involving a single plaintiff to class action lawsuits with
potentially millions of class members. Investigations involve
both formal and informal proceedings, by both
governmental agencies and self-regulatory organizations.
These legal proceedings are at varying stages of
adjudication, arbitration or investigation, and involve each
of the Firm's lines of business and several geographies and
a wide variety of claims (including common law tort and
contract claims and statutory antitrust, securities and
consumer protection claims), some of which present novel
legal theories.
Contingencies
Note 30 Litigation
Notes to consolidated financial statements
In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's
estimate of the aggregate range of reasonably possible
losses will change from time to time, and actual losses may
vary significantly.
3,868 $
2,630
837
530,687
252,553
61,980
28,595
40,764 $
640,353
1,982,179
6,794
25,680
31,166
51,802
68,019 $
108,783 $
$
Total
82,968
(a)
North America
9,598
16,217
25,815
Total international
171,547
43,871
4,569 $ 424,935
1,481
744
1,064
1,301
2,365
Latin America/Caribbean
2,107
6,427 $
32,474
$ 2,622,532
(a) Substantially reflects the U.S.
(b) Prior-period amounts have been revised to conform with the current presentation.
(c) Revenue is composed of net interest income and noninterest revenue.
JPMorgan Chase & Co./2020 Form 10-K
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly responsible
for measuring, monitoring, reporting and managing the
Firm's liquidity, funding, capital, structural interest rate and
foreign exchange risks. The major Other Corporate
functions include Real Estate, Technology, Legal, Corporate
Finance, Human Resources, Internal Audit, Risk
Management, Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
Corporate
The majority of AWM's client assets are in actively managed
portfolios.
Provides retirement products and services, brokerage,
custody, trusts and estates, loans, mortgages, deposits and
investment management to high net worth clients.
Wealth Management
Offers multi-asset investment management solutions across
equities, fixed income, alternatives and money market
funds to institutional and retail investors providing for a
broad range of clients' investment needs.
Asset Management
Asset & Wealth Management, with client assets of $3.7
trillion, is a global leader in investment and wealth
management.
Asset & Wealth Management
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
10,032 $
4,884
Commercial Banking provides comprehensive financial
solutions, including lending, wholesale payments,
investment banking and asset management products across
three primary client segments: Middle Market Banking,
Corporate Client Banking and Commercial Real Estate
Banking. Other includes amounts not aligned with a primary
client segment.
research. Markets & Securities Services also includes
Securities Services, a leading global custodian which
provides custody, fund accounting and administration, and
securities lending products principally for asset managers,
insurance companies and public and private investment
funds.
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a broad
suite of investment banking, market-making, prime
brokerage, and treasury and securities products and
services to a global client base of corporations, investors,
financial institutions, merchants, government and municipal
entities. Banking offers a full range of investment banking
products and services in all major capital markets, including
advising on corporate strategy and structure, capital-raising
in equity and debt markets, as well as loan origination and
syndication. Banking also includes Wholesale Payments,
which provides payments services enabling clients to
manage payments and receipts globally, and cross-border
financing. Markets & Securities Services includes Markets, a
global market-maker across products, including cash and
derivative instruments, which also offers sophisticated risk
management solutions, prime brokerage, and
Corporate & Investment Bank
Consumer & Community Banking offers services to
consumers and businesses through bank branches, ATMs,
digital (including mobile and online) and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking, J.P. Morgan Wealth
Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card & Auto.
Consumer & Business Banking offers deposit and
investment products, payments and services to consumers,
and lending, deposit, and cash management and payment
solutions to small businesses. Home Lending includes
mortgage origination and servicing activities, as well as
portfolios consisting of residential mortgages and home
equity loans. Card & Auto issues credit cards to consumers
and small businesses and originates and services auto loans
and leases.
Consumer & Community Banking
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset Wealth Management. In addition, there
is a Corporate segment.The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is currently evaluated by the
Firm's Operating Committee. Segment results are presented
on a managed basis. Refer to Segment results of this
footnote for a further discussion of JPMorgan Chase's
business segments.
Note 32 - Business segments
JPMorgan Chase & Co./2020 Form 10-K
294
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $353 billion, $309 billion and $299 billion at December 31, 2020, 2019 and 2018, respectively.
Commercial Banking
6,991
Asia-Pacific
(e)
6,027 $
2,194
5,060
7,254
Asia-Pacific
$
9,860
15,887 $
(e)
$
Europe/Middle East/Africa
2019(b)
Latin America/Caribbean
29,131 $ 3,386,071
84,136 $
119,543 $
$
845,220
2,540,851
21,796
24,947
66,001
90,948
7,335
10,460
18,135
35,407 $
Notes to consolidated financial statements
2,405
844
16,459 $
$
Europe/Middle East/Africa
2018 (b)
36,431 $ 2,687,379
2,065,167
622,212
6,234
30,197
35,480
44,545 $
$
54,373
70,854
1,561
115,399 $
Total
89,853
North America (a)
9,065
16,481
25,546
Total international
47,820
183,023
391,369
4,158 $
1,467
609
$
3,402
1,000.5
$ 166.6
60.71
$
280,004
$
3,887
1.39 %
$
405,514
$
5,907
1.46 %
275,429
6,146
2.23
Rate
Interest(h)
balance
2018
1.88 %
1.98
(a) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(b) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(c) Includes brokerage-related held-for-investment customer receivables, which are classified in accrued interest and accounts receivable, and all other
interest-earning assets, which are classified in other assets on the Consolidated Balance Sheets.
(d) Includes commercial paper.
(e) All other interest-bearing liabilities include brokerage-related customer payables.
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. Refer to Note 12 for
additional information on nonaccrual loans, including interest accrued.
300
JPMorgan Chase & Co./2020 Form 10-K
(Table continued from previous page)
Average
balance
2019
Interest(h)
Rate
Average
217,150
3,819
1.76
131,291
4.63
42,456
1,987
4.68
(k)
(k)
1,655
319,875
3.01
236,688
7,640
3.23
(i)
(i)
9,617
35,748
2.91
5,653
1,574
1.20
115,082
913
0.79
294,958
9,189
3.12
208,266
7,206
3.46
284,127
7,962
2.80
194,232
54,981
$
(g)
29,899
236,865
266,764
3,203,148
51,934
180,411
$
3,203,148
Liabilities
Interest-bearing deposits
76,572
$
1,389,224
255,421
38,853
$
2,357
0.17 %
1,058
0.41
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(d)
118,055
22,241
Total assets
1.82
(i)
1,004,597
43,886
4.37
(a)(c)
78,784
1,023
1.30
2,779,710
(25,775)
64,941
2.34
All other noninterest-earning assets
(a)
372
989,943
0.96
(j)
Trading liabilities - derivative payables
All other liabilities, including the allowance for lending-related commitments
61,593
162,267
2,936,384
Total liabilities
32,628
Stockholders' equity
Common stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
Interest rate spread
Net interest income and net yield on interest-earning assets
$
Preferred stock
Trading liabilities - equity and other instruments (f)
517,527
0.46
205,255
195
0.10
Beneficial interests issued by consolidated VIES
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
19,216
214
1.12
254,400
5,764
2.27
2,162,369
9,960
Trading liabilities - debt and all other interest-bearing liabilities (e) (f)
52,012
5.25
977,406
$
55,687
2.25 %
2.52
(f) The combined balance of trading liabilities - debt and equity instruments was $106.5 billion, $101.0 billion and $107.0 billion for the years ended
December 31, 2020, 2019 and 2018, respectively.
(g) The ratio of average stockholders' equity to average assets was 8.3%, 9.5% and 9.8% for the years ended December 31, 2020, 2019 and 2018,
respectively. The return on average stockholders' equity, based on net income, was 10.9%, 14.0% and 12.7% for the years ended December 31, 2020,
2019 and 2018, respectively.
(g)
(h) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(j) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading
liabilities - debt and all other interest-bearing liabilities.
(k) The annualized rate for securities based on amortized cost was 1.85%, 3.05% and 3.25% for the years ended December 31, 2020, 2019 and 2018,
respectively, and does not give effect to changes in fair value that are reflected in AOCI.
JPMorgan Chase & Co./2020 Form 10-K
301
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
Presented below is a summary of interest and rates segregated between U.S. and non-U.S. operations for the years 2018
through 2020. The segregation of U.S. and non-U.S. components is based on the location of the office recording the
transaction. Intercompany funding generally consists of dollar-denominated deposits originated in various locations that are
centrally managed by Treasury and CIO.
(i) Fees and commissions on loans included in loan interest amounted to $1.0 billion for the year ended December 31, 2020, and $1.2 billion each for the
years ended December 31, 2019 and 2018.
229,222
255,471
2,608,898
$
26,249
411,424
31,085
34,667
42,560
43,075
151,717
132,836
2,481,423
2,353,427
$
27,511
232,907
260,418
2,741,841
(g)
$
57,776
2.16 %
2.46
(Table continued on next page)
407,219
(Unaudited)
(Taxable-equivalent interest and rates; in millions, except rates)
Non-U.S.
Loans:(b)
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
(b)
$
U.S.
294,669 $
149,389
0.26 %
(19)
(0.01)
141,409
1,341
0.95
768
Investment securities:
Non-U.S.
U.S.
2020
Average balance
Interest
Rate
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed: (a)
U.S.
Non-U.S.
Trading assets - debt instruments:
(b)
Year ended December 31,
1.22
21,041
1,731,425
53,683
167,456
$
2,741,841
21,694
118,152
53,786
60,734
154,261
$
2,608,898
$
1,115,848
$
54,669
114,323
20,645
3.47
49,208
5.03
53,779
2,345,279
(13,331)
2,146
3.99
52,551
2,035
3.87
84,571
3.61
2,212,657
(13,269)
76,728
8,957
0.80 %
$
227,994
22,501
568
2.52
21,079
493
2.34
247,968
8,807
3.55
243,246
7,978
3.28
1,848,842
26,795
1.45
1.34
9,280
2,387
1.42
4,630
2.03
52,426
1,248
2.38
1,045,037
189,282
54,993
$
5,973
0.57 %
3,066
1.62
1,144
2.08
182,105
2,585
177,788
134,517
509,937
4.32
17.3
16.7
15.5
16.0
15.9
15.8
17.3
15.7
7.0
7.0
6.9
7.5
7.9
7.9
Tier 1 leverage ratio (e)
Total capital ratio (e)
13.8
14.0
13.1
13.1
12.4
11.5
12.4
12.3
12.2
12.1
Tier 1 capital ratio (e)
15.0
15.0
14.3
13.3
14.1
14.1
8.0
CET1 capital ratio(e)
8.1
6.9
$ 485,567
$ 495,021
398,239
394,251
1,049,610
997,620
$ 457,274
980,019
267,365
990,515
Total assets
3,386,071
3,246,076
3,213,616
307,264
990,775
$ 369,687
$ 510,923
471,144
$ 491,716
558,791
1,009,382
7.0
6.8
6.0
6.3
6.3
6.4
6.4
Selected balance sheet data (period-end)
Trading assets(d)
$ 503,126
Investment Securities
589,999
Loans (d)
1,012,853
$ 505,822
531,136
989,740
SLR(e)
3,139,431
109
112
16 %
ROTCE (b)(c)
24
19
5
17
16 %
18
19
ROA (b)
1.42
1.14
0.58
0.40
20
15 %
14 %
4 %
59.52
57.62
0.90
0.90
0.90
0.90
0.90
0.90
0.80
0.80
Selected ratios and metrics
ROE(c)
19 %
15 %
7%
1.22
112
1.30
1.39
110
114
117
114
116
115
Firm LCR (average)
113
JPMorgan Chase Bank, N.A. LCR (average)
160
157
140
117
116
111
66
65
64
Overhead ratio
55
58
51
60
58
56
57
56
Loans-to-deposits ratio(d)
47
49
52
57
64
1.41
2,687,379
2,764,661
2,727,379
(e) The capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including the CECL capital transition
provisions that became effective in the first quarter of 2020. The SLR reflects the temporary exclusions of U.S. Treasury securities and deposits at Federal
Reserve Banks that became effective in the second quarter of 2020. Refer to Regulatory Developments Relating to the COVID-19 Pandemic on pages
52-53 and Capital Risk Management on pages 91-101 for additional information.
JPMorgan Chase & Co./2020 Form 10-K
299
Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials
Consolidated average balance sheets, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest and rates on a
taxable-equivalent basis for the years 2018 through 2020.
Income computed on a taxable-equivalent basis is the
income reported in the Consolidated statements of income,
adjusted to present interest income and rates earned on
(Table continued on next page)
(d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets.
Prior-period amounts have been revised to conform with the current presentation.
(Unaudited)
(Taxable-equivalent interest and rates; in millions, except rates)
Assets
assets exempt from income taxes (i.e., federal taxes) on a
basis comparable with other taxable investments. The
incremental tax rate used for calculating the taxable-
equivalent adjustment was approximately 24% in 2020,
2019 and 2018.
Average
balance
2020
Interesth
Year ended December 31,
(b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity ("TCE") is also a non-GAAP financial measure.
Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 62-64 for a further discussion of these measures.
(c) Quarterly ratios are based on annualized amounts.
Effective January 1, 2020, the Firm adopted the Financial Instruments - Credit Losses ("CECL") accounting guidance. Refer to Note 1 for further information.
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
0.58 %
1.39 %
5,054
1,494
0.63 %
1.42 %
1.39 %
1.43 %
$
5,993
$
5,260
$
5,616
1,371
1,403
1,361
0.58 %
0.60 %
(h)
0.62 %
Rate
$
Total investment securities
Loans (a)
All other interest-earning assets
Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Non-taxable securities (b)
Trading assets - equity and other instruments (a)
Goodwill, MSRs and other intangible assets
476,650
7,843
1.65
33,287
1,437
Trading assets - derivative receivables
Taxable securities
2.44
7,869
444,058
$
749
0.17 %
Federal funds sold and securities purchased under resale agreements
275,926
2,436
0.88
Securities borrowed
143,472
(302)
(0.21)
(j)
Trading assets - debt instruments (a)
322,936
Deposits with banks
0.64 %
1,469
$
Common stockholders' equity
249,291
241,050
234,403
231,199
234,337
290,893
235,985
232,844
Total stockholders' equity
279,354
271,113
264,466
261,262
236,222
288,869
296,472
291,498
2,737,188
Deposits
2,144,257
2,001,416
1,931,029
1,836,009
1,562,431
1,525,261
1,524,361
1,493,441
Long-term debt
281,685
279,175
317,003
299,344
261,330
264,348
263,215
259,837
$ 33,637
$
34,301
$
25,391
$
14,314
$
14,400 $ 14,295 $ 14,591
3.26 %
11,462
1,180
0.49 %
$
3.27 %
9,715
1,560
2.32 %
$
7,062
30,737
2.95 %
10,906 $
1,050
0.44 %
(k)
Net charge-off rate
$
Headcount
255,351
256,358
256,710
256,720
256,981
257,444
254,983
255,998
Credit quality metrics
Allowance for loan losses and lending-related
commitments
$
Allowance for loan losses to total retained loans
Nonperforming assets (d)
Net charge-offs
1,095
0.81
100,026
Loans:(b)
U.S.
557
(7,907)
(7,350)
890
(43)
1,941
Non-U.S.
74
All other interest-earning assets, predominantly U.S.(b)
324
Change in interest income
5,418
2,831
36
(79)
(77)
(488)
1,928
(555)
(219)
253
(198)
55
3,426
(3,686)
(260)
2,723
(703)
2,020
38
(115)
(850)
(1,447)
(25,048)
2,416
(776)
95
(1,992)
165
485
650
Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
2,334
176
(3,126)
1,133
294
1,427
Non-U.S.
(51)
(3,302)
1,927
407
(4,608)
(27)
(1,123)
(19,630)
48
63
111
4,844
2,999
7,843
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
495
Non-U.S.
25
(5,103)
(2,017)
(122)
(395)
(1,101)
365
336
Volume
Rate
Net
change
$
333
$
Net
change
(8)
(2,820)
(318)
$ (3,030) $
915
$ (2,115)
35
60
(3,153) $
(310)
Rate
Volume
2019 versus 2018
Increase/(decrease) due
to change in:
22.3
303
Changes in net interest income, volume and rate analysis
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual rates (refer to pages 300-304 for more information on average balances and rates). In this analysis, when the change
cannot be isolated to either volume or rate, it has been allocated to volume. The annual rates include the impact of changes in
market rates, as well as the impact of any change in composition of the various products within each category of asset or liability.
This analysis is calculated separately for each category without consideration of the relationship between categories (for example,
the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a result, changes in
the granularity or groupings considered in this analysis would produce a different attribution result, and due to the complexities
involved, precise allocation of changes in interest rates between volume and rates is inherently complex and judgmental.
(Unaudited)
Year ended December 31,
(On a taxable-equivalent basis; in millions)
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale
agreements:
2020 versus 2019
Increase/(decrease) due
to change in:
95
(1,466)
U.S.
(83)
598
(1)
(147)
(148)
2
61
362
63
(b)
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Trading assets - debt instruments:"
236
(1,728)
(1,704)
(2,644)
(2,727)
1,304
337
1,641
81
(1,064)
(983)
168
518
686
Securities borrowed: (a)
U.S.
Non-U.S.
(24)
Non-U.S.
(446)
(85)
222
CLTV: Combined loan-to-value
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided substantially through the operation or sale of the
collateral when the borrower is experiencing financial
difficulty, including when foreclosure is deemed probable
based on borrower delinquency.
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the
reference entity. The protection purchaser has recourse to
the protection seller for the difference between the face
value of the CDS contract and the fair value at the time of
settling the credit derivative contract. The determination as
to whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
305
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
CLO: Collateralized loan obligations
Glossary of Terms and Acronyms
CRO: Chief Risk Officer
CTC: CIO, Treasury and Corporate
CVA: Credit valuation adjustment
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes.
CIO: Chief Investment Office
CIB: Corporate & Investment Bank
Chase Bank USA, N.A.: Chase Bank USA, National
Association
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: "Central counterparty" is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes a counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CDS: Credit default swaps
CECL: Current Expected Credit Losses
JPMorgan Chase & Co./2020 Form 10-K
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
CFP: Contingency funding plan
DVA: Debit valuation adjustment
AWM: Asset & Wealth Management
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICC: The Fixed Income Clearing Corporation
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
FINRA: Financial Industry Regulatory Authority
Firm: JPMorgan Chase & Co.
FFIEC: Federal Financial Institutions Examination Council
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., "spot
rate") to determine the forward exchange rate.
FRBB: Federal Reserve Bank of Boston
FRC: Firmwide Risk Committee
Freddie Mac: Federal Home Loan Mortgage Corporation
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm's other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
FSB: Financial Stability Board
306
JPMorgan Chase & Co./2020 Form 10-K
FRBNY: Federal Reserve Bank of New York
Federal Reserve: The Board of the Governors of the Federal
Reserve System
FDIC: Federal Deposit Insurance Corporation
FDIA: Federal Depository Insurance Act
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
ETD: “Exchange-traded derivatives": Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
Expense categories:
•
Volume- and revenue-related expenses generally
correlate with changes in the related business/
transaction volume or revenue. Examples of volume- and
revenue-related expenses include commissions and
incentive compensation, depreciation expense related to
operating lease assets, and brokerage expense related to
equities trading transaction volume.
⚫ Investments include expenses associated with supporting
medium- to longer-term strategic plans of the Firm.
Examples of investments include initiatives in technology
(including related compensation), marketing, and
compensation for new bankers and client advisors.
Structural expenses are those associated with the day-
today cost of running the bank and are expenses not
covered by the above two categories. Examples of
structural expenses include employee salaries and
benefits, as well as noncompensation costs such as real
estate and all other expenses.
EU: European Union
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
Eligible HQLA: Eligible high-quality liquid assets, for
purposes of calculating the LCR, is the amount of
unencumbered HQLA that satisfy certain operational
considerations as defined in the LCR rule.
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
AUM: "Assets under management": Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes “Committed capital
not Called."
AUC: Assets under custody
(354)
37
38
75
Long-term debt:
U.S.
(317)
131
6
(3,193)
13
(3,062)
93
719
812
Non-U.S.
(37)
Beneficial interests issued by consolidated VIES, predominantly
U.S.
(47)
137
(a)(c)
Trading liabilities - debt, short-term and all other interest-bearing
liabilities:
U.S.
2
Non-U.S.
36
(2,606)
(698)
(2,604)
(5)
354
349
(662)
30
(77)
19
17
17
Intercompany funding:
3,962
(963) $ 2,089
5,754
(a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The negative interest expense
related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other interest-bearing liabilities.
(b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been
revised to conform with the current presentation.
(c) Includes commercial paper.
304
JPMorgan Chase & Co./2020 Form 10-K
Glossary of Terms and Acronyms
2020 Form 10-K: Annual report on Form 10-K for year
ended December 31, 2020, filed with the U.S. Securities
and Exchange Commission.
ABS: Asset-backed securities
AFS: Available-for-sale
ALCO: Asset Liability Committee
Amortized cost: Amount at which a financing receivable or
investment is originated or acquired, adjusted for accretion
or amortization of premium, discount, and net deferred fees
or costs, collection of cash, charge-offs, foreign exchange,
and fair value hedge accounting adjustments. For AFS
securities, amortized cost is also reduced by any
impairment losses recognized in earnings. Amortized cost is
not reduced by the allowance for credit losses, except
where explicitly presented net.
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
$ 3,052 $
24.7
1,792
783
4,635 $ (7,430) $
U.S.
Non-U.S.
Change in interest expense
Change in net interest income
(89)
89
249
(249)
160
(160)
293
(961)
(668)
(293)
961
668
$
(17,618) (16,835)
(2,795)
22.1
24.5
JPMorgan Chase & Co./2020 Form 10-K
5,739
0.97
Non-U.S.
Percentage of total assets and liabilities attributable to non-U.S. operations:
Assets
Liabilities
2.25
23.5
(a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed balances. The
negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading liabilities - debt and all other
interest-bearing liabilities.
(b) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period
amounts have been revised to conform with the current presentation.
(c) Includes commercial paper.
(d) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
302
JPMorgan Chase & Co./2020 Form 10-K
20.9
49,242
1.98 %
54,981
2.30
6,777
60
0.89
(46,327)
46,327
2,162,369
(1,254)
1,254
9,960
0.46
617,341
$
2,779,710 $
9,960
0.36 %
$
Refer to the "Net interest income" discussion in Consolidated Results of Operations on pages 54-56 for further information.
5,704
(Table continued from previous page)
Average balance
150,205
4,068
2.71
102,144
2,427
2.38
0.20
125,224
1.66
115,006
1,392
1.21
92,625
1,423
2,078
204
1.87 %
5,703
Interest
Rate
2018
Average balance
Interest
Rate
$
165,066 $
3,588
2.17 %
$
114,938
299
0.26
305,117 $
100,397
2019
247,623
1.12
214
4.58
94,747
2,178
2.30
78,784
1,023
41,708
1.30
64,941
2.34
Total interest-earning assets
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
2,779,710
909,850
1.69
577
(305)
(0.30)
43,446
3
0.01
216,025
5,056
2.34
106,911
2,813
2.63
475,832
8,703
1.83
34,105
1,068,857
2,288
0.21
Non-U.S.
Intercompany funding:
U.S.
Non-U.S.
Total interest-bearing liabilities
Noninterest-bearing liabilities (d)
Total investable funds
Net interest income and net yield:
U.S.
151,120
(30)
(0.02)
92,988
597
0.64
19,216
Non-U.S.
1.54
U.S.
Beneficial interests issued by consolidated VIES, predominantly U.S.
320,367
69
0.02
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
204,958
863
0.42
Non-U.S.
50,463
195
0.39
Trading liabilities - debt, short-term and all other interest-bearing liabilities:(a)(c)
U.S.
Non-U.S.
Long-term debt:
60.48
77,027
1.07
493
2.34
241,914
8,766
3.62
239,718
21,079
7,954
6,054
41
0.68
3,528
24
0.68
3.32
2.52
568
22,501
71,528
504
0.70
147,247
2,574
1.75
147,512
2,225
1.51
87,284
1,259
1.44
85,269
1,306
1.53
(42,947)
42,947
1.01
(1,414)
(746)
$
57,776
2.46 %
$
55,687
2.52 %
0.95 %
52,217
50,236
2.95
5,559
1.07
5,451
1.05
2.86
21,041
2,212,657 $
$
1,414
51,933
746
1,848,842
26,795
1.45
1,731,425
21,041
1.22
496,437
481,232
$
2,345,279 $
26,795
1.14 %
(51,933)
641
63,710
2.18
8,963
3.11
200,883
6,943
3.46
31,914
287,961
654
35,805
697
1.95
898,570
49,058
5.46
2.05
3.45
2,977
86,299
38,666
151
0.39
38,055
88
0.23
200,811
6,157
3.07
121,967
4,229
3.47
94,147
3,032
3.22
882,314
46,227
5.24
91,373
0.81
802,786
4,562
0.57
265,355
2,061
0.78
242,251
1,411
0.58
164,284
3,989
2.43
117,754
2,562
6,896
825
850,493
76,728
2,954
3.23
95,092
2,981
3.13
53,779
2,146
3.99
52,551
2,035
3.87
2,345,279
84,571
3.61
2,212,657
3.47
60.98
Investing activities
61.76
Bank and bank holding company
Non-bank(a)
$
6,000
$ 26,000 $ 32,501
Other operating adjustments
15,357
9,862
(4,400)
2
Net cash provided by/(used in)
Interest income from subsidiaries
63
223
216
operating activities
16,857
29,387
22,450
Other income from subsidiaries:
Net change in:
Bank and bank holding company
2,019
2,738
515
Non-bank
(569)
197
32,501
26,000
6,000
(a)
(in millions)
Year ended December 31,
2020
2019
2018
Operating activities
Net income
$ 29,131
$ 36,431
$ 32,474
Year ended December 31,
(in millions)
2020
(444)
2019
Less: Net income of subsidiaries
and affiliates (a)
33,631
42,906
38,125
Income
Parent company net loss
(4,500)
(6,475)
(5,651)
Dividends from subsidiaries and
Cash dividends from subsidiaries
affiliates:
and affiliates
2018
Statements of cash flows
Advances to and investments in
subsidiaries and affiliates, net
(6)
1,992
1,793
Borrowings from subsidiaries
and affiliates (a)
1,425
2,941
(2,273)
Total expense
7,542
9,935
8,665
Short-term borrowings
(20)
(56)
(678)
Income before income tax benefit
and undistributed net income of
subsidiaries
Proceeds from long-term
borrowings
37,312
25,569
25,845
176
Income tax benefit
1,324
17,492
2,033
25,013
Payments of long-term
1,838
borrowings
2,222
Noninterest expense
4,581
13,246
(e)
8,036
Other income
205
(1,731)
888
Total income
7,718
27,427
33,678
Expense
All other investing activities, net
Net cash provided by/(used in)
investing activities
24
(2,663)
71
(2,639)
65
8,099
Interest expense/(income) to
Financing activities
(a)
subsidiaries and affiliates
(8,830)
(5,303)
2,291
Net change in:
Other interest expense
14,150
63
(34,194)
Statements of income and comprehensive income
Note 33 Parent Company
(1,877)
(628)
(2,505)
$ 64,980 $ 58,154 $ 53,724
54,563
57,245
55,059
119,543
115,399
108,783
Provision for credit losses
66
(1)
(4)
17,480
5,585
4,871
Noninterest expense
1,373
1,067
902
66,656
65,269
63,148
Income/(loss) before income
tax expense/(benefit)
Income tax expense/(benefit)
Net income/(loss)
Average equity
(3,065)
(3,386)
(128)
1,211
(Table continued from previous page)
Corporate
Reconciling Items (a)
Total(b)
As of or for the year ended
December 31,
(in millions, except ratios)
2020
2019
2018
2020
2019
2018
Total assets
2020
2018
Noninterest revenue
$
Net interest income
Total net revenue
1,199 $
(2,375)
(1,176)
(114) $
(263)
$
1,325
135
(2,968) $
(418)
(2,534) $
(531)
2019
The following tables present Parent Company-only financial
statements.
Return on equity
$
3,386,071
2,687,379
2,622,532
NM
NM
NM
NM
NM
NM
12 %
15 %
13 %
NM
NM
NM
NM
NM
NM
56
57
58
$ 29,131 $ 36,431
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/
(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
(b) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card
income, with no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2020 Form 10-K
297
Notes to consolidated financial statements
ΝΑ
NA
NA
771,787
$
(2,615)
(865)
(1,750) $
72,365 $
145
(1,026)
(966)
1,111 $
68,407 $
215
(3,386)
(3,386)
(3,065)
(3,065)
(2,505)
(2,505)
35,407
44,545
40,764
Overhead ratio
6,276
8,290
(1,241) $
79,222 $
$
$ 32,474
-
$
$
-
$ 236,865
$ 232,907
$ 229,222
1,359,831
837,618
8,114
(21,226)
$
Equity in undistributed net income
of subsidiaries
11,342
11,233
Income tax expense
2,929
Net income
$
12,136 $
2,218
9,443 $
878
251
2,045
2,325
1,690
2,054
4,687
$
2,865
$
8,520
$
9,080 $
9,652
$
9,179
Earnings per share data
Net income:
Basic
11,405
10,565
3,116
5,565
16,942
16,791
28,285
16,293
$
16,372
29,291 $ 28,747 $
16,256
29,076
16,348
13,176
12,272
16,038
11,401
11,992
$
12,919
12,728
Provision for credit losses
(1,889)
611
10,473
8,285
1,427
1,514
1,149
1,495
Income before income tax expense
15,065
11,661
12,491
$
Diluted
2.93
2.92
$ 286,658
Common shares at period-end
3,049.4
3,048.2
3,047.6
$ 274,323
3,047.0
$ 429,913
$ 369,133
$ 357,479
Book value per share
81.75
79.08
76.91
75.88
3,084.0
75.98
3,136.5
3,197.5
75.24
73.88
3,298.0
3,308.2
$ 328,387
3,244.0
71.78
TBVPS (b)
Cash dividends declared per share
66.11
63.93
(21,956)
$ 293,451
$ 387,492
Market capitalization
Market and per common share data
$
1.39
$
0.79
$
2.58
$
2.69
$
2.83
$
2.65
1.38
3.80 $
3.79
0.78
Average shares: Basic
Diluted
3,079.7
3,085.1
3,076.3
3,095.8
3,082.8
3,081.0
3,100.7
3,140.7
3,148.5
2.68
3,198.5
3,207.2
2.82
2.65
3,250.6
3,259.7
2.57
28,192
3,077.8
$ 29,147 $ 32,980
16,875
2019
All other financing activities, net
Net cash used in financing
activities
(1,080)
(1,290)
(1,526)
(12,694)
(29,481)
(30,680)
Cash and due from banks
$
Deposits with banking subsidiaries
54 $
6,811
Trading assets
1,775
32
5,309
3,011
Net decrease in cash and due from
banks and deposits with banking
subsidiaries
1,524
(29)
(131)
Cash and due from banks and
Advances to, and receivables from, subsidiaries:
deposits with banking
subsidiaries at the beginning of
the year
5,341
5,370
5,501
Bank and bank holding company
27
2020
(10,109)
(12,343)
(12,690)
Proceeds from issuance of
$
27,631
16,906
5,623
preferred stock
4,500
5,000
1,696
Net income
$ 29,131 $ 36,431 $ 32,474
Redemption of preferred stock
(1,430)
2,358
(4,075)
Other comprehensive income, net
6,417
3,076
(1,476)
Treasury stock repurchased
(6,517)
(24,001)
Comprehensive income
Balance sheets
December 31, (in millions)
Assets
$ 35,548 $ 39,507 $ 30,998
Dividends paid
(1,696)
Cash and due from banks and
(19,983)
86
249,070
279,354
2,616
9,288
197,100
232,414
261,330
Total liabilities and stockholders' equity
$ 528,424 $ 493,744
298
(a) Affiliates include trusts that issued guaranteed capital debt securities
("issuer trusts").
(b) At December 31, 2020, long-term debt that contractually matures in
2021 through 2025 totaled $10.8 billion, $10.0 billion, $19.1 billion,
$21.8 billion, and $13.5 billion, respectively.
(c) Refer to Notes 20 and 28 for information regarding the Parent
Company's guarantees of its subsidiaries' obligations.
(d) Represents payments, net of refunds, made by the Parent Company to
various taxing authorities and includes taxes paid on behalf of certain
of its subsidiaries that are subsequently reimbursed. The
reimbursements were $8.3 billion, $6.4 billion, and $1.2 billion for
the years ended December 31, 2020, 2019, and 2018, respectively.
(e) As a result of the merger of Chase Bank USA, N.A. with and into
JPMorgan Chase Bank, N.A., JPMorgan Chase Bank, N.A. distributed
$13.5 billion to the Parent company as a return of capital, which the
Parent company contributed to the IHC.
JPMorgan Chase & Co./2020 Form 10-K
Supplementary information
Selected quarterly financial data (unaudited)
213,384
As of or for the period ended
(in millions, except per share, ratio, headcount
data and where otherwise noted)
4th quarter
3rd quarter
2nd quarter 1st quarter
4th quarter
3rd quarter 2nd quarter 1st quarter
Selected income statement data
Total net revenue(a)
Total noninterest expense (a)
Pre-provision profit(b)
Non-bank
$
29,224
16,048
2020
$ 23,410
2019
Total stockholders' equity
deposits with banking
Investments (at equity) in subsidiaries and
affiliates:
$ 25,150
924
9,612
subsidiaries at the end of the
year
$ 6,865 $ 5,341
$ 5,370
Cash interest paid
$
508,602
471,207
Cash income taxes paid, net(d)
5,445 $ 7,957
5,366
3,910
$ 6,911
1,782
Bank and bank holding company
Other assets
Non-bank
Long-term debt (b)(c)
Short-term borrowings
Borrowings from, and payables to, subsidiaries
and affiliates (a)
Liabilities and stockholders' equity
Other liabilities
1,044
10,699
$ 493,744
$ 528,424
Total assets
1,011
10,058
84
Total liabilities (c)
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IBOR: Interbank Offered Rate
HTM: Held-to-maturity
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment. The Firm
considers ratings of BBB-/Baa3 or higher as investment-
grade.
IPO: Initial public offering
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
LCR: Liquidity coverage ratio
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.
LDA: Loss Distribution Approach
LGD: Loss given default
LOB: Line of business
HQLA: "High-quality liquid assets" consist of cash and
certain high-quality liquid securities as defined in the LCR
rule.
LLC: Limited Liability Company
LIBOR: London Interbank Offered Rate
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.
Bader A. Alamoudi
Home equity-senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
Belgium
Switzerland
Filippo Gori
LOB CROS: Line of Business and CTC Chief Risk Officers
Loss emergence period: Represents the time period
between the date at which the loss is estimated to have
been incurred and the ultimate realization of that loss.
LTIP: Long-term incentive plan
Hong Kong
Kevin G. Latter
Ali Moosa
Mark C.M. Leung
Home equity - junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Bahrain, Egypt and Lebanon
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Ginnie Mae: Government National Mortgage Association
GSIB: Global systemically important banks
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
HELOC: Home equity line of credit
Glossary of Terms and Acronyms
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.
MSR: Mortgage servicing rights
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual
appraised values of collateral (i.e., loan-level data) at the
origination date.
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v)
a history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
NA: Data is not applicable or available for the period
presented.
NAV: Net Asset Value
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
Prime
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
•
•
Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
Reward costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs
generally tied to sales transactions.
Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Tanguy A. Piret
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans,
which is recognized over the period in which the service is
provided; changes in the fair value of MSRS; the impact of
risk management activities associated with MSRS; and gains
and losses on securitization of excess mortgage servicing.
Net mortgage servicing revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
of certain repurchased loans insured by U.S. government
agencies.
Net production revenue: Includes fees and income
recognized as earned on mortgage loans originated with the
Net interchange income includes the following
components:
Origination date LTV ratio
triggers.
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist
of actual data to the extent available and forecasted data
where actual data is not available. As a result, the
estimated collateral values used to calculate these ratios do
not represent actual appraised loan-level collateral values;
as such, the resulting LTV ratios are necessarily imprecise
and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment with
the performance of competitors.
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
JPMorgan Chase & Co./2020 Form 10-K
307
Glossary of Terms and Acronyms
308
MBS: Mortgage-backed securities
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
Merchant Services: offers merchants payment processing
capabilities, fraud and risk management, data and analytics,
and other payments services. Through Merchant Services,
merchants of all sizes can accept payments via credit and
debit cards and payments in multiple currencies.
MEV: Macroeconomic variable
MMLF: Money Market Mutual Fund Liquidity Facility
Moody's: Moody's Investor Services
Mortgage origination channels:
Retail - Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Option ARMS
MD&A: Management's discussion and analysis
Nick Bossart
Russia and Kazakhstan
Yan L. Tavrovsky
Latin America/Caribbean
Phyllis J. Campbell
JPMorgan Chase Vice Chairs
Cassander Verwey
The Netherlands
Karim Tannir
Khaled Hobballah
Middle East and North Africa
Pablo Garnica
Luxembourg
Francesco Cardinali
Van Bich Phan
Vietnam
Carl K. Chien
Taiwan
Marco Sucharitku
Thailand
Edmund Y. Lee
Mark S. Garvin
Vittorio U. Grilli
Mel R. Martinez
David Mayhew
Chairman of the Board of Directors
Nestlé S.A.
JPMorgan Chase & Co./2020 Form 10-K
Paul Bulcke
Chairman and Chief Executive Officer
LVMH Moët Hennessy - Louis Vuitton
Paris, France
Bernard Arnault
Rice, Hadley, Gates & Manuel LLC
Washington, District of Columbia
Vice Chairman of the Council
Partner
The Hon. Robert M. Gates
Singapore
London, United Kingdom
Former Prime Minister of Great Britain
Chairman of the Council
Rt. Hon. Tony Blair
J.P. Morgan International Council
313
Peter L. Scher
E. John Rosenwald
JPMorgan Chase & Co./2020 Annual Report
and Northern Ireland
Sub-Saharan Africa
Carlos Ma. G Mendoza
Steve R. Clayton
Germany
Tae Jin Park
Korea
Daniel Darahem
Brazil
Mustafa Bagriacik
Kyril Courboin
Steve Teru Rinoie
Turkey
France
Japan
Facundo D. Gómez Minujin
Argentina
Angela M. Hurtado
Colombia
Moises Mainster
Andean, Caribbean and Central
America
Stefan P. Povaly
Chile
South and South East Asia
Iberia
David E. Rawlings
Canada
North America
Italy
Malaysia
Roy Navon
Gioshia Ralie
Israel
Philippines
Indonesia
Madhav Kalyan
Ireland
India
Felipe García-Moreno
Mexico
Andres Errazuriz
Ignacio de la Colina
Murlidhar Maiya
Carin Bryans
Glossary of Terms and Acronyms
Co-President and
Net revenue rate: Represents Credit Card net revenue
(annualized) expressed as a percentage of average loans
for the period.
Member of:
1 Audit Committee
2 Compensation & Management
Development Committee
3 Corporate Governance &
Nominating Committee
4 Risk Committee
5 Public Responsibility Committee
Operating Committee
James Dimon
Chairman and Chief Executive Officer
Daniel E. Pinto
Co-President and
Chief Operating Officer;
CEO, Corporate & Investment Bank
Gordon A. Smith
Chief Operating Officer;
CEO, Consumer & Community Banking
Ashley Bacon
Virginia M. Rometty¹, 3
Retired Executive Chairman
and Chief Executive Officer
International Business Machines
Corporation
(Technology)
Chief Executive Officer
General Dynamics
(Aerospace and defense)
Phebe N. Novakovic¹
Chairman and
(Industrial and financial services)
Linda B. Bammann2,4
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
Stephen B. Burke²,3
Retired Chairman and
Chief Executive Officer
NBCUniversal, LLC
(Television and entertainment)
Todd A. Combs 2,3
Investment Officer
Berkshire Hathaway Inc.;
President and
Chief Risk Officer
Chief Executive Officer
GEICO
James S. Crown 4,5
Chairman and
Chief Executive Officer
Henry Crown and Company
(Diversified investments)
James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
Timothy P. Flynn¹
Retired Chairman and
Chief Executive Officer
KPMG
(Professional services)
Mellody Hobson 4,5
Co-CEO and President
Ariel Investments, LLC
(Investment management)
Michael A. Neal 1,5
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Chief Executive Officer
GE Capital
(Conglomerate and insurance)
Board of Directors
Marc K. Badrichani
Lori A. Beer
312
JPMorgan Chase & Co./2020 Annual Report
Regional Chief Executive Officers
Asia Pacific
Europe/Middle East/Africa
Latin America/Canada
Filippo Gori
Viswas Raghavan
Alfonso Eyzaguirre
Senior Country Officers and Location Heads
Asia Pacific
Australia and New Zealand
Robert P. Bedwell
China
Europe/Middle East/Africa
Austria
Vevey, Switzerland
Secretary
John H. Tribolati
Lou Rauchenberger
General Auditor
Elena A. Korablina
Firmwide Controller
Chief Information Officer
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Stacey Friedman
General Counsel
Takis T. Georgakopoulos
Global Head of Wholesale Payments
Teresa A. Heitsenrether
Global Head of Securities Services
Carlos M. Hernandez
Executive Chair of Investment &
Corporate Banking
Marianne Lake
CEO, Consumer Lending
Robin Leopold
Head of Global Sales & Research
Head of Human Resources
Jennifer A. Piepszak
Chief Financial Officer
Troy L. Rohrbaugh
Head of Global Markets
Peter L. Scher
Vice Chairman
Sanoke Viswanathan
Head of International Consumer
Banking
Other Corporate Officers
Reggie A. Chambers
Investor Relations
Joseph M. Evangelisti
Corporate Communications
Douglas B. Petno
CEO, Commercial Banking
intent to sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
311
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as loans.
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including:
•
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
JPMorgan Chase & Co./2020 Form 10-K
309
Glossary of Terms and Acronyms
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
- Unrealized gains and losses result from changes in
valuation.
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
•
• derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
PSUs: Performance share units
PRA: Prudential Regulation Authority
PPPL Facility: Paycheck Protection Program Lending
Facility
PPP: Paycheck Protection Program
PDCF: Primary Dealer Credit Facility
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
NFA: National Futures Association
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
NSFR: Net Stable Funding Ratio
REIT: "Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability
to participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITS can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
OAS: Option-adjusted spread
OCI: Other comprehensive income/(loss)
OPEB: Other postretirement employee benefit
OTTI: Other-than-temporary impairment
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
Over-the-counter cleared ("OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively,
"dividends"), which are included in the earnings per share
calculation using the two-class method. JPMorgan Chase
grants RSUs to certain employees under its share-based
compensation programs, which entitle the recipients to
receive nonforfeitable dividends during the vesting period
on a basis equivalent to the dividends paid to holders of
common stock. These unvested awards meet the definition
of participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
PCD: “Purchased credit deteriorated" assets represent
acquired financial assets that as of the date of acquisition
have experienced a more-than-insignificant deterioration in
credit quality since origination, as determined by the Firm.
PCI: “Purchased credit-impaired” loans represented
certain loans that were acquired and deemed to be credit-
impaired on the acquisition date. The superseded FASB
guidance allowed purchasers to aggregate credit-impaired
loans acquired in the same fiscal quarter into one or more
pools, provided that the loans had common risk
characteristics (e.g., product type, LTV ratios, FICO scores,
past due status, geographic location). A pool was then
accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.
PD: Probability of default
OCC: Office of the Comptroller of the Currency
JPMorgan Chase & Co./2020 Form 10-K
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, or other
market variables. The notes typically contain embedded
(but not separable or detachable) derivatives. Contractual
cash flows for principal, interest, or both can vary in
amount and timing throughout the life of the note based on
non-traditional indexes or non-traditional uses of
traditional interest rates or indexes.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR: "Troubled debt restructuring" is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty. Loans with short-term and
other insignificant modifications that are not considered
concessions are not TDRs.
TLAC: Total loss-absorbing capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
U.S.: United States of America
U.S. government agencies: U.S. government agencies
include, but are not limited to, agencies such as Ginnie Mae
and FHA, and do not include Fannie Mae and Freddie Mac
which are U.S. government-sponsored enterprises (“U.S.
GSES"). In general, obligations of U.S. government agencies
are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the
U.S. government in the event of a default.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S. GSE(S): "U.S. government-sponsored enterprises" are
quasi-governmental, privately-held entities established or
chartered by the U.S. government to serve public purposes
as specified by the U.S. Congress to improve the flow of
credit to specific sectors of the economy and provide
certain essential services to the public. U.S. GSEs include
Fannie Mae and Freddie Mac, but do not include Ginnie Mae
or FHA. U.S. GSE obligations are not explicitly guaranteed as
to the timely payment of principal and interest by the full
faith and credit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury
VA: U.S. Department of Veterans Affairs
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VCG: Valuation Control Group
VGF: Valuation Governance Forum
VIES: Variable interest entities
SPES: Special purpose entities
SMBS: Stripped mortgage-backed securities
SOFR: Secured Overnight Financing Rate
SLR: Supplementary leverage ratio
Glossary of Terms and Acronyms
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and loan
syndications. Source: Dealogic, a third-party provider of
investment banking competitive analysis and volume-based
league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
Risk-rated portfolio: Credit loss estimates are based on
estimates of the probability of default ("PD") and loss
severity given a default. The probability of default is the
likelihood that a borrower will default on its obligation; the
loss given default ("LGD") is the estimated loss on the loan
that would be realized upon the default and takes into
consideration collateral and structural support for each
credit facility.
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
ROU assets: Right-of-use assets
RSU(s): Restricted stock units
RWA: "Risk-weighted assets": Basel III establishes two
comprehensive approaches for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between
the Standardized and Advanced approaches are that for
Basel III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
REO: Real estate owned
S&P: Standard and Poor's 500 Index
SAR(S): Stock appreciation rights
Scored portfolios: Consumer loan portfolios that
predominantly include residential real estate loans, credit
card loans, auto loans to individuals and certain small
business loans.
SEC: Securities and Exchange Commission
Securities financing agreements: Include resale,
repurchase, securities borrowed and securities loaned
agreements
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
Shelf securities: Securities registered with the SEC under a
shelf registration statement that have not been issued,
offered or sold. These securities are not included in league
tables until they have actually been issued.
Single-name: Single reference-entities
310
JPMorgan Chase & Co./2020 Form 10-K
SCB: Stress Capital Buffer
Jamie Dimon*
Saudi Arabia
New York, New York
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JPMorgan Chase & Co.
Annual Report on Form 10-K
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Anton J. Ulmer
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314
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Nassef Sawiris
Rice, Hadley, Gates & Manuel LLC
Stanford, California
more than
3M
of loans went
$112K
in relief
employee jobs
Through March 2021, we've provided more than $40 billion to more than 400,000 small businesses through the PPP program.
Since March 13, 2020, we've delayed payments and refunded fees for customers on over 2 million accounts.
average loan amount
~80%
of loans were for
less than $100K
~80%
to businesses with
fewer than
10 employees
majority-minority
of loans went
to businesses with
fewer than
5 employees
~30%
of loans went
to businesses in
census tracts
1 $28 billion excluding Small Business Administration safe harbor refunds.
36
JPMorgan Chase: Supporting the “Real Economy” during the COVID-19 Crisis
To support the "real economy” – our customers, clients, employees and communities impacted by the global crisis - JPMorgan Chase
has brought the full force of its core business and expertise.
In 2020, we raised capital and provided credit totaling $2.3 trillion for customers and businesses of all sizes, helping them meet
payroll, avoid layoffs and support operations.
$32B
~50%
more than
Importantly, CECL does not change risk
management or the way we run the
company. We have been lending, and will
continue to lend, to our clients and customers
throughout the pandemic with prudent risk
management. Our credit risk decisions and
broader risk appetite are mostly driven by
our clients' needs and market conditions
rather than solely by reserve methodology.
While reserve levels are an estimate reflecting
management's expectations of credit losses at
the balance sheet date, they may not reflect
the amount of losses ultimately realized.
loans funded
We committed $250 million in global business and philanthropic initiatives, with particular focus on the most vulnerable people and
communities hardest hit by the pandemic.
4. While we disbanded Haven, we will continue to build on what we learned.
Although the United States has some of the
best healthcare in the world (i.e., doctors,
pharmaceutical care and innovation) and
many people from other countries come here
when they need serious medical attention,
the problems associated with healthcare are
serious, rampant and obvious. Our costs are
more than twice those of the developed world
without justification by better outcomes.
There is no transparency in pricing, with
patients legitimately complaining of hidden
costs. And chronic care is not necessarily
managed properly. More than 30 million
Americans are uninsured, and we are falling
short in basic wellness.
Amazon, Berkshire Hathaway and
JPMorgan Chase set up Haven to address
some of these problems, and, in the process,
we learned a lot about how the healthcare
system could be improved. Although we
decided to disband Haven, JPMorgan Chase
will continue to build on what we learned.
We will invest in healthcare innovation and
other approaches to improve the health and
well-being of our employees and address
this critical national issue. More details will
be shared as we progress.
34
V. COVID-19 AND THE ECONOMY
Within days of realizing that COVID-19 was a global pandemic that would virtually close
down large parts of the world's economies, the U.S. government moved with unprece-
dented speed. Fortunately, banks were part of the solution – unlike in the Great Recession.
And unlike the Great Recession, the U.S. economy was actually in good shape going into
the COVID-19 recession. Though there are many differences, it's instructive to compare the
recovery from the Great Recession with the expected recovery from the COVID-19 recession.
1. Bold action by the Fed and the U.S. government effectively reversed financial panic.
The Federal Reserve (critically, with the
support of the U.S. Treasury) immediately
rolled out facilities that financed Treasuries,
corporate bonds, mortgage-backed secu-
rities and other securities that effectively
reversed the financial panic taking place. A
full-blown financial crisis would have made
the COVID-19 recession far worse, deeper
and longer. Markets reacted extremely posi-
tively, and companies, over the next nine
months, raised an unprecedented $2 trillion
in debt and equity at good prices, dramati-
cally improving their financial condition and
balance sheets.
Congress, importantly, also took immediate
action to provide fiscal stimulus, the Corona-
virus Aid, Relief, and Economic Security Act,
also known as the CARES Act, totaling $2.2
trillion. This largely consisted of stimulus
payments to individuals, enhanced unem-
ployment insurance and loans, which could
be forgiven, to small businesses. Please see
the sidebar on page 36 for more detail on the
Paycheck Protection Program.
Suffice it to say while real damage was
done, the size and scope of these programs
dramatically reversed the deterioration of
the economy and unemployment, which hit
14.8% in April 2020 but made steady prog-
ress back to 6.7% by the end of the year
– though this number underrepresents the
damage that was done because of the large
deterioration in labor force participation
and the potential permanent loss of many
small businesses.
One last important point: The speed and
breadth of the programs were critical, and
there is no way they could have been done
perfectly. While it always makes sense to do
a thorough postmortem review and to prop-
erly punish those who deliberately misuse
emergency government programs, we should
try to avoid excessive finger-pointing.
2. Banks entered this recent crisis in great shape and were part of the solution coming out.
The banking system was in excellent shape
going into this crisis, and just about every
bank took extensive actions to help their
customers, employees and communities.
The sidebar on page 37 details how JPMorgan
Chase responded to support various stake-
holders. It's important to note that many
of
these programs went far beyond what was
requested by the government.
Of course, banks are always affected, for the
better and worse, by just about everything
that impacts the economy. Some have said
that banks were helped, or even bailed out,
by the government's actions. The govern-
ment took these actions to help those who
needed it – not to help the banks. These
actions helped just about everyone - and
they had a collateral benefit to the banks.
35
The Paycheck Protection Program
The Paycheck Protection Program, while not
perfect, was a tremendous achievement.
In the spring of 2020, lenders had seven frantic
days to get ready to accept applications for $349
billion in loans through the newly created Paycheck
Protection Program. Often known simply as PPP,
the federal program provided desperately needed
cash to help businesses sustain payroll so their
employees could put food on their tables and make
their rent or mortgage payments. If a business
used the loan to pay its employees and certain
other permitted expenses, the Small Business
Administration would fully forgive the loan.
All told, in 2020, we funded over 280,000 PPP
loans for more than $32 billion - the most of any
lender to companies that employ a total of 3+
million people. We are especially proud that we
helped some of America's smallest businesses:
childcare centers, social service agencies, schools,
grocery stores, physicians' offices and restaurants.
In fact, half of our loans went to companies with
fewer than five employees. And we're fully engaged
in the 2021 edition of PPP: Through March 2021,
we've funded in excess of 130,000 loans for
more than $10 billion - again, the most of any
lender. And more than 90% of those loans went to
businesses with fewer than 25 employees.
Given that most small businesses keep just two
weeks of cash on hand, the government and
lenders had to act with exceptional speed. What
they created in record time was unprecedented
and really quite extraordinary. The program
accomplished what it set out to do. Together, we
helped many small businesses survive and kept a
painful recession from becoming far, far worse.
JPMorgan Chase Helped Thousands of Small Businesses in 2020
more than
280K
888
Our ability to do all this, and more, is the result of the actions and investments we've made over many years to build a strong and
resilient company.
To understand this in more specific terms,
look at the chart on the next page that shows,
prior to the COVID-19 recession, banks had
$13 trillion in deposits and only $10 trillion
in loans. This $3 trillion in "lost" lending
(this is, in part, directly related to the new
liquidity requirements) may very well have
contributed to the secular stagnation experi-
enced in the last decade. If $3 trillion more
had been lent, the banking sector would have
fostered a more dynamic economy, and GDP
growth over the past decade would almost
certainly have been faster.
•
Provided more than $70 million in loan
relief through nearly 1,500 multifamily
loans, affecting housing for more than
27,000 tenants
Offered landlord borrowers periods
of interest-only payments, deferral of
mortgage payments and the ability
to capitalize prior deferred payments
over two years or more
Provided payment assistance to millions
of Chase customers, freeing up capital
for rent or other critical expenses
COMMUNITIES
•
Committed $200 million to help
•
underserved small businesses and
nonprofits access low-cost capital
through community partners
Committed $50 million to address
public health and long-term economic
challenges resulting from COVID-19
37
V. COVID-19 AND THE ECONOMY
But many companies, large and small, may
not have survived had JPMorgan Chase not
taken extraordinary efforts to help them.
While the government's actions were a
benefit to banks, there is no question the
banks were able to weather a terrible storm
while reserving extensively for potential
future loan losses. Importantly, the Fed
conducted two additional severely adverse
Comprehensive Capital Analysis and Review
(CCAR) stress tests, which projected bank
results under extreme unemployment,
GDP loss, market disruption and a smaller
government stimulus. The result showed
that banks could withstand this extreme
outcome while continuing to finance the
economy. I also have very little doubt that
if the severely adverse scenario played out,
JPMorgan Chase would perform far better
than the stress test projections.
3. The confusing interplay of monetary, fiscal and regulatory policy continues through
recessions.
Prior to the Great Recession in 2008, banks
operated under a completely different regu-
latory, capital and liquidity regime. Banks
held less capital (for many banks, it was too
little), they left virtually no money deposited
at the Fed, they generally lent out an amount
roughly equal to their deposits and they had
less liquidity, mostly in the form of Trea-
suries and mortgages (the securities portfolio
was also used for interest rate exposure).
This completely changed with Dodd-Frank
(the Dodd-Frank Wall Street Reform and
Consumer Protection Act) capital/liquidity
rules in 2010, and it changed again dramati-
cally with the COVID-19 recession of 2020.
The quantitative easing and fiscal stimulus taken
after the Great Recession were partially offset by
changes in regulatory policy.
illustrates,
As the chart on the next page
until the Great Recession of 2008, banks
were generally able to lend out 100% of
their deposits. In addition, they maintained
liquidity in the form of securities. Dodd-
Frank created a new rule called the liquidity
coverage ratio (LCR), which required banks
to permanently "lock up" a lot more liquidity
and also created more restrictions around
what counted as liquidity. The new regula-
tions generally limited liquidity sources to
cash deposits at central banks, Treasuries and
a portion of government-guaranteed securi-
ties. It should be noted that while the historic
bank reserve requirement is now zero, it has
effectively been replaced with LCR, which
is substantially the same thing as a reserve
requirement but far more stringent. In addi-
tion, we obviously saw an increase in capital
requirements and their complexity. Taken
together, these changes resulted in the loan-
to-deposit ratio dropping to approximately
75% and it is likely to stay approximately
there unless regulations are changed. While
loans are, of course, subject to supply and
demand, this is a structural reduction that
was clearly due to regulatory changes. The
effect was also enduring: As banks phased in
these rules, this new restriction limited their
ability to extend credit, and that, in turn, may
have held back the economy from reaching
its maximum potential output.
The firm earns almost $50 billion +/- pre-
provision profit annually; it is able to easily
handle large increases in reserves; and we
could easily have done substantially more
while maintaining high capital and high
liquidity. This is also why we saw no reason
to cut our dividend. If, however, the worst-
case scenario had happened (which means
it could have gotten even worse from there),
we might have cut our dividend to retain
capital out of prudence.
38
LANDLORDS AND RENTERS
•
•
.
•
•
CUSTOMERS
Offered delayed payments and
forbearance options for around
2 million mortgage, auto and credit
card accounts representing $85 billion
in loans
Refunded $120 million in fees on
consumer deposit accounts for nearly
1 million customers
Streamlined relief benefit enrollment
and renewal processes and required
no evidence of hardship
•
•
SMALL BUSINESSES
Supported distribution of funds
through the SBA PPP
•
Provided $18 billion in new and
renewed credit for U.S. small businesses
(outside of PPP) in 2020
Committed $350 million to support
underserved small businesses,
including Black and Latinx companies
•
•
EMPLOYEES
Continued to pay employees for
regularly scheduled hours even if
hours were reduced by temporary site
closures or other circumstances
Provided a special payment to select
full- and part-time employees whose
role required continuing on-site work
Enhanced support for working parents,
including childcare and tutoring
Expanded access to medical resources
LARGE EMPLOYERS AND ESSENTIAL
SERVICES
Helped many large employers avoid
layoffs and furloughs for countless
Americans
Extended funding to nonprofit and
government services, such as hospitals
and transportation, to support
continued essential services for their
communities
Provided $865 billion in credit for
corporations that, collectively, employ
tens of millions of workers
Delayed payments for 21,000 loans
and refunded $24 million in deposit
fees for more than 130,000 small
businesses
Clearly in turbulent times, these scenarios
and the probabilities assigned to them are
highly uncertain and volatile. The following
are also clear and extremely important:
-
IV. SPECIFIC ISSUES FACING OUR COMPANY
8. Less extensive KYC / AML requirements
9. No social requirements (CRA)
10. Limited public and regulatory reporting requirements
11. Higher debit card income
KYC Know your customer
AML Anti-money laundering
CRA = Community Reinvestment Act
29
III. BANKS' ENORMOUS COMPETITIVE THREATS FROM VIRTUALLY EVERY ANGLE
A few items need further explanation. On
capital requirements, you should always
remember that the market determines this
level, not regulators, and to the extent that
capital requirements in one entity are much
higher than another, activities will move.
Ironically, because standardized capital and
G-SIFI capital do not recognize credit risk,
banks have a peculiar incentive to hold
higher risk credit rather than lower risk
credit. All companies have operational risk,
and most companies absorb operating losses
through earnings. Banks are required to hold
substantial capital against this risk. (I'm
not debating that there is operational risk.)
And because of the Durbin Amendment, if a
bank has a customer with a small checking
account who spends $20,000 a year on a
debit card, the bank will only receive $120
in debit revenue- while a small bank or
nonbank would receive $240. This differ-
ence may determine whether you can even
compete in certain customer segments. It's
important to note that while some of the
fintechs have done an excellent job, they may
actually be more expensive to the customer.
Finally, it's important to point out that not
only has private credit been moving to the
private markets but so have companies them-
selves. The number of public companies in
the United States has been dropping dramat-
ically over the past two decades, which has
corresponded to an even larger increase in
the number of private companies. Following
its peak at 8,000 in 1997, the number of
public companies is now around 6,000, and
if you exclude non-operating companies,
such as investment funds and trust compa-
nies, the decline is even more dramatic.
This is worthy of serious study. The reasons
are complex and may include factors such
as onerous reporting requirements; higher
litigation expenses; annual shareholder
meetings focused on matters that most share-
holders view as frivolous or inappropriate
for company actions; costly regulations; less
compensation flexibility; and heightened
public scrutiny. It's incumbent upon us to
figure out why so many companies and so
much capital are being moved out of the
transparent public markets to the less trans-
parent private markets and whether this is in
the country's long-term interest.
-
We need competition - because it makes
banking better and we need to manage
the emerging risks with level playing field
regulation in a way that ensures safety and
soundness across the industry.
3. Al, the cloud and digital are transforming how we do business.
We cannot overemphasize the extraordinary
importance of new technology in the new
world. Today, all technology is built "cloud-
enabled," which means the applications and
their associated data can run on the cloud.
This brings many extraordinary advantages,
but the one that I'd like to spotlight is the
immediate ability to access data and associ-
ated machine learning with virtually unlim-
ited compute power. Essentially, in the cloud,
you can
"access" hundreds of databases and
deploy machine learning in a split second -
something mainframes and legacy systems
and databases simply cannot do. To
go from
the legacy world to the cloud, applications
not only have to be “refactored," but, more
important, data also must be “re-platformed"
so it is accessible. This availability of data
- and banks have a tremendous amount of
data - makes data enormously valuable and
digitally accessible. All of this work takes
time and money, but it's absolutely essential
that we do it.
We already extensively use AI, quite success-
fully, in fraud and risk, marketing, pros-
pecting, idea generation, operations, trading
and in other areas - -to great effect, but we are
still at the beginning of this journey. And we
are training our people in machine learning –
there simply is no speed fast enough.
30
III. BANKS' ENORMOUS COMPETITIVE THREATS FROM VIRTUALLY EVERY ANGLE
4. Fintech and Big Tech are here ... big time!
Fintech companies here and around the
world are making great strides in building
both digital and physical banking products
and services. From loans to payment systems
to investing, they have done a great job in
developing easy-to-use, intuitive, fast and
smart products. We have spoken about this
for years, but this competition now is every-
where. Fintech's ability to merge social media,
use data smartly and integrate with other
platforms rapidly (often without the disadvan-
tages of being an actual bank) will help these
companies win significant market share.
Importantly, Big Tech (Amazon, Apple, Face-
book, Google and, as I said, now I'd include
Walmart) is here, too. Their strengths are
extraordinary, with ubiquitous platforms
and endless data. At a minimum, they will
all embed payments systems within their
ecosystems and create a marketplace of bank
products and services. Some may create
exclusive white label banking relationships,
and it is possible some will use various
banking licenses to do it directly.
Though their strengths may be substantial, Big
Tech companies do have some issues to deal
with that may,
in fact, slow them down. Their
regulatory environment, globally, is heating up,
and they will have to confront major issues in
the future (banks have faced similar scrutiny).
Issues include data privacy and use, how taxes
are paid on digital products, and antitrust and
anticompetitive issues - such as favoring their
own products and services over others on
their platform and how they price products
and access to their platforms. In addition, Big
Tech will have very strong competition - not
just from JPMorgan Chase in banking but also
from each other. And that competition is far
bigger than just banking – Big Tech companies
now compete with each other in advertising,
commerce, search and social.
7. Fewer privacy restrictions, virtually no data restrictions
5. JPMorgan Chase is aggressively adapting to new challenges.
6. Less costly regulations
4. No FDIC insurance
III. BANKS' ENORMOUS COMPETITIVE THREATS FROM VIRTUALLY EVERY ANGLE
2. The growth in shadow and fintech banking calls for level playing field regulation.
The chart below shows the potential regula-
tory differences between being a bank and
being a nonbank or a fintech company –
though this varies for each type of company
on each item depending upon its legal and
regulatory status. In some cases, these regula-
tory differences may be completely appro-
priate, but certainly not in all cases.
When I make a list like this, I know I will be
accused of complaining about bank regula-
tions. But I am simply laying out the facts
for our shareholders in trying to assess the
competitive landscape going forward.
It is completely clear that, increasingly,
many banking products, such as payments
and certain forms of deposits among others,
are moving out of the banking system. In
addition, lending in many forms - including
mortgage, student, leveraged, consumer and
non-credit card consumer - is moving out of
the banking system. Neobanks and nonbanks
are gaining share in consumer accounts,
which effectively hold cash-like deposits.
Bank and Nonbank Regulation Requirements
Payments are also moving out of the banking
system in merchant processing and in debit
or alternative payment systems.
We believe that many of these new compet-
itors have done a terrific job in easing
customers' pain points and making digital
platforms extremely simple to use. But growth
in shadow banking has also partially been
made possible because rules and regulations
imposed upon banks are not necessarily
imposed upon these nonbanks. While some of
this may have been deliberate, sometimes the
rules were accidentally calibrated to move risk
in an unintended way. We should remember
that the quantum of risk may not have
changed - it just got moved to a less-regu-
lated environment. And new risks get created.
While it is not clear that the rise in nonbanks
and shadow banking has reached the point
of systemic risk, this trend is accelerating and
needs to be assiduously monitored, which we
do regularly as part of our own business.
Bank
1. Higher capital requirements (which also require expensive
debt and non-tax-deductible preferreds), even on deposits
2. Operational risk capital
3. Extensive liquidity requirements
4. FDIC insurance (this cost JPM ~$12B over the last 10
years and not tax deductible beginning in 2018)
5. U.K. bank levy and surcharges (this cost JPM $3.2B over
the last 10 years)
6. More costly regulations (e.g., loans, CFPB, OCC), including
resolution planning and CCAR
7. Heavy restrictions around privacy and use of data
8. Extensive KYC/ AML requirements
9. Substantial social requirements (CRA)
10. Extensive public and regulatory reporting requirements
(e.g., disclosure, compensation)
11. Lower revenue opportunities (i.e., Durbin - this cost
JPM ~$17B over the last 10 years)
FDIC Federal Deposit Insurance Corporation
CFPB Consumer Financial Protection Bureau
OCC Office of the Comptroller of the Currency
CCAR = Comprehensive Capital Analysis and Review
Fintech / Nonbank
1. Lower capital requirements, set by market
2. No operational risk capital
3. No liquidity requirements
5. No U.K. bank levy or surcharges
As tough as the competition will be,
JPMorgan Chase is well-positioned for the
challenge. But our eyes are wide open as
the landscape changes rapidly and dramat-
ically. We have an extraordinary number of
products and services, a large, existing client
base, huge economies of scale, a fortress
balance sheet and a great, trusted brand. We
also have an extraordinary amount of data,
and we need to adopt AI and cloud as fast
as possible so we can make better use of it
to better serve our customers. We need to
make our extraordinary number of products
and services a huge plus by improving ease
of use and reducing complexity. We need
to move faster and bolder in how we attack
new markets while protecting our existing
ones. Sometimes new markets look too small
or appear not to be critical to our customer
base until they are. We intend to be a little
more aggressive here.
-
While we will argue for a level playing field,
both in terms of how products and services
20.7%
$14
10.8%
$22
12.5%
6.5%
Actual UER
3.6%
3.8%
13.1%
8.8%
6.8%
3Q20
4Q20
4Q19
(Incurred loss)
1/1/2020
(CECL adoption)
1Q20
2Q20
I Reported allowance
Extreme adverse case
Central case
Unexpected downside
Expected downside
■■ Extreme Adverse UER, next 4Q average
--Central UER, next 4Q average
CECL = Current expected credit losses
UER - Unemployment rate
33
$19
$28
$25
$31
are treated by regulators and possibly how
competition should be treated across plat-
forms, we are not relying on much to change.
So we will simply have to contend with the
hand we are dealt and adjust our strategies
as appropriate.
We have mentioned that our highest and
best use of capital is to expand our busi-
nesses, and we would prefer to make great
acquisitions instead of buying back stock.
We are somewhat constrained by how much
we can grow our balance sheet because our
capital charges will grow with our size, so
sometimes buying back stock may still be
the best option. But acquisitions are in our
future, and fintech is an area where some of
that cash could be put to work – this could
include payments, asset management, data,
and relevant products and services.
We will continue to do everything in our
power to make JPMorgan Chase successful-
and are confident we can do so.
31
IV. SPECIFIC ISSUES FACING OUR COMPANY
In this section, I review and analyze some of the current critical issues that affect our company.
1. Cyber risk remains a significant threat.
We cannot overemphasize the importance
of cyber risk, not just to our bank (we
spend more than $600 million a year on
cybersecurity) but also to our customers,
countries, economies and critical industries
(i.e., telecom and power). We have pointed
out to our shareholders before that having
disciplined cyber hygiene is almost as
important as the money you spend. Threats
to our cybersecurity need urgent attention
from our government as issues of national
security and impediments to trade. Govern-
ments should build on prior agreements in
the United Nations, recognizing the appli-
cability of international law to cyberspace
and enforcing obligations to hold bad actors
accountable. Acknowledging that govern-
ments and their regulatory agencies are
prime targets for cyber criminals, these
agencies need to provide transparency to
those affected by incidents (e.g., financial
institutions and others that hold sensitive
data), invest in the uplift to cybersecurity,
and adopt safe and sound practices for data
protection and handling.
Much of our extraordinary cyber capabil-
ities are also used to train and protect our
customers, particularly in the areas of risk
and fraud.
2. Brexit was finally accomplished - but uncertainties linger.
Brexit was accomplished, but many issues
still need to be negotiated. And in those
negotiations, Europe has had, and will
continue to have, the upper hand. In the
short run (i.e., the next few years), this
cannot possibly be a positive for the United
Kingdom's GDP - the effect after that will be
completely based upon whether the United
Kingdom has a comprehensive and well-
executed strategic plan that is acceptable
to Europe. Included among the unresolved
questions is how financial services will
operate. London has been a major financial
center that, under all laws and regulations,
could conduct business throughout Europe.
For most of us, the bulk of our operations
(i.e., risk, compliance, audit, legal, regula-
tory, market-making, investment banking,
research and asset management) were
performed centrally in London. It was hugely
efficient for all of Europe - and for finan-
cial services companies as well. London is
a magnificent place to do business in terms
of the rule of law, human capital, tech-
nology, transportation, language and many
other facets. But future financial regulations
The best way to look at this is to analyze our
loan loss reserves as of December 31, 2020.
Our central case is essentially our baseline
forecast (and is roughly similar to the Federal
Reserve's current forecast at the time),
which would have unemployment over the
ensuing 12 months at 6.5%. If we reserved
to this case, our reserves would total $22
billion. But we run multiple scenarios - one
of which is an extreme adverse case. This
worst case, which is slightly more severe
than the Federal Reserve's extreme adverse
case, would have unemployment over the
ensuing 12 months at 12.5% (among other
variables). If we reserved as if this scenario
had a 100% chance of happening, we would
require $45 billion in reserves. After proba-
bility weighting multiple scenarios, we ended
the year with $31 billion in reserves.
-
During this transition, our costs (most
of which will probably be passed on to
customers in one form or another) will go
up as functions become duplicated. We may
reach a tipping point many years out when
it may make sense to move all functions that
service Europe out of the United Kingdom
and into continental Europe. But London still
has the opportunity to adapt and reinvent
itself, particularly as the digital landscape
continues to revolutionize financial services.
Innovation is key to preparing for doing the
business of tomorrow versus relying on the
shifting ways of the past.
32
IV. SPECIFIC ISSUES FACING OUR COMPANY
3. New accounting requirements affect reserve reporting but not how we run our business.
A new loan loss reserving method called
the current expected credit losses (CECL)
standard was adopted by large financial
institutions, effective January 1, 2020. To
oversimplify, there were two main changes.
First, you must reserve for expected credit
losses over the full remaining expected life of
the loan, whereas in the past, we reserved for
losses that had already been incurred using
a forecast over a loss emergence period, for
example the ensuing 12 months or so for
credit cards. Second, you were to incorporate
different reasonable and supportable macro-
economic forecasts (for multiple scenarios)
in estimating losses. Given the benign macro-
economic environment when this new CECL
standard was adopted, it increased reserves
by only $4.3 billion, which was primarily
attributed to moving to lifetime loss coverage
for Card, with only a small amount of
reserves for the probability of a far worse
economic environment.
Hundreds of variables go into the scenarios
and calculations shown in the chart below.
During periods of stress, the firm leaned
more heavily to the downside to reflect
uncertainties not fully captured by the
scenarios themselves. Uncertainties included
a substantial drop in headline employment
without corresponding job creation, the
degree of permanent job losses, the extent
and timing of federal government assis-
tance, unknowns around vaccine efficacy
against new virus strains, and the poten-
tial for economic scarring from changes
in consumer behavior and the recovery of
directly impacted sectors.
Allowance: Range of Downside Uncertainty
($ in billions)
$52
$45
$34
$34
were left uncertain in Brexit; and it is clear
that, over time, European politicians and
regulators will make many understandable
demands to move functions into European
jurisdictions. Because of this and because
of strong European efforts to compete with
London - Paris, Frankfurt, Dublin and
Amsterdam will grow in importance as more
financial functions are performed there.
Even so, few winners are likely to emerge
from this fragmentation.
Not surprisingly, there were bumps in the road
as the SBA and lenders worked around the clock
to establish and implement specific rules and
processes, as well as develop the technology to
support the program. Ultimately, though, it was a
lifesaver for millions of U.S. businesses. In Business
Banking, we processed more than four years' worth
of loan applications in 23 days - a combination of
digital prowess and the efforts of more than 1,000
people who manually reviewed applications and
contacted clients after hours and on weekends to
correct errors.
Investment
Advisory
Mutual and
money market
funds; wealth
data from financial
institutions on behalf of
Council. No examination
authority.
Today, the United States and other countries
around the world are grappling with many
other critical issues. To name just a few:
capitalism versus other economic systems;
access to healthcare; immigration policy; the
role of business in our society; and how, or
even whether, the United States intends to
exercise global leadership. Many Americans
have lost faith in their government's ability
to solve these and other problems - in fact,
most people would describe government as
ineffective, bureaucratic and often biased.
Almost all institutions - governments,
schools, media and businesses - have lost
credibility in the eyes of the public. And
47
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
perhaps for good reason: Many of our prob-
lems have been around for a long time and
are not aging well. Politics is increasingly
divisive, and government is increasingly
dysfunctional, leading to a number of poli-
cies that simply don't work.
Americans know that something has gone
terribly wrong, and they blame this coun-
try's leadership: the elite, the powerful,
the decision makers - in government,
in business and in civic society. This is
completely appropriate, for who else should
take the blame? And people are right to
be
angry and feel let down. Our failures
fuel the populism on both the political left
and right. But populism is not policy, and
we cannot let it drive another round of
poor planning and bad leadership that will
simply make our country's situation worse.
To explain how and why this all happened,
we tend to look for convenient reasons
some blame greed and “short-termism,"
some blame immigration and others blame
the uncontrolled effects of new technolo-
gies, trade or China. Many of our citizens
are unsettled, and the fault line for all this
discord is a fraying American dream - the
enormous wealth of our country is accruing
to the very few. In other words, the fault
line is inequality. And its cause is staring us
in the face: our own failure to move beyond
our differences and self-interest and act for
the greater good. The good news is that this
is fixable.
Some Americans think that the country's
can-do attitude, innovative entrepreneurism
and great resiliency, which served us so well
in prior crises, still exist and will re-emerge
to help us self-correct. At the other end of the
spectrum, there are those who think we are
simply a great empire whose glory days have
passed and we should cede global leadership
to China. These advocates would add that
democracy itself does not work - our failures
being prime evidence of democracy's ineffec-
tiveness. Both views fall short.
The problems that are tearing at the fabric of
American society require all of us govern-
ment, business and civic society - to work
together with a common purpose. And that
common purpose should be our ongoing
quest to be a more perfect union and to
maintain America's preeminent role in the
world. To do this, we need to demand more
of both ourselves and of our leaders. And we
can't fix our problems if we don't acknowl-
edge them and the damage they have caused.
Hoping that things will self-correct is not a
strategy working on solutions is.
One last thing: The raw power of America is
often represented by our incredible military
might. In reality, however, our raw power
emanates from our economic vitality and
strength, which have always been predi-
cated upon freedom, free enterprise, and the
promise of increasing equality and opportu-
nity for all. If income inequality is the fault
line, returning to the basic morality at the
core of America's founding principles can
lead us to a common purpose and help bind
us together again.
48
2020
2021 Estimate
2020
2021 Estimate
$T
% of GDP
$T
% of GDP
$T
% of GDP
$T
% of GDP
U.S.
3.2
17%
1.4
7%
Perhaps we were lulled into a false sense of
security and complacency in the last two
decades of the 20th century as we enjoyed
relative peace in the world and a position
of global dominance, validated by the fall
of the Soviet Union. During those two
decades, we experienced relatively unin-
terrupted and strong growth, resulting in
broad improvement in income for almost
all Americans. That stability was shattered
by the September 11, 2001, terrorist attacks,
which were followed by nearly 20 years
of overseas combat for American soldiers.
Economic growth over the last two decades
(including the Great Recession of 2008) has
been painfully slow, with increasing income
inequality and virtually no growth in income
at the lower rungs of the economic ladder.
The COVID-19 pandemic, for which our
nation was totally unprepared, capped by
the horrific murder of George Floyd, shoved
into the spotlight our country's profound
inequities and their devastating effects
inequities that had been there for a long
time. Once more, our country suffered, and
its least well-off individuals suffered the
most. Unfortunately, the tragedies of this
past year are only the tip of the iceberg -
they merely expose enormous failures that
have existed for decades and have been
deeply damaging to America.
3.1
China's leaders believe that America is in
decline. They believe this not only because
their country's sheer size will make them
the largest economy on the planet by 2030
but also because they believe their long-term
thinking and competent, consistent leader-
ship have outshone America's in so many
ways. The Chinese see an America that is
losing ground in technology, infrastructure
and education - a nation torn and crippled
by politics, as well as racial and income
inequality and a country unable to coordi-
nate government policies (fiscal, monetary,
industrial, regulatory) in any coherent way
to accomplish national goals. Unfortunately,
recently, there is a lot of truth to this.
Our nation is clearly under a lot of stress and
strain from various events: the COVID-19
pandemic, of course, which has taken more
American lives than the total lost in World
War II, the Korean War and the Vietnam
War combined, resulting in acute economic
distress for millions more; the brutal murder
of George Floyd and the racial unrest that
followed; the divisive 2020 presidential
election, culminating in the storming of the
Capitol and the attempt to disrupt our democ-
racy; and the seemingly inevitable, but none-
theless alarming and unnerving, rise of China,
threatening America's global preeminence.
We need to decide who we want to intermediate
in the markets when there is stress.
Several times in the last few years you have
seen dislocation in our repo markets, Trea-
sury markets and, in March 2020, all of our
markets. In many cases, the Fed has had
to step in to intermediate and help finance
these markets.
Part of the reason for this is the probably
unintended confluence of new regulations.
We now manage our bank to try to maxi-
44
V. COVID-19 AND THE ECONOMY
mize and optimize across more than 20
capital and liquidity factors (we run the bank
to serve customers, but we maximize capital
and liquidity requirements for economic
reasons). But the confluence of three main
constraints (the LCR, the supplementary
leverage ratio (SLR) rule and G-SIFI) created
red lines that we cannot cross. Over the past
two years, we saw significant dislocation in
the U.S. Treasury (UST) repo markets, which
were certainly linked to these regulations. At
those moments of stress, by simply reducing
the regulatory cost of UST repo, we could
have supplied hundreds of billions of dollars
in additional UST financing to the market
(this activity would be properly collateral-
ized and very safe) – and remember, we are
only one market player. In addition, when
the market had high stress, we could also
have lent hundreds of billions of dollars
against corporate bonds, mortgage securi-
ties or equities to help market participants
sell or deleverage in an orderly way. We did
much of this in the Great Recession, but
today's new rules precluded us from taking
these actions this time. JPMorgan Chase was
essentially "the discount window" for the
marketplace before Dodd-Frank - we would
lend freely against good collateral just as the
central bank was the discount window for
banks in a crisis. This system is broken.
The main point is that if large players cannot
intermediate in markets because of regula-
tory requirements, the Fed will have to do
it- and far more frequently than just in
the worst crises. I do not believe that this is
good, long-term central bank policy.
Finally, more thought should be given to how
stress tests and buffers can and should be
used in a financial crisis. The main question
is when you are in the depths of a crisis,
how do you stress test without going down a
rabbit hole? And is that the time when bank
boards are going to allow people to reduce
their capital buffers? Plain and simple, coun-
tercyclical buffers do not work.
Public rhetoric and the politicization of
complex regulations aside, proper design
of these systems should be done to maxi-
mize the health of the U.S. economy for all.
Overall, the banks – and, importantly, your
bank stand ready to do more.
5. The pandemic accelerated remote working capabilities, which will likely carry forward.
While we are continually preparing for
multiple business resiliency scenarios (i.e.,
data center failures, closures of cities, major
storms, even pandemic planning), we never
prepared for a global pandemic, which also
entailed a large-scale shutdown of the global
economy. And while many of our employees,
particularly in the branches, continued to
work on our premises every day, it was
amazing how quickly we were able to set up
the technology from call centers and opera-
tions to trading and investment banking – to
enable our employees to work from home.
We learned that we could function virtually
with Zoom and Cisco and maintain produc-
tivity, at least in the short run.
-
The COVID-19 pandemic changed the way
we work in many ways, but, for the most
part, it only accelerated ongoing trends. And
while working from home will become more
permanent in American business, it needs to
work for both the company and its clients. I
believe our firm's on-site versus remote work
will sort out something like this:
Generally speaking, we envision a model
that will find many employees working in
a location full time. That would include
nearly all of the employees in our retail
bank branches, as well as jobs in check
processing, vaults, lockbox, sales and
trading, critical operations functions and
facilities, amenities, security, medical staff
and many others.
45
V. COVID-19 AND THE ECONOMY
Some employees will be working under a
hybrid model (e.g., some days per week in
a location and the other days at home).
And a small percentage of employees,
maybe 10%, will possibly be working full
time from home for very specific roles.
In all cases, these decisions depend upon
what is optimal for our company and our
clients, and we will extensively monitor and
analyze outcomes to ensure this is the case.
Of course, we will also continue to reopen
following health authority and govern-
ment guidelines and our own established
processes. Remote work will change how we
manage our real estate. We will quickly move
to a more "open seating" arrangement, in
which digital tools will help manage seating
arrangements, as well as needed amenities,
such as conference room space. As a result,
for every 100 employees, we may need seats
for only 60 on average. This will significantly
reduce our need for real estate.
The virtual world also presented some
serious weaknesses. For example:
Performing jobs remotely is more
successful when people know one another
and already have a large body of existing
work to do. It does not work as well when
people don't know one another.
Most professionals learn their job through
an apprenticeship model, which is almost
impossible to replicate in the Zoom world.
Over time, this drawback could dramati-
cally undermine the character and culture
you want to promote in your company.
A heavy reliance on Zoom meetings actu-
ally slows down decision making because
there is little immediate follow-up.
And remote work virtually eliminates
spontaneous learning and creativity
because you don't run into people at
the coffee machine, talk with clients in
unplanned scenarios, or travel to meet
with customers and employees for feed-
back on your products and services.
Finally, we still intend to build our new head-
quarters in New York City. We will, of course,
consolidate even more employees into this
building, which will house between 12,000 to
14,000 employees. We are extremely excited
about the building's public spaces, state-of-
the-art technology, and health and wellness
amenities, among many other features. It's
in the best location in one of the world's
greatest cities.
46
46
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP:
CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
America has faced tough times before – the
Civil War, World War I, the U.S. stock market
crash of 1929 and the Great Depression that
followed, and World War II, among others.
As recently as the late 1960s and 1970s, we
struggled with the loss of the Vietnam War,
political and racial injustice, recessions,
inflation and the emergence of Japan as an
economic power. But in each case, Ameri-
ca's might and resiliency strengthened our
position in the world, particularly in relation
to our major international competitors. This
time may be different.
17%
3.7
19%
We have a lot of experienced and hard-
working regulators in the United States and
globally. But I'm afraid that we gave them a
virtually impossible job. The financial world
is complex and rapidly changing. We gave
them a regulatory system that is slow and
backward-looking. A few years ago, my letter
to shareholders included a "spaghetti chart" to
illustrate how complex the regulatory environ-
ment in the United States had become. We're
republishing it here to make a few points.
Complexities of the Regulatory System
Reprinted from the 2011 Chairman and CEO Letter to Shareholders
New agency or new powers and authority
Old agency
Authority to request information
but no examination authority
OFAC/FinCEN
Financial Stability Oversight Council
Identify risks to the financial stability of the United States from activities of large,
Interconnected financial companies. Authority to gather information from financial
institutions. Make recommendations to the Fed and other primary financial
regulatory agencies regarding heightened prudential standards.
State Regulatory
Authorities and AGS
Power to enforce rules
promulgated
by Consumer Financial
Protection Bureau
SEC
Regulates securities
exchanges; mutual funds
and investment advisors.
Examination authority for
broker-dealers.
Office within Treasury,
which may collect
Authority over
security-based swaps,
security-based swap
dealers and major
security-based swap
participants.
CFTC
Market oversight and
enforcement functions.
Authority over swaps,
swap dealers and major
swap participants.
Regulates trading
markets, clearing
organizations
and intermediaries.
Office of the Comptroller
of the Currency
Focus on safety and
soundness. Primary regulator
of national banks and
federal savings associations.
Examination authority.
Examines loan portfolio,
liquidity, internal controls,
risk management, audit,
compliance, foreign branches.
Federal Reserve
Focus on safety and soundness.
Supervisor for bank holding
companies; monetary policy;
payment systems.
Supervisor for systemically
Important financial institutions
and their subsidiaries. Establish
heightened prudential standards
on its own and based on
Council recommendations.
Examination authority.
4. The regulatory system needs to keep up with the changing world - and finish Dodd-Frank
to get it right.
V. COVID-19 AND THE ECONOMY
41
The government did the right thing by
moving extraordinarily quickly to stop the
COVID-19 recession from being extremely
damaging. If we spend this money wisely,
react quickly to changing circumstances and
fix many of the public policy failures that are
outlined in the next section, we can build a
stronger and more equitable nation.
Other G4 nations
4.5
22%
2.0
9%
2.9
14%
1.7
8%
Total G4 nations
7.7
20%
3.4
8%
may
6.0
5.4
13%
T = Trillions
GDP = Gross Domestic Product
40
40
V. COVID-19 AND THE ECONOMY
discipline on how all of this money is spent.
Spent wisely, it will create more economic
opportunity for everyone.
While equity valuations are quite high (by
almost all measures, except against interest
rates), historically, a multi-year booming
economy could justify their current price.
Equity markets look ahead, and they may
very well be pricing in not only a booming
economy but also the technical factor that
lots of the excess liquidity will find its way
into stocks. Clearly, there is some froth and
speculation in parts of the market, which
no one should find surprising. As Captain
Louis Renault said in Casablanca, "I'm
shocked, shocked to find that gambling is
going on in here!"
Conversely, in this boom scenario it's hard
to justify the price of U.S. debt (most people
consider the 10-year bond as the key refer-
ence point for U.S. debt). This is because of
two factors: first, the huge supply of debt
that needs to be absorbed; and second, the
not-unreasonable possibility that an increase
in inflation will not be just temporary.
In 2020, the Federal Reserve bought essen-
tially 100% of all new issuance of Treasury
notes and bonds. In 2021, with the Fed's
current QE commitments, the market (not
the Fed) will have to absorb $2.2 trillion in
government debt - approximately 85% of
which will be in longer duration maturities.
This is a large number, even for the United
States. We should also remember that many,
if not most, buyers of U.S. debt are essen-
tially required to buy; i.e., foreign central
banks, banks, insurance companies, foreign
exchange reserve managers and duration
hedgers. A notable exception is investors
who buy the 10-year bond to take risk-off
positions. However, all of these buyers will
seek out alternatives - and there are always
some - if they become worried about the
long-term, sustainable value of Treasury
bonds. And remember, annual inflation is
already running at 1.7%.
We don't know what the future holds, and
it is possible that we will have a Goldi-
locks moment – fast and sustained growth,
inflation that moves up gently (but not too
much) and interest rates that rise (but not
too much). A booming economy makes
managing U.S. debt much easier and makes
it much easier for the Fed to reverse QE and
begin raising rates – because doing so may
cause a little market turmoil, but it will not
stop a roaring economy.
And, of course, being who we are, while we
are going to hope for the Goldilocks scenario
- and we think there is a chance for that to
happen we will anticipate and be prepared
for two other negative scenarios: 1) the new
COVID-19 variants may be more virulent and
resistant to the vaccine, which could obvi-
ously reverse a booming economy, damage
the equity markets and reduce interest
rates as there is a rush to safety, and 2) the
increase in inflation may not be temporary
and may not be slow, forcing the Fed to raise
rates sooner and faster than people expect.
Much of the stimulus may very well hit
when the economy is doing quite well.
During the pandemic, it was appropriate that
fiscal and monetary policy be fairly well-
coordinated-working in concert to counter
the pandemic-related downturn. In an infla-
tionary case, fiscal and monetary policy may
very well be at odds. I am reminded of when
Paul Volcker effectively raised interest rates
by 200 basis points on a Saturday night.
Also in this case, the cost of interest on U.S.
debt could go up fairly dramatically making
things a little worse. Rapidly raising rates to
offset an overheating economy is a typical
cause of a recession. One other negative: In
this case, we would be going into a recession
with an already very high U.S. deficit.
15%
-
Finally, banks need to be allowed to properly
manage their capital to maintain any kind
of premium in the market. Proper capital
management means consistent dividends,
the ability to reinvest in your business and
incentives to buy back stock when it's cheap
- not when it's expensive. The procyclicality
of both accounting and bank regulatory
management virtually assures the opposite.
It is one of the reasons that bank stocks
not trade particularly well.
The system was rebuilt to minimize the
odds so that no large bank would ever fail
again - regardless of the consequences. The
Fed has to decide if it is willing to accept a
large bank failure, provided that failure isn't
going to bring the market down or put the
average customer in harm's way. To me, the
obvious answer should be “yes.” The market
can easily absorb a bank failure, particularly
since the government now has the tools to
have an orderly unwind of even the largest
financial institutions. In addition, if you look
at the market price of bank debt, failure is
priced in (just like all other corporates) –
bank debt and bank preferreds are not cheap.
The market can deal with the failure of bank
debt - in fact, resolution maximizes the odds
of recovering your money. The cost to the
economy of having fail-safe banks may not
be worth it. Dodd-Frank accomplished two
very important things. First, the chance of a
bank failure is dramatically lower. Second,
and maybe more important, a failing large
bank can be managed in a way that it does
not affect the economy any more than any
other large company that fails. A yoke that is
too tight may throttle the economy.
Examination authority.² Orderly
liquidation of systemically important
financial institutions.³
FINRA
Regulates brokerage firms
and registered securities
representatives. Writes
and enforces rules.
Examination authority over
securities firms.
Deficit Spending
management;
trust services
Derivatives
Futures,
commodities and
derivatives
Consumer
Lending
Credit cards;
student and
auto loans
Commercial
Lending
Commercial and
Industrial lending
Broker-Dealer
Institutional and
retail brokerage;
securities lending;
prime broker
services
Retail Banking
Deposit
products;
mortgages
and
home equity
Note: Green lines from SEC and CFTC represent enhanced authority over existing relationships
This chart assumes these activities are conducted in a systemically important bank holding company (BHC)
For footnoted information, refer to page 67 in this Annual Report.
Timeline of U.S. Capital and Liquidity Regulation
2011
Banks required to
submit capital plans
Resolution/"living wills"
effective
2013
Implementation
of Basel III
I
2010
Dodd-Frank is finalized
SCAP →CCAR
Focus on protecting deposits
through insurance fund; safety and
soundness; manage bank
receiverships.
FDIC
Bank Deposits and Loans through Time
($ in trillions)
I have little doubt that with excess savings,
new stimulus savings, huge deficit spending,
more QE, a new potential infrastructure bill,
a successful vaccine and euphoria around the
end of the pandemic, the U.S. economy will
likely boom. This boom could easily run into
2023 because all the spending could extend
well into 2023. The permanent effect of this
boom will be fully known only when we see
the quality, effectiveness and sustainability
of the infrastructure and other government
investments. I hope there is extraordinary
-
In the United States, the average consumer
balance sheet is in excellent shape. The
consumer's leverage is lower than it has
been in 40 years. In fact, prior to the last $1.9
trillion stimulus package, we estimate that
consumers had excess savings of approxi-
mately $2 trillion. Corporations also have
an extraordinary amount of cash on their
balance sheet, estimated to be approxi-
mately $3 trillion. And the financial system
and investors have already adopted more
conservative leverage requirements due to
regulations so they have very little need
to deleverage. The QE in this go-around
will have created more than $3 trillion in
deposits at U.S. banks, and, unlike the QE
after the Great Recession, a portion of this
can be lent out.
Circumstances and starting points matter.
Before the Great Recession, you had an over-
leveraged financial system and overleveraged
consumers. For years after the Great Reces-
sion, there was a massive deleveraging in the
United States by consumers, many investors
and financial institutions, somewhat due to
regulations. Today, this is not the case.
As another reference point, during World
War II the deficit hit almost 30%, and it
averaged 16% over the five-year period from
1941 to 1946. This period did not create
lasting inflation as the circumstances were
completely different – we were coming out
of a deep depression, and the money was
spent financing a war.
The chart below shows that for the United
States, QE actual in 2020 and QE projected
for 2021 total $4.6 trillion or almost 25%
of GDP. Deficit spending for the two years
combined is projected to total $6.8 trillion,
or about 35% of GDP. These numbers are far
larger than the first couple of years of the
Great Recession, and it is important to note
that the rest of the world is showing similar
actions, compounding the global effect.
The QE and deficit-spending response to the
COVID-19 pandemic is of a completely different
magnitude and without some of the offsetting
drags that trailed the Great Recession.
V. COVID-19 AND THE ECONOMY
39
My own view: The anemic growth in the
decade after the Great Recession was due to
some of the factors I mention above but also
due to many of the public policy failures that
I outline in the next section.
The fiscal deficit is, pure and simple, giving
various individuals and institutions money
to spend - which they will spend over time.
All things being equal, this is, and always
has been, inflationary. Of course, in a reces-
sionary environment with low inflation,
like after the Great Recession, this might be
precisely what is needed without causing
overheating or excessive inflation.
input cost for businesses, and lower income
to savers - which may reduce consumption
and may increase the propensity to save (e.g.,
we may need to set aside more money to
protect retirement income). And finally, in
this most recent round of QE, much of the
money simply made a round trip - because
of the new liquidity rules, it ended up back
as deposits at the Fed, not as loans.
If you aren't convinced yet - consider how
surprising it is that $3.4 trillion of quan-
titative easing (QE) and deficit spending
averaging 5% of GDP over the 10-year period
after the Great Recession did not result in
higher GDP growth and possibly higher infla-
tion. As a reference point, in the mid-1970s,
there was no QE - and deficit spending hit
4%, which many people thought was the
main reason for the overheated economy and
inflation, which, at its peak, was over 12%.
And so why did all this quantitative easing
not have the effect you would have thought?
QE was never effectively tried prior to the
Great Recession, and it is different from
fiscal spending. QE is the purchase of securi-
ties from security holders who tend to rein-
vest in the same or similar securities. Clearly,
QE reduces interest rates, pushes up asset
prices and creates some spending (through
the wealth effect). QE, on the one hand, may
have some inflationary effects, mostly on
asset prices. But on the other hand, it also
may have some disinflationary effects –
lower interest rates themselves, which is an
Source: Federal Reserve H.8 data for all commercial banks in the U.S.
Alternative
Loan-to-deposit ratio
Deposits
2019 2020
2015
2010
2005
2000
$3.7
$10.5
$10.1
64%
$13.3 $16.3
76%
V. COVID-19 AND THE ECONOMY
$3.8
99%
Loans
Office of Financial
Research
Investments
Consumer Financial
Protection Bureau
42
CECL capital impact
NSFR final
TLAC enhancements
V. COVID-19 AND THE ECONOMY
We have multiple regulators with overlap-
ping rulemaking, oversight and examination
authorities. All of the agencies are indepen-
dent, and there is no one real authority that
can coordinate all the moving parts and bridge
differences. The Financial Stability Oversight
Council, chaired by the U.S. Secretary of the
Treasury, is really just a convening body - no
one agency has the ability to adjudicate deci-
sions. Any one agency can hold up major deci-
sions - and this unnecessarily politicizes and
slows the regulatory policymaking process.
We don't give our regulators the political
cover they need. Proper regulation requires a
finely tuned, thoughtful and often-changing
balance between competing needs and risks.
This, in particular, puts the Federal Reserve,
the key oversight regulator, in a terrible
position. Monetary policy is so critical to our
country that the Fed must necessarily subju-
gate and sacrifice regulatory policy to achieve
its monetary policy goals.
That said, I will look at the regulatory
system from the regulators' point of view
and describe what I would want to do if I
were in their shoes. Let's start with basic
regulatory principles:
•
•
•
Ensure that safety and soundness come
first but not at the expense of maximum
long-term growth
Keep the banks funding their clients
through the inevitable downturns and crises
Create a fairly level international playing
field (we don't need to see perfection here,
but it needs to be fair)
Constantly assess emerging risk to the
system
Dodd-Frank worked.
While Dodd-Frank included a lot of things that
had nothing to do with safety and soundness
and the Great Recession, to be fair, it accom-
plished its basic objectives – higher levels and
quality of capital and liquidity, more strin-
gent stress testing, strong resolution capabil-
ities and better governance that created a far
healthier banking system, which we've just
seen. Nothing like what happened to the banks
in the Great Recession can happen again.
But it's bogged down in the past - it needs to
focus on the future.
It is obvious, however, that we are bogged
down. Ten years after the financial crisis,
we still have not put the finishing touches
on Basel III (aka Basel IV). And it's not clear
when it's finished if it will be an international
level playing field. In addition, there are
many things that need to be recalibrated. For
example, we have not corrected mortgage
rules to make mortgages more accessible to
more Americans.
Not only are we slow in dealing with the
past, but it distracts us from dealing with
the future. There are serious emerging issues
that need to be dealt with - and rather
quickly: the growth of shadow banking, the
legal and regulatory status of cryptocurren-
cies, the
proper and improper use of financial
data, the tremendous risk that cybersecurity
poses to the system, the proper and ethical
use of AI, the effective regulation of payment
systems, disclosures in private markets, and
effective regulations around market structure
and transparency (payment for order flow,
high-frequency trading and exchanges).
We need to actively decide what we want in the
regulatory system.
Regulators need to decide what they want
included in the regulatory system - and
what they don't want included. They can
do this by product and by service; however,
to do so, they need to apply the same rules
to everyone. We need to recognize that if a
regulated system has higher capital require-
ments than the market demands, then the
product will move outside of the regulated
system. If we are going to do this, we should
do it deliberately and with aforethought.
Today, there are extensive differences
between the requirements placed on banks
versus nonbanks engaging in the same
activity. I will give one example of the impact
of market capital versus regulatory capital.
Under standardized capital, whether we
43
V. COVID-19 AND THE ECONOMY
make a AA loan or a BB loan, approximately
10% of equity capital is required to support it
(plus other expensive debt). In the nonbank
market, institutions and securitizations can
possibly finance the investment grade debt
effectively with 5% equity capital. Ironically,
this pushes high-grade credit out of banks
and incentivizes more risky lending.
We need to calibrate how much liquidity and
capital should be required for banks in a way that
balances what you want in the regulatory system
while maximizing both safety and soundness of
banks and the growth of the economy.
One day, someone is going to ask why the
banking system has $4 trillion either in
the form of cash or deposits at the Fed or
as Treasury securities. Shouldn't we use
some of this liquidity to help the economy
grow? It's a good question, and I've yet to
see agreement on the right answer. Under
the old regulatory regime, banks could turn
to the Fed's discount window to create a
tremendous amount of liquidity by pledging
their securities and loans at times of surging
demand - it no longer works this way. In
today's regime, using the discount window is
so stigmatized that far fewer banks consider
it a viable option, meaning that liquidity
never reaches the banking system and, by
default, the broader economy.
This calibration will be one of the main
factors in determining what ends up in the
regulatory system - and what doesn't. It is a
fine balance. Too much capital and liquidity
could possibly slow down the economy and
push lots more to the shadow banking system.
Too little capital and liquidity could make
banks riskier and more subject to failure.
And remember, products and services inside
a well-regulated system will generally have
higher scrutiny, transparency and reporting
supporting them. This decision will be a key
factor in determining the probability of a large
bank's failure, which raises the question...
argu-
Should large banks be allowed to fail?
It is very easy to take one side of this
ment. After the Great Recession of 2008,
the answer was generally “never again!"
NSFR = Net Stable Funding Ratio
TLAC Total Loss-Absorbing Capacity
SCAP = Supervisory Capital Assessment Program
SCB = Stress Capital Buffer
GSIB Global Systemically Important Banks
LCR = Liquidity Coverage Ratio
eSLR = Enhanced Supplementary Leverage Ratio
Focus on protecting consumers
in the financial products
and services markets. Authority
to write rules, examine
Institutions and enforcement.
No prudential mandate.
Investment
Banking
Securities
underwriting;
M&A financial
advisory services
Payment and
Clearing Systems
Payments
processing;
custody
and clearing
2015
GSIB final
2017
TLAC final
Hedge funds;
private equity
2012
2016
DFAST and stress
testing final
CCAR enhancements
Resolution enhancements
2019
Tailoring rule final
Resolution modified
frequency
2021+
Basel III finalization
proposal
SLR modifications
proposal
I
2018
2020
eSLR modifications
proposal
SCB final
CCAR = Comprehensive Capital Analysis and Review
CECL = Current Expected Credit Losses
DFAST Dodd-Frank Act Stress Tests
2014
LCR final
eSLR final
Quantitative Easing and Deficit Spending of G4 Nations
Quantitative Easing
get carried interest, and sugar and cotton, for
some unknown reason, still get government
subsidies. Suffice it to say, industry gets its
share of tax breaks and forms of protection
from legitimate competition.
-
Decades ago, an unskilled worker, who may
not have graduated from high school but
was willing to work hard, could get a job
at a manufacturing plant that would soon
lead to a living wage and the ability to earn
a middle-class income. That may no longer
be the case. Today, it may be that unskilled
or low-skilled workers would not natu-
rally earn a living wage. All jobs are good
jobs: They bring dignity; people who start
working generally continue working; and
the first job is often the first rung on the
employment ladder. Jobs also lead to better
social outcomes – less crime, more household
formation and less mental illness.
Paying for Jobs: We need to improve wages for
low-skilled work (again, this would improve labor
force participation).
One last point: Although there are wide
variations across the United States, teachers
in public institutions, on average, earn
33% less than their peers with equivalent
degrees (college level and above) - this is the
lowest ratio in the OECD (Organisation for
Economic Co-operation and Development).
While we should attack waste in the system,
we should pay teachers more money and
base their salaries upon clear standards that
will measure success – not just graduation
rates and standardized test scores but certi-
fication of skills - and lead to actual good
paying jobs.
These degrees are explicitly designed to
enable students to graduate with a market-
able college degree (and paid apprenticeship
experience) in two years, debt free and with
an employment opportunity in an in-demand,
high-potential field of their choosing.
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
VI. PUBLIC POLICY
55
In addition to the Business Roundtable
initiative, companies are partnering with
educators in regions throughout the country.
For example, in New York City, the New
York Jobs CEO Council is working with
City University of New York (CUNY) to
develop new two-year associate degrees.
Many companies have numerous jobs for
which a “college degree is required,” but
this often turns out to be unnecessary and
even harmful. Much more can be done in
terms of making a degree requirement truly
relevant for specific jobs. Over 80 Busi-
ness Roundtable member companies - and
counting are participating in a new multi-
year targeted effort to reform companies'
hiring and talent management practices to
emphasize the value of skills, rather than
just degrees, and to improve equity, diver-
sity and workplace culture. The initiative
will support measures that address inequity
in employment practices, including how
people are hired and how they advance, and
it will work toward eliminating bias that may
prove to be a barrier to hiring and advance-
ment. According to a recent study, employers
frequently require a four-year college degree
for 74% of new jobs in America - this
screening excludes roughly two-thirds of
American workers, and its impact is most
pronounced on minority applicants.
education system should bear responsibility
for our children to graduate with an educa-
tion that leads to a good livelihood.
Germany has one of the strongest educa-
tion and training systems in the world,
with about 1.3 million young people annu-
ally participating in paid apprenticeship
programs that provide them opportunities to
gain in-demand skills along with an educa-
tion. Vocational school and apprenticeship
programs work directly with local businesses
to ensure students are connected to avail-
able jobs upon graduation. Germany's youth
unemployment rate is one of the lowest in
the world.
Our high schools and community colleges
(and all colleges) need to provide our youth
with training for certified and apprenticed
skills that lead to good paying jobs. With
nearly 7 million job openings and 10 million
workers unemployed in the United States,
creating an effective training and retraining
program is a high-impact opportunity. Busi-
ness must be involved in this process, and
it needs to be coordinated locally because
that is where the actual jobs are. Proper
training and retraining mean being sensitive
to our rapidly changing technological world.
Expanding digital skills and training oppor-
tunities for workers and students will be
critical, as the расе of AI will likely accelerate
to meet future business demands and foster
innovation in high-risk jobs, especially across
healthcare and the supply chain. Many
students in our high schools and colleges
are unaware that, with a little bit of training,
they can qualify for jobs paying $65,000 or
more a year. You can major in philosophy or
history, but taking a few courses in coding
will help to ensure you a good job. Our
Training for Jobs: We need to build an education
system that includes training for skills that lead
to good jobs (and this will improve labor force
participation).
In the following pages, we review 15 policies
(many of which, of course, are interrelated)
where we believe we need to - and can do
a far better job. We would do all of them if
we could, but fixing even some of them will
make a significant difference.
In this section, I offer my views and anal-
ysis on specific solutions to our problems.
Neither the diagnosis nor the proposed cures
are purely my own. Our nation's issues have
been studied intensively by many people
with deep knowledge. And given the space
and other constraints of this letter, I admit to
violating Einstein's maxim about simplicity.
I do make some of these issues simpler than
they are, sometimes by giving only conclu-
sions instead of providing reasoned analysis.
4. We need to take specific action steps.
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
VI. PUBLIC POLICY
54
This can be a moment when we all come
together and recognize our shared responsi-
bility acting in a way that reflects the best
of all of us. During this terrible COVID-19
crisis, we are, in some ways, being forced
to count on each other. It is moving to see
the respect and gratitude that most of us
now show our essential workers - and that
is something we should do for all of our
workers, all of the time. This crisis also
reminds us that we all live on one planet.
Let's hope that civility, humanity and
empathy will drive us forward toward the
goal of improving America. We have the
resources, and the solutions are there - just
waiting to be found.
-
both political parties. Healthy growth may
be the only way out of our current situation
(slow income growth and rapidly increasing
debt). We must unleash the extraordi-
nary vibrancy of the American economy.
Economic growth will give us the where-
withal to deal with the issues stemming from
inequality in ways that are sustainable. It is
the engine that will drive and secure Ameri-
ca's global leadership.
We need to recognize the essential and irre-
placeable importance of healthy growth and
our global competitiveness. The best way
to address our problems, and perhaps the
only way to solve them without accelerating
inequality further, is to promote healthy
economic growth. A healthy growth strategy
should be the primary economic policy of
We need a coherent, consistent national
strategy to match the severity of the existing
structural challenges that are driving our
country's racial and economic crises. Just as
careful planning and analysis would have
prepared us for the current pandemic, careful
planning and analysis can address many
of
the challenges we face. These plans need to
be comprehensive, integrated, sustainable
and regularly reported on. If we throw a lot
of money at infrastructure without fixing
the regulations that cripple it, it won't work.
If we throw a lot of money at education but
don't report on the outcome (i.e., good jobs),
we will lose credibility. Lurching from policy
to policy and having boondoggles and special
interest groups abound will make things
worse. We need to do the right things and
the hard things very competently.
3. We need a comprehensive, multi-year national Marshall Plan, and we must strive for
healthy growth.
Fixing America's problems is going to take
hard work. But if we divide them into their
component parts, we will find many viable
solutions. With thoughtful analysis, common-
sense and pragmatism, there is hope.
talism has always had its shortcomings. Good
government and the guardrails of properly
designed laws and regulation have always
been necessary for the process to work fairly
and efficiently.
Any economic society, not just capitalism,
involves billions of decisions made by indi-
viduals and institutions every day. These
interactions are complex and can operate
in mysterious ways. Capitalism has lifted
billions of people out of poverty. Capitalism,
and the continuous and free movement
of capital and, more important, of human
talent, in the pursuit of happiness (the invis-
ible hand of Adam Smith), creates a contin-
uous exchange of information and ideas -
and constant innovation. But, of course, capi-
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
While a living wage differs by state, the
national average is currently $68,000 a year
ment rates, to make further adjustments.
Simply stated, our policy goals should focus
on maximizing incentives to get more people
working while minimizing incentives for
employers to lay off workers, especially
low-paid employees.
Second, we should ensure that federal efforts,
like the Earned Income Tax Credit (EITC) and
the Child Tax Credit, are effective enough so
that every job essentially pays a living wage.
The higher wages resulting from these credits
would go a long way toward improving our
labor force participation, which is a key driver
of productivity and economic growth.
Opportunities for Jobs: We need to make it
easier for those with a criminal record to get
a job (which will also improve labor force
participation).
Our public policy failures are not partisan issues.
Our problems are neither Democratic nor
Republican - nor are the solutions. Unfor-
tunately, however, partisan politics is
preventing collaborative policy from being
designed and implemented, particularly at
the federal level. We would do better if we
listened to one another.
58
Smart regulation includes continual
improvement, constant cost-benefit anal-
ysis and a review of purpose and objectives,
...
...
The cost of the now over 1 million federal
regulations is estimated at approximately
$14,000 per household. And while we want
good regulations and good "guardrails,"
there is an excessive amount of licensing,
paperwork, employment laws and insurance
requirements, and anyone who deals with
the application process knows how wasteful
and unnecessary it can be. Red tape like this
cripples small businesses and, worse, reduces
the formation of new enterprises. Very
often local regulations are simply a form of
low-level corruption in which bureaucrats
are paid to slowly. move ... paper around.
We need proper management and periodic review
of regulatory red tape and bureaucracy.
The American can-do system is now being
bogged down in a maze of regulatory red tape
and bureaucracy. All you need to do is to take
10 small business owners out to lunch and
ask them what they need to do to meet local,
state and federal regulations, and you will
understand the problem. And while we all
want a legal system that brings justice to all
our citizens, our litigation system now costs
1.6% of GDP, 1% more than what it costs in
the average OECD nation. And most business-
people think that it is excessively litigious,
slow, and somewhat arbitrary and capricious.
One example, which works in many other
countries, is to have the losing party pay in
some circumstances. Clearly, this would have
to be done in such a way as to ensure that the
aggrieved parties are not denied appropriate
access to our justice system.
An honest accounting would go a long way
to rebuilding trust in government - and in
government spending.
It would be beneficial to review government
accounting practices and look for a better
way to differentiate between investments
and expenses, for instance. There are also
examples that show it would be good if the
government conformed to public company
accounting, particularly around how it
accounts for loans and guarantees.
When the government talks about spending
money, it should not lead with the amount
spent or budgeted to be spent
- as if that's
the measure of success. Instead, the expected
outcome of the spending and then the actual
outcome should be described. We desperately
need honest and transparent accounting,
accountability and evaluation about every-
thing we fund with government dollars. Every
department should have an outcome report.
Proper budgeting and planning – on a
multi-year basis - should be implemented
at all levels of government. It is particularly
important that most federal programs -
think military, infrastructure and education
- have good long-term plans and be held
accountable to execute them.
We need proper, rigorous and multi-year
budgeting, planning and reporting.
Companies perform extensive budgeting,
planning and reporting, some of it conducted
on a multi-year basis. Real investments – in
training, data centers, manufacturing plants
and other categories – are needed on a multi-
year basis and cannot be stopped and started
without incurring enormous additional costs.
But this stopping and starting is exactly what
takes place in the federal government, which
inevitably leads to waste and inefficiency.
One striking example: The military esti-
mates that it spends more money per year
on procurement than is necessary because of
this inefficiency. In total, the stop-start nature
of our government's budgeting processes
most certainly costs us tens of billions of
dollars a year in complete waste.
ping for nonemergency care and help manage
healthcare expenses; and reduce the extraor-
dinary expense for unwanted end-of-life care.
There should be national, not state-by-state,
insurance exchanges, which would be far
more efficient. And exchanges should also
offer a low-cost, catastrophic-only insurance
package as an option. Plus all healthcare data
should belong to the individual, not to various
healthcare companies. Another obvious incen-
tive is to dramatically enhance how effectively
wellness, nutrition, health and exercise are
taught in K-12 classrooms nationwide.
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
VI. PUBLIC POLICY
VI. PUBLIC POLICY
We need to try to make the healthcare
system work better (better health drives both
productivity and labor force participation).
We have the best healthcare in the world in
terms of doctors, hospitals, and pharmaceu-
tical and medical device companies, but we
certainly do not have the best outcomes. As
I discussed earlier, 30 million Americans do
not have any insurance; obesity, high blood
pressure, asthma, diabetes and other condi-
tions are rampant; and costs are far too high
with little transparency into their calculation.
Annual medical costs per person in the United
States are now $11,000 versus $4,000 for other
developed nations. There are ways we can
make significant improvements. Here are a
few: allow bigger incentives for becoming
and staying healthy; eliminate bureaucracy
and waste in the healthcare system, including
administrative complexity and fraud (this
represents approximately 25% of total health-
care spending in the United States); empower
employees to make better choices through
more transparent employer plan pricing and
options that include the actual cost of medical
procedures; eliminate surprise bills (these
usually come from unexpected out-of-network
services); develop better corporate wellness
programs that target obesity and smoking;
create better tools to enable comparison shop-
2.5
Finally, providing affordable childcare
programs or lowering the starting age for
public school would make it far easier for
parents to work. Some countries are now
implementing universal access to preschool
for children at three years of age. This is a
wonderful policy. It makes childcare less
expensive and has proved to be extraordi-
narily good for student education over the
short and long term. Parents like it, too. Of
course, the benefits may not be fully realized
for
years, but this is precisely the type of
long-term thinking in policymaking that we
need. Women, in particular, suffered in the
COVID-19 crisis as an estimated million
left the workplace, largely because they had to
become full-time caregivers for their children
or elderly parents. Many of the programs
listed above will make it easier for women to
return to the workforce if they so choose.
Public assistance programs need to be
coordinated, consolidated and connected
to trends in the larger economy, as well as
to the individual's transition to employ-
ment. For example, unemployment insur-
ance should have automatic stabilizers that
increase benefits when and where jobs are
lacking and reduce them when and where
jobs are abundant. Application to all social
welfare benefits should be available through
one single form and phased in and phased
out on a common grid, not on a cliff. Coordi-
nated with an individual's transition to work,
benefits should gradually be reduced, making
them a true safety net.
Our varied and various public assistance
programs (Medicaid, food assistance, income
support, unemployment, housing and util-
ities benefits for individuals who cannot
work, due to disability or childcare respon-
sibilities, to name a few) are a complete
mishmash of uncoordinated federal, state
and local policies. People qualifying for
public benefits may be eligible for various
programs but often don't apply because
they are unaware, ill-informed or unable to
navigate the complexities. These programs
frequently have different applications and
application processes, including different
places to apply, with benefits often disap-
pearing at different income levels and at
different speeds. It is accurate to say that
the complexity and variability in eligibility
rules have negative consequences for both
program administration and access to
assistance. For example, beneficiaries often
have to provide the same information for
different federal programs and visit multiple
offices in order to apply. The Government
Accountability Office has provided reports
about this maze of programs to Congress;
in addition, the Center on Budget and Policy
Priorities has created guides for state and
local use to help streamline the application
and enrollment process, utilizing eligibility
determinations made by other programs to
jump-start approvals.
We need to reform and improve our social safety
net programs (which can also improve labor force
participation).
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
VI. PUBLIC POLICY
56
America believes in second chances and
redemption. Getting a second chance will
give people dignity and enable them to earn
a higher lifetime income while reducing
recidivism and all of its related costs.
steps, and, in 2020 alone, we hired more than
2,000 people with a criminal background.
full time, each would need to earn $16.50 an
hour to reach that level. We should strive
to make every job generate a living wage -
and do two things to accomplish this goal.
First, we should, at the very least, increase
the federal minimum wage and allow states,
based on local conditions and unemploy-
for a family of four. With two adults working job. JPMorgan Chase has taken many of these
We need to reduce recidivism, reform the
criminal justice system and eliminate barriers
to a good job. One such barrier is a criminal
record, which one in three adults (more than
70 million people) in our country has. Our
criminal justice system disproportionately
impacts people of color - Black adults are over
five times more likely to be incarcerated than
white adults. This is institutional racism in its
clearest form. Reforms to the criminal justice
system and business screening and hiring
practices can open the door of opportunity to
significantly more people. JPMorgan Chase
supported a measure signed into federal law
in 2020 restoring access to Pell Grants for
incarcerated individuals, which allows them to
pursue postsecondary education in prison and
increase employment opportunities after their
release. Other steps that we can - and must
- take are: adopting “ban the box" measures
for employment applications and reforming
clean slate laws so anyone with a record of
minor offenses can more easily qualify for a
57
53
Certain pivotal factors are too complex or
qualitative to incorporate into a model. In
evaluating a company or the economy, for
example, models quite often fail to prop-
erly account for culture and morality, the
character of players involved, the increasing
importance of education and skills, the value
of dignity of work, the power of self-confi-
dence as a secret sauce and the emergence of
new technologies, just to name a few.
If our Founding Fathers were here today,
they would be very proud that the Constitu-
tion they enacted has survived, thrived and
helped to build this great country. But I also
believe they would be disappointed. Those
leaders were students of history, society and
economics (just read the Federalist Papers)
and drew upon that knowledge to structure a
government that would function properly.
We are over-reliant on economic models and use
them inappropriately.
Economic models are a great discipline that
force you to think through the interplay of
many factors, often over many years. Unfor-
tunately, however, a lot of people use models
like they do certain facts: to justify what they
already believe. While we should definitely
use models as tools, they should not be deter-
minative, as they simply cannot account for
much of humankind.
Democrats should acknowledge Republi-
cans' legitimate concerns that money sent to
Washington often ends up in large wasteful
programs, ultimately offering little value to
local communities. They could acknowledge
that while we need good government, it is
not the answer to everything. Democrats
could also acknowledge that a healthy fear of
a large central government is not irrational
(like a Leviathan).
Even worse, many models use inputs that
are so inaccurate that their outputs cannot
be remotely relied upon. For instance,
accounting itself (particularly government
accounting) may be the worst culprit.
Good investments are treated as expenses
(including education, R&D and infrastruc-
ture) indistinguishable from incarcera-
tion costs and homelessness. And incred-
ibly, federal government budgeting rules,
like PAYGO (or Pay-As-You-Go) or budget
caps, mandate that many expenses have to
be offset by revenue increases or have to
be traded off against other priorities. The
economy is frustratingly complex, and many
times overusing models devalues basic
commonsense.
We cloud debate with unfair thinking and
arguing.
One of the best pieces of advice I have ever
received was that people should use their
intelligence to seek out the answers, not to
justify what they already think or to win
the argument. Here are some of the favorite
tricks people use to win the argument and
obviate issues:
•
Presenting issues as if they are binary.
This is a habit of sloppy thinking. Two
of my favorite quotes illuminate this.
One by Albert Einstein: “Everything
should be made as simple as possible,
but not simpler." And the second by H.L.
Mencken: "For every complex problem
there is an answer that is clear, simple and
wrong." We frequently seek out conve-
nient and simplistic answers, which are
often wrong. The same is true for how
we listen. Instead, we should try to find
common ground with parts of someone's
argument as opposed to rejecting the
entirety of it offhand.
Creating and blaming scapegoats like trade,
China, immigration or capitalism. While
scapegoating is easy, it mostly hides
the truth - in fact, when you dig a little
deeper (which we do in the following
pages), other causes, possibly self-inflicted,
become clear.
Unfairly assigning motives to people, which
may or may not be true. The goal is simply
to denigrate an individual and/or win an
argument - but this tactic has nothing to
do with the actual facts.
Creating strawmen (representing your
opponent). This strategy makes it easier to
attack foes for things they did not actually
think or say.
Media hype and people's willingness to be
weaponized derail thoughtful strategies.
Much has been said about the role of social
media, but some things are clear. Most media
and individuals barely have time to focus
on the issues and often default to overly
51
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
simplistic, binary and incorrect conclusions
that neatly fit into false political narratives.
The urgency of today and the hyperactive
and frequently hysterical focus on irrelevant
issues crowd out thoughtful strategy and
policy for tomorrow. Lack of civility and
humility make it hard to work together and
to respect each other. Moral indignation is
blinding - it stops you from trying to agree
on what the problems are; it disguises itself
as policy, and it turns expertise into elitism.
I am often surprised how people allow
themselves to be completely riled up - yes,
it happens to me, too. And when politics and
media meet, we are whipsawed by false argu-
ments of fanatics, the certitude of ideologues
and cycles of intolerance. We all should try
not to be drawn into this vortex.
Now willingly, I'm about to go down a
slippery slope. I'm going to cite some very
specific examples, but I essentially apply
them to all of us and make my point as
simply and strongly as possible: We are
bogged down, sometimes crippling our
nation, because of self-interest and the asso-
ciated bureaucracy and bad thinking that
follow. Much of this is not done deliberately
- it's just built up over time - like arterio-
sclerosis. Historians sometimes point to this
disease as a cause of the decline and fall of
great empires.
This self-interest is virtually everywhere.
There are 17,000 registered lobbyist contracts
for special interest groups in Washington,
D.C., including business-related groups and
banking and financial services. We all deserve
our share of the blame for using the balkan-
ized government, bureaucracy and lack of
transparency to further our own interests -
not necessarily the country's. This includes
business, unions, state and local governments,
and individuals. All of us failed to properly
heed President John F. Kennedy's appeal:
"Ask not what your country can do for you
ask what you can do for your country."
For years, business, government and commu-
nity leaders, including myself, voiced
concerns about the inequities and other
crises in our economy and communities.
Business did not cause many of these soci-
etal issues - large companies, generally, pay
their workers a higher-than-average salary,
offer more training, provide more extensive
insurance and medical and pension bene-
fits for their employees and fundamentally
drive our country's growth and competi-
tiveness, as these companies account for
approximately 80% of capital expenditures
and R&D. Frankly, we punted too much of
the responsibility to our government. But
we are partly responsible – for we priori-
tized shareholder interests and sometimes
narrow self-interests over creating broader
opportunity for all in America. Successful
businesses can literally and figuratively
"drive by" our worst problems (think inner
cities) and still thrive. These large companies
can and should be more aggressively part of
the solution because they can uniquely help
with job planning, skills training, infrastruc-
ture investment and community develop-
ment. And doing so, over the long run, is
both morally right and commercially right
because it will be good for business.
State and local governments are equally to
blame. Take, for instance, five states (Cali-
fornia, Connecticut, Illinois, New Jersey and
New York) that continue to fight for unlim-
ited state and local tax deductions (because
those five states reap 40% of the benefit)
even though they are aware that over 80%
of those deductions will accrue to people
earning more than $339,000 a year.
Few of our institutions are blameless. Hospi-
tals fighting to keep their prices unpublished
and teachers' unions arguing to continue to
keep failed schools open are just two such
examples.
Then there's our tax code - buried in it
are an extraordinary number of loopholes,
credits and exemptions that aren't about
competitiveness or good tax policy: Private
equity, venture capital and real estate still
52
VI. PUBLIC POLICY
Our country would do well to study the
successes of the rest of the world. Germany
and Switzerland have created impressive
work apprenticeship programs; Singapore
has developed effective healthcare programs;
Hong Kong has excelled with infrastruc-
ture; and some countries, with no natural
resources and starting from terrible base-
line positions (think South Korea after the
Korean War), have done a terrific job in
growing their economies and lifting up all of
their people. Another inspiring example is
Ireland. After decades of sectarian strife and
terrorism, a poor, male-dominated country
was transformed. A few years ago, the
country elected an Indian immigrant who
is gay as Prime Minister – Ireland is now a
melting pot with a thriving economy due to
good government policies. Bad government
is prevalent in some countries, and we would
also do well to study those examples: Argen-
tina, Cuba and Venezuela, to name a few - all
countries with tremendous natural resources
that allowed, in the name of their people,
their economies to be destroyed.
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
When you step back and take a comprehen-
sive multi-year view, considering the situa-
tion in its totality, it is the cumulative effect
of many of our policies that has resulted in
our present-day failures.
year-over-year or even quarter-over-quarter.
We frequently fail to look at trends over a
multi-year period or across decades - and we
miss the forest for the trees.
We are stymied by self-interest, selfishness,
and the buildup of bureaucratic plaque and
institutional sclerosis.
VI. PUBLIC POLICY
We must remember that the concepts of
free enterprise, rugged individualism and
entrepreneurship are not incompatible
with meaningful safety nets and the desire
to lift up our disadvantaged citizens. We
can acknowledge the exceptional history of
America and also acknowledge our flaws,
which need redress.
Our problems are complex and frustrating - but
they are fixable with hard work.
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
antees decades of fighting. It's not unrea-
sonable to think that major policies should
be bipartisan or not at all.
Democrats and Republicans often seem to
be ships passing in the night - with both
parties talking at cross purposes even when
they may share the same goals. Compro-
mise is not incompatible with democracy
- in fact, compromise is a core principle
of democracy. When major policies are
enacted on a purely partisan basis (think
healthcare and tax reform), it virtually guar-
may very well mean higher taxes for the
wealthy. Should that happen, the wealthy
should keep in mind that if tax monies
improve our society and our economy, those
same individuals will be, in effect, among the
main beneficiaries.
that
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
1. Laying out the problems is painful.
What actually are our problems? If we can
agree on what they are, as well as their
symptoms and their causes, then we can start
to address them. I hope you find what I'm
about to say as painful as I do.
While the average American high school
graduates approximately 85% of its students,
many of our inner city schools don't grad-
uate half of their students and often don't
give our children an education that leads
to a livelihood. No one can claim that the
promise of equal opportunity is being
offered to all Americans through our educa-
tion systems. Our healthcare system is
increasingly costly - now over $11,000 per
person, more than twice our global compet-
itors. In addition, almost a decade after the
adoption of the Affordable Care Act, over
30 million Americans still don't have any
medical insurance. And, shockingly, life
expectancy has gotten worse - particularly
for poor and minority communities – nutri-
tion and personal health aren't being taught
at enough schools, and obesity, a main driver
of diabetes, cancer, stroke, heart disease and
depression, has become a national scourge.
Our education and health issues come
together in this alarming statistic: Seventy
percent of today's youth (ages 17-24) are
not eligible for military service, essentially
due to a lack of proper education (basic
reading and writing skills) or health issues
(commonly obesity or diabetes).
Of course, there's a litany of other problems.
I'll give some examples, but if I tried to
address them all, this letter would become
a book. We have a litigation and regula-
tory system that is costly, crippling small
businesses with red tape and bureaucracy;
terrible infrastructure planning and invest-
ment; and huge waste and inefficiency at
both the federal and state levels. We have
failed to put effective immigration policies
in place; our social safety nets are poorly
designed; and we fail to properly fund
pension obligations. The growth in American
incomes from 1980 to 2000 was healthy, and
for the lowest and second-lowest quintiles, it
was 18% and 19%, respectively, both cumula-
tively and inflation-adjusted. Growth slowed
dramatically in the decades from 2000 to
2019, but it was the worst for the lower two
quintiles, which were up only 1% and 8%,
respectively. Income inequality has gotten
worse. Nearly 30% of American workers earn
less than $15 an hour, which is barely a living
wage even if two adults are working in a
family of four. Another key driver of growth
has dropped over the past 20 years: Labor
force participation of prime working age men
peaked at 92% in 2000; in 2020, it was 88%.
If we returned to the peak year, 2 million
more men would be working. (An estimated
1.6 million Americans were addicted to
opioids in 2019, which some studies show is
one of the major reasons why men aged 25-54
are permanently out of work.)
In addition, 30% of Americans don't have
enough savings to deal with unexpected
expenses that total as little as $400, such as
medical or car repair bills. This obviously
adds to the economic anxiety of our lower-
paid people.
Republicans need to acknowledge that
America can and should afford to provide a
proper safety net for our elderly, our sick and
our poor, as well as help create an environ-
ment that generates more opportunities and
more income for more Americans. Republi-
cans could acknowledge that if the govern-
ment can demonstrate that it is spending
money wisely, we should spend more - think
infrastructure and education funding. And
49
As a nation, we don't think long term, which
hampers our ability to design proper policies
that are based on thoughtful analysis. In
my view, we don't perform the deep analysis
required to fully understand what we're
trying to solve. One of the reasons for this
is that our outlook is often too limited; i.e.,
examining only how things have changed
Trillions of government dollars were spent
on social programs even before these latest
crises - clearly, our broken systems leave too
many of our fellow citizens trapped. Simply
put, the social needs of far too many of our
citizens are not being met. And, surprisingly,
approximately 25% of those eligible for
various types of federal assistance programs
don't get the help to which they're entitled.
50
becomes less important. Instead, the society
becomes more balkanized and often is crip-
pled by powerful agendas of special interest
groups - even if they all have good inten-
tions. Let's examine some of the reasons why
we have failed to design effective policies.
We are hampered by short-term thinking that's
never comprehensive.
2. Why did - and didn't - these failures happen?
It is hard to look at these issues in their
totality and not conclude that they have a
significant negative effect on the great Amer-
ican economic engine. My view is if you add
it all up, this dysfunction could easily have
been a 1% drag on our growth rate. And,
unfortunately, our extraordinary strengths as
a nation cover up our weaknesses. This is the
new normal and it does not need to be this
way. We should first look at how and why we
became so inept at public policy.
Before we discuss how to fix our problems,
it would be helpful to understand why some
of them happened – and why we failed to
design and implement good public policies.
Clearly, increasing political partisanship -
possibly structural - deserves part of the
blame, but I'll leave that subject to others. It's
also clear that our failings are not deliberate
since no one wants these terrible outcomes.
What has changed, however, is the scale
of our challenges: They are bigger, global
and increasingly complex, and they are
happening in a world that is transforming
itself far more rapidly than before. History
teaches us that as a successful society ages,
the common social purpose that binds it
Anemic growth may account for our wors-
ening productivity and income inequality.
Included among the common explanations
for this growth is that “secular stagnation"
is the new normal or that there is a "savings
glut." Faster growth would not only have
spurred higher incomes, more jobs and
increased opportunities but also would have
created far more consumption and increased
demand for investment, eliminating any
potential "savings glut" or secular stagnation.
would have driven wages higher and given
us the wherewithal to broadly build a better
country. Tax receipts would have been
higher, and we easily could have afforded
better social safety nets.
All of this broken policy may explain why,
over the last 10 years, the U.S. economy has
grown cumulatively only about 18%. Some
think that this sounds satisfactory, but it
must be put into context: In prior sharp
downturns (1974, 1982 and 1990), economic
growth was 40% over the ensuing 10 years.
Had we had 20% more growth, our GDP
would have added $3 trillion, which certainly
Governments, both federal and state, fight to
keep military bases open that we don't need
and Veterans Affairs hospitals functioning
that are broken - making the military more
costly and less effective. Our shortcom-
ings are not just about inefficiencies; they
border on being immoral. In an incredibly
depressing story, former Secretary of Defense
Bob Gates describes how Congress took
years longer than it should have to approve
the building of U.S. Army personnel carriers
that we needed in Iraq and Afghanistan to
protect our soldiers from improvised explo-
sive devices. While we dallied, many of our
soldiers died or received terrible lifelong
injuries. Although the government does
certain things well, no one believes that it
does most things well or that it gives an
honest accounting of what it does do. We
merely throw up our hands in frustration.
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
VI. PUBLIC POLICY
24 Affordable housing consists of Community Reinvestment Act qualified, rent-restricted and
naturally occurring affordable units; i.e., includes affordable housing units that are in
low-to-moderate income neighborhoods.
26 Based on Company filings and JPMorgan Chase estimates. Rankings reflect publicly traded peer
group as follows: Allianz Group, Bank of America Corporation, Bank of New York Mellon
Corporation, BlackRock, Inc., Credit Suisse Group AG, DWS Group, Franklin Resources, Inc., The
Goldman Sachs Group, Inc., Invesco Ltd., Morgan Stanley, State Street Corporation, T. Rowe Price
Group, Inc. and UBS Group AG. JPMorgan Chase ranking reflects Asset & Wealth Management
client assets, Chase Wealth Management investments and new-to-firm Chase Private Client
deposits.
27 Ranking as of December 31, 2020. Source: Morningstar, as of February 28, 2021, including
long-term open-end mutual funds and ETFS only, excluding feeder funds and fund of funds. China
inbound funds AUM is aggregated based on equity, fixed income and allocation funds domiciled
outside of China that invest primarily in Greater China as defined by J.P. Morgan Asset
Management.
28 Reflects J.P. Morgan Asset Management global long-term active fund AUM market share as of
December 31, 2020. Source: ISS Market Intelligence Simfund retrieved March 17, 2021. Excludes
index, fund of funds and money market funds.
29 In the fourth quarter of 2020, the Firm realigned certain Wealth Management clients from Asset
& Wealth Management to Consumer & Community Banking. Prior-period amounts have been
revised to conform with the current presentation.
30 Effective in the first quarter of 2021, the Wealth Management business was renamed Global
Private Bank.
25 Euromoney; 2020 results released February 2021.
31 Source: IXI, J.P. Morgan estimates
JPMorgan Chase (JPM) peers: Capital One Consumer Banking & Domestic Card (COF-CB & DC),
Citigroup Institutional Clients Group (C-ICG), US Bancorp Corporate and Commercial Banking
(USB-C & CB), Credit Suisse Private Banking (CS-PB) and T. Rowe Price (TROW).
33 Represents the Nomura star rating for Japan-domiciled funds and Morningstar for all other
domiciled funds. Includes only Asset Management retail open-ended mutual funds that have a
rating. Excludes money market funds, Undiscovered Managers Fund and Brazil-domiciled funds.
Mutual fund rating services rank funds based on their risk-adjusted performance over various
periods. A 5-star rating is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide ranked funds. A 3-star rating
represents the next 35% of industry-wide ranked funds. A 2-star rating represents the next
22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and represents the
bottom 10% of industry-wide ranked funds. The overall Morningstar rating is derived from a
weighted average of performance figures associated with a fund's three-, five- and 10-year (if
applicable) Morningstar Rating metrics. For U.S.-domiciled funds, separate star ratings are given
at the individual share class level. The Nomura star rating is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are not rated and hence
excluded from this analysis. All ratings and the assigned peer categories used to derive this
analysis are sourced from these fund rating providers as mentioned. Past performance is not
indicative of future results.
34 Represents AUM in a strategy with at least one listed female and/or diverse portfolio manager.
"Diverse" defined as U.S. ethnic minority.
JPMorgan Chase is in Line with Best-in-class Peers in Both Efficiency and Returns (page 8)
1 Best-in-class peer overhead ratio represents the comparable business segments of
2 Best-in-class peer ROTCE represents implied net income minus preferred stock dividends of the
comparable business segments of JPM peers when available, or of JPM peers on a firmwide basis
when there is no comparable business segment: Bank of America Consumer Banking (BAC-CB),
Morgan Stanley Institutional Securities (MS-IS), PNC Bank (PNC), UBS Global Wealth Management
(UBS-GWM) and Morgan Stanley Investment Management (MS-IM).
3 Comparisons are at the applicable business segment level, when available; the allocation
methodologies of peers may not be consistent with JPM's.
4 Citigroup Inc. (C), Bank of America Corporation (BAC), The Goldman Sachs Group, Inc. (GS),
Morgan Stanley (MS), Wells Fargo & Company (WFC).
5 Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and MS
is reflected on a reported basis.
23 Refinitiv LPC, FY20.
Size of the Financial Sector / Industry (page 28)
32 All quartile rankings, assigned peer categories and the asset values used to derive the 10-year
J.P. Morgan Asset Management long-term mutual fund AUM are sourced from Lipper,
Morningstar and Nomura based on country of domicile. Includes only Asset Management retail
open-ended mutual funds that are ranked by the aforementioned sources. Excludes money
market funds, Undiscovered Managers Fund and Brazil-domiciled funds. Quartile rankings are
done on the net-of-fee absolute return of each fund. The data providers redenominate the asset
values into U.S. dollars. This percentage of AUM is based on fund performance and associated
peer rankings at the share class level for U.S.-domiciled funds and at the primary share class
level or fund level for all other funds. Primary share class, as defined by Morningstar, denotes
the share class recommended as being the best proxy for the portfolio and, in most cases, will
be the most retail version (based upon annual management charge, minimum investment,
currency and other factors). Where peer group rankings given for a fund are in more than one
primary share class territory, both rankings are included to reflect local market competitiveness.
Performance data could have been different if all funds/accounts had been included. Past perfor-
mance is not indicative of future results. The classifications in terms of product suites and
product engines shown are J.P. Morgan's own and are based on internal investment management
structures.
22 Commercial and industrial groupings for CB are generally based on client segments and do not
align with regulatory definitions.
8 Chase is tied with one other bank for first place, as per the Kantar 2020 Retail Banking Monitor
(~3,000 surveys per quarter or ~12,000 per rolling 4 quarters). Data are based on Chase
footprint, excluding recent expansion markets.
20 Represents total JPMorgan Chase revenue from investment banking products sold to Commercial
Banking clients.
1 Banks over $5B in assets as of 2020.
FOOT NOTES
Client Franchises Built Over the Long Term (page 6)
1 Digital includes outflows for ACH, Bill Pay, PayChase, QuickPay, Real-time Payments, external
transfers and some wires.
2 2019 and 2020 Consumer Banking deposits include JPM Wealth Management
3 FDIC 2020 Summary of Deposits survey per S&P Global Market Intelligence. Limits all branches
to $500 million deposits. Includes all commercial banks, savings banks and savings institutions
as defined by the FDIC. 2006 excludes non-retail branch locations and all branches with over
$500 million in deposits within the last two years (excluded branches are assumed to include a
significant level of commercial deposits or are headquarter branches for direct banks).
4 Barlow Research Associates, Primary Bank Market Share Database, as of 4020. Rolling 8-quarter
average of small businesses with revenue of more than $100,000 and less than $25 million.
5 Represents 2020 general purpose credit card spend, which excludes private label and
Commercial Card. Based on company filings and JPMorgan Chase estimates.
6 Represents users of all web and/or mobile platforms who have logged in within the past 90 days.
7 Represents users of all mobile platforms who have logged in within the past 90 days.
9 Based on 2020 sales volume and loans outstanding disclosures by peers (American Express
Company (AXP), Bank of America Corporation, Capital One Financial Corporation, Citigroup Inc.
and Discover Financial Services) and JPMorgan Chase estimates. Sales volume excludes private
label and Commercial Card. AXP reflects the U.S. Consumer segment and JPMorgan Chase
estimates for AXP's U.S. small business sales. Loans outstanding exclude private label, AXP
Charge Card and Citi Retail Cards.
10 Inside Mortgage Finance and JPMorgan Chase internal data, as of 4Q20.
11 Experian AutoCount data for 4Q20. Reflects financing market share for new and used loan and
lease units at franchised and independent dealers.
12 ~$83 billion represents the December 31, 2020 balances for accounts provided payment relief,
including those currently enrolled in relief and those who have exited relief. Includes residential
real estate loans held in Consumer & Community Banking, Asset & Wealth Management and
Corporate.
13 Dealogic as of January 4, 2021.
14 Coalition Competitor Analytics, preliminary 2020 rank; market share analysis reflects
JPMorgan Chase's share of the global industry revenue pool and is based on JPMorgan Chase's
business structure. 2006 rank analysis is based on JPMorgan Chase analysis.
15 Client deposits and other third-party liabilities pertain to the Wholesale Payments and Securities
Services businesses.
16 Based on Firmwide data. 2006 data not archived. 2019 restated based on 2020 methodology
using Regulatory reporting guidelines.
17 Institutional Investor.
18 Based on third-party data.
19 Assets under custody based on Company filings.
21 S&P Global Market Intelligence as of December 31, 2020.
2 H.8 data.
While we are proud of our accom-
plishments, we take nothing for
granted and are intensely focused
on our increasing and formidable
4
%
#1
share at 9.8%. We maintained pri-
mary bank relationships with more
than 75% of our Consumer Banking
checking households. In Business
Banking, we held the highest market
share among all banks. We main-
tained our position as the #1 U.S.
credit card issuer based on sales vol-
ume and outstanding balances.
Home Lending originations reached
their highest level since 2013. In the
fourth quarter, we were ranked the
#1 bank in auto lending. During the
year, we also realigned and rebranded
our Wealth Management business
unit, J.P. Morgan Wealth Manage-
ment, to capture the opportunity to
help more customers manage their
investments. We accomplished these
achievements while responding to a
global pandemic and continuing to
invest in our businesses.
April 7, 2021
#1 in U.S. retail
deposit share
#1
#1 primary bank
within our footprint¹
63+M
More than 63 million
U.S. households served
#1 most-visited banking
portal in the U.S.
T
More than $1 trillion
in credit and debit card
sales volume
competition, both traditional and
new. I often remind the team of this
wisdom from the late Andy Grove,
former Intel CEO: “Only the para-
noid survive."
Big Tech and fintech companies are
competing with all of our businesses:
offering new credit cards and banking
services, demystifying stock and
retirement investing, simplifying
financing options for large purchases
and making it effortless to send
money to a friend down the street
or a family member in another coun-
try. Other companies are catering to
business owners, making it easier
than ever to start a business, accept
payments, invoice customers and bor-
row money. These competitors start
with the customer's pain points,
obsess over them and strive to deliver
a superb customer experience.
There are many examples of how
these competitors have reset cus-
tomer expectations with simple and
easy digital experiences. As they
build customer relationships, they
also test, learn and develop new
capabilities that customers want, try
and adopt quickly. These companies
release new features with urgency
and grow their customer bases with
speed. We are in a race to match
their expertise in simplicity and ease
of use before they can match our dis-
tribution and scale.
2020 financial results
Consumer & Community Banking
delivered a 15% return on equity on
net income of $8.2 billion. Our $51.3
billion in revenue was down 7%
year-over-year, while our overhead
ratio increased to 55% as we contin-
ued to invest heavily for future
growth. Our customer base was rela-
tively stable with over 63 million
1 Chase is tied with one other bank for first place, as per the Kantar 2020 Retail Banking Monitor (~3,000 surveys per
quarter or +12,000 per rolling four quarters). Data are based on Chase footprint, excluding recent expansion markets.
68
$1.1T
#1
#1 in total U.S. credit card
sales volume and outstandings
AR
Consists of cash assets and Treasury and agency securities.
5 Real Gross Domestic Product, Billions of Chained 2012 Dollars, Quarterly, Seasonally Adjusted
Annual Rate.
6 Federal Reserve Financial Accounts Z.1 data composed of total financial assets of the following
subcategories: mutual funds, ETFs, closed end funds, brokers and dealers and funding
corporations.
7 Data from Preqin; Hedge Fund AUM is not included in 2000; 2020 figure is annualized based on
available data through 3Q.
8 Represents market capitalization; Facebook not included in 2010.
9 Represents market capitalization; Private companies use the latest valuations.
Complexities of the Regulatory System (page 42)
1 The Council, through Office of Financial Research, may request reports from systemically
important BHCs.
2 The FDIC may conduct exams of systemically important BHCs for purposes of implementing its
authority for orderly liquidations but may not examine those in generally sound condition.
3 The Dodd-Frank Act expanded the FDIC's authority when liquidating a financial institution to
include the bank holding company, not just entities that house FDIC-insured deposits.
67
Consumer & Community Banking
When we planned for 2020, we
could not have imagined the circum-
stances that would unfold. It was a
challenging year for the world, for
the country and for JPMorgan Chase.
We are fortunate to be a part of one
of the world's greatest companies.
Our Consumer & Community Bank-
ing (CCB) franchise is resilient, and
2020 demonstrated that. Throughout
the COVID-19 crisis, we supported
our consumer and small business
customers and our employees -
with compassion and flexibility.
-
Our performance in 2020 reflected
the state of the broader economy and
of our customers. While our deposit
businesses were impacted by low
rates and our credit card business
was affected by lower spending, our
Home Lending, Auto and Wealth
Management businesses performed
well. Despite many challenges, our
largest businesses still reached nota-
ble milestones. For the first time, we
led the nation in retail deposit market
CHASE O
SAPPHIRE
RESERVE
D. BARRETT
#1
VISA
3 US Banks over $50B in assets as of 2020.
Chairman and Chief Executive Officer
Over the last 40 years, China has done a
highly effective job of maneuvering itself to
this point of economic development. China's
leadership has been strategic, consistent
Jane Porn
We need thoughtful trade policies.
The United States needs to take a leadership
role in establishing global free and fair trade
rules. If we don't, they will likely be estab-
lished to the detriment of American busi-
ness. Free and fair trade rules do not have
to be completely equivalent and reciprocal
- just fair. Working with our allies and other
countries, we should negotiate the gold stan-
dard of trade - not just rules around tariffs
but fair regulations that address subsidies to
state-controlled enterprises and other forms
of unfair competition, bilateral investment
and protection for intellectual property,
among other issues.
In addition, we should recognize that trade,
while positive for the United States as a
whole, has caused the loss of jobs, both in
specific geographies and in specific industries.
Americans who have been affected by these
disruptions need better support in terms of
income assistance, retraining and relocation.
60
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
We need to maintain a strong financial system.
The United States has the best financial
system in the world. This financial system
encompasses asset managers, investors, banks,
investment banks, private equity, hedge
funds, pension plans and shadow banking. It
is protected and enhanced by the rule of law
(including banking laws), and it offers investor
protections and transparency around gover-
nance and accounting and provides complete
and free access to global investors. While
nothing is ever perfect and can always be
improved upon, most of the world would give
an arm and a leg for our system.
The United States' extraordinary and open
economy gives us the extraordinary privilege
of being the world's reserve currency. The
U.S. dollar is the currency of choice for the
majority of trade transactions, and it is held
by governments, central banks and corpora-
tions as the reserve currency (approximately
$7 trillion, or 60% of total world reserves).
This helps provide cheaper financing for the
United States and gives us enormous clout
in foreign and economic policy. However,
we should not overly "weaponize" the dollar,
and we should use this authority judiciously
and in support of building a healthy, global
economy (see accompanying feature that
follows).
The United States has the best financial
system in the world, and we must strive to
maintain it.
Being a free market economy, the United
States has never been a great believer in
government-driven industrial policy. But we
have done it and ought to do it intelligently
in discrete areas that make sense (and where
free markets alone don't necessarily provide
needed products or services), such as rural
broadband, healthcare and cybersecurity.
We also need to boost our investment in
R&D; we're now #8 in the world in terms
of GDP spend on R&D. Government R&D
could focus on AI and quantum computing,
climate innovation and other areas.
The U.S. Dollar Is the World's Reserve Currency for a Reason
While there may be faith involved, the U.S. dollar
is the reserve currency of the world for a reason.
First, the dollar is supported by the full faith and
credit of the United States. The dollar, which is a
liability of the Federal Reserve (i.e., the federal
government) in digital or in currency form, is
always supported by an asset and that asset
is generally Treasury bonds. Treasury bonds are
supported by the full taxing authority of the U.S.
government, which, in turn, is supported and paid
for by the full power of the U.S. economy. These
assets and liabilities, including the economy, are
supported by powerful institutions, the rule of law
and, ultimately, the full might of the U.S. military.
Of course, a central bank can debase a currency,
but our central bank, the Federal Reserve, is meant
to protect the currency's value. Faith is only a small
part of these calculations.
Second, and equally important, the U.S. dollar is
the world's reserve currency because anyone who
legally has a U.S. dollar can move it freely around
the world, buy and sell what they want, and invest
in the United States. By comparison, the Chinese
currency, the renminbi (RMB), cannot be freely
moved around the world; it can leave China only
in limited amounts and can be invested only as
the Chinese see fit. It is subject to their laws and
regulations. While the Chinese have done a good
job building their economy and are slowly moving
toward a more transparent society and financial
system, they are a long way from having a currency
that is fully "convertible" like the U.S. dollar.
As an aside, JPMorgan Chase moves more than $8
trillion (99% digital) a day for more than 52 million
payments (94% digital). Approximately 98% of
value is done the same day, 78% is done in real
time and 20% is executed the same day. When
these dollars are moved, they go through extensive
screening for risk and fraud matters. While systems
can always be improved upon, this process seems
to be safe and efficient.
61
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
We need proper immigration policies.
Thirty percent of foreign students who
receive an advanced degree in science, tech-
nology or math (300,000 students annually)
have no legal way of staying here, although
many would choose to do so. Most students
from countries outside the United States
pay full freight to attend our universities,
but many are forced to take the skills they
learned here back home. From my vantage
point, that means one of our largest exports
is brainpower. We need more thoughtful
immigration policies that will prevent such a
brain drain. In addition, 43% of the growth
of our workforce over the past 10 years
has
come from immigrants. Today, we have 10
million undocumented people living and
working in our country; on average, they
have resided in the United States for more
than 15 years. Most Americans would like
a permanent solution to DACA (Deferred
Action for Childhood Arrivals), as well
as a path to legal status for law-abiding,
tax-paying undocumented immigrants.
Americans also would like to see, and
deserve to see, border security, and there
would be far more support for immigration
reform if it included proper border security.
These issues are tearing the body politic
apart. The Congressional Budget Office esti-
mates that the failure to pass immigration
reform earlier this decade is costing us 0.3%
of GDP a year. Immigration has been one of
the great strengths of this country - and we
should never forget that.
Affordable housing remains out of reach for too
many Americans.
-
Prior to the COVID-19 pandemic, the demand
for affordable housing significantly outpaced
supply in nearly every U.S. county. In addi-
tion, rising home prices made it increasingly
difficult for individuals and families to live
near their workplace or within easy access
to grocery stores, pharmacies and other
essential services. There are many legisla-
tive actions that could dramatically increase
the availability and affordability of housing
We need intelligent industrial policy.
Due to government stimulus packages as
a result of the COVID-19 crisis, external
government debt to GDP is now a high
102%. We can afford that percentage and
even more, particularly because interest rates
are low. But in 10 to 20 years, mostly because
of out-of-control healthcare expenses,
the
debt-to-GDP ratio will start to rise dramati-
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
which are reported honestly. Bad regula-
tion often stifles competition - think of the
airlines and telecom industries before they
were deregulated.
Here are few examples. The Federal Avia-
tion Administration is unable to adopt new
technology for air traffic control, which most
of the world has already adopted, that would
reduce the average flight time by more than
10 minutes and reduce greenhouse gases by
12%. President Dwight D. Eisenhower's Feder-
al-Aid Highway Act of 1956 was 29 pages long
and originally authorized $25 billion for the
construction of the interstate highway system
during a 13-year period, creating a 41,000-
mile interstate highway network. And 13
years later, the interstate highway system was
largely built. Fast forward to current times, it
took 10 years and 47 local, state and federal
approvals to rebuild the Bayonne Bridge
connecting Staten Island and New Jersey,
which was badly in need of replacement and
was, in fact, quite dangerous to cross. If this
is the way we are going to go about fixing our
infrastructure, we will never get it done. And
it's not just the time element - long delays
increase the costs and risks involved.
We need to properly invest, on an ongoing basis,
in modernizing infrastructure.
-
Virtually everyone agrees that we have done
a woefully inadequate job investing in our
infrastructure from highways, ports and
water systems to airport modernization
and other projects. One study examined the
effect of poor infrastructure on efficiency
(for example, poorly constructed highways,
congested airports with antiquated air traffic
control systems, aging electrical grids and
old water pipes) and concluded this could all
be costing us hundreds of billions of dollars
per year. Some economists estimate that a
proper infrastructure investment plan could
add 0.3% growth annually to our GDP – and
it would improve competitiveness across
many industries while opening up new
investment opportunities.
Such a plan would also create many new jobs
with competitive salaries and spur workforce
innovation. It could intentionally provide
employment opportunities for disadvantaged
and young workers, including those with a
criminal background. There are many efficient
ways to properly build and finance infrastruc-
ture, from the local, state and federal level
or public-private partnerships, which have
the added benefit of increasing the invest-
ment discipline. It is important to point out,
however, that building ineffective “bridges to
nowhere" while temporarily creating jobs is
actually a huge value destructor. This kind of
waste would ultimately undermine Ameri-
cans' faith in our system.
cally and at some point, that will become
a problem. The sooner we deal with it, the
better. The best way to counteract that is
with healthy growth. After World War II,
in 1946, the United States still had a 120%
debt-to-GDP ratio, which over the next 10
years fell to 60%. This was not because the
government raised taxes or dramatically cut
expenses but because the country grew at
almost 4% for the decade.
We need proper and consistent tax and fiscal
policy - done right, it can actually help drive
healthy growth and improve income equality.
It would be good to have a tax and fiscal
strategy, which is premised upon maxi-
mizing healthy growth and redistributing
income effectively. It would include the
following features:
2. A tax collection system that enables collec-
tion of all taxes owed. My view is that
everyone should pay the taxes they owe,
and it should be strictly enforced. Many
estimates project that with increased head-
count and greater input from data scien-
tists, we could collect between $30 billion
and $100 billion more per year.
3. A target for what the federal government
should expect to collect in taxes over time.
A good starting point would be 18% of
GDP (it has been running at an average
of about 16% over the last decade). In
good times, we should run a small surplus
(~1%), and in bad times, we should have
a small deficit (~4%-5%), such that debt
to GDP stays fairly constant over time. A
side benefit of this is that the government
would know that it would have more
money to spend – but only if we grow.
We should think about good taxes and bad
taxes in terms of spurring growth. Taxing
primary capital formation or labor are
growth reducers. Having capital retained
and reinvested in the United States should
59
VI. PUBLIC POLICY
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
be a sine qua non for healthy growth, and
that means that our business tax rates should
be globally competitive. Today, the average
corporate tax rate for OECD nations is
around 22% versus our 21%. The retention
and reinvestment by businesses of capital in
the United States is ultimately the primary
driver of productivity and growth. Even if
that capital is distributed in dividends or
stock buybacks, it is simply being put to a
higher and better use – this is completely
normal capital reallocation. The free flow of
money capital and human capital is funda-
mental to our growth and innovation (and
fundamental to our freedoms as individuals).
Unfortunately, taxes that minimize damage
to growth would involve taxing high incomes.
The wealthy are less likely to complain about
taxes if the money is actually used to help the
less fortunate or help build a better country.
Even with the redistribution of income, there
will be items that help growth and items that
hurt growth. Redistributing income through
the EITC will be money spent to improve
labor force participation. Redistributing
money to inefficient and poorly run bureau-
cracies will not improve growth.
In addition, there is a maze of tax breaks
in the tax code that should be eliminated.
There are hundreds of examples, but I will
mention just a few: carried interest, the
special tax breaks for race cars, private jets
and horse racing, and a special land conser-
vation tax break for golf courses. Hidden tax
breaks have the additional stigma of being
perceived by the American public as just
another example of institutional bias and
favoritism toward special interest groups.
If the wealthy paid more in taxes and the
money was put to good use, they would be
the main beneficiaries of a stronger economy.
1. A system that is consistent, highly trans-
parent and as simple as possible.
(offering tax credits and changing local
zoning laws are two examples). While the
subprime mortgage crisis and the recession
that followed were terrible, the overreac-
tion to it made housing too costly for many
individuals (without creating more safety).
Excessive origination, servicing and securiti-
zation requirements have increased the cost
of the average mortgage by approximately
20 basis points. This has mostly affected
smaller mortgages and lower-income individ-
uals who have a slightly higher delinquent
rate - but who still deserve a mortgage. In
fact, J.P. Morgan analysis shows that, conser-
vatively, more than $1 trillion in additional
loans might have been made over a five-
year period had we reformed our mortgage
system. Our analysis also indicates that the
cost of not reforming the mortgage markets
could be as high as 0.2% of GDP per year. We
believe that percentage includes an addi-
tional $500 billion a year in mortgages that
could be written predominantly for lower-in-
come households. This alone could dramat-
ically lead to growth in America and help
lower-income individuals build wealth.
We need to implement several additional
programs and policies specifically to assist Black
and Latinx communities.
We need to address hiring and advancement
targets, help develop minority-owned small
businesses and improve financial educa-
tion products for the unbanked. In addition,
minority-owned small businesses, which
employ nearly 9 million people and generate
$1 trillion in annual economic output, have
been hit especially hard by COVID-19 and
will need serious assistance going forward,
including capital to restart and run their
businesses. We should consider requiring
companies, such as grocery stores, pharma-
cies and other retailers, to provide locations
in low-income neighborhoods, as banks
must do (this would reduce the cost of goods
purchased by minority individuals and
increase local hiring and engagement). These
efforts would be a form of redress for the
low-income community that is sustainable
and reinforcing.
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
where we will simply never agree. As the two
largest economies in the world, China and
the United States should continue to have
a long-term interest in collaborating where
we can on critical global issues, including
climate change, global health and stability on
the Korean Peninsula. This will not be easy,
but we will need to mature the management
of this relationship so we can deal head on
with our differences while continuing to seek
common ground on our common challenges.
per
China does not have a straight road to
becoming the dominant economic power.
To put this in perspective, America's GDP
per person in 2019 was $65,000 and China's
was $10,000. Even if we do a rather poor
job at managing our economy (growing at
2%), our GDP per person in 20 years would
be $85,000. And if the Chinese do a good
job managing their economy, their GDP
person in 2040 would still be under $35,000.
While China is well on its way to becoming
a fully developed nation, it may face more
uncertainty and moments of slower growth
in the future (like the rest of us) than in
the past. For the near term, if China and
the United States can maintain a healthy
strategic and economic relationship, it could
greatly benefit both countries - as well as the
rest of the world.
America is in a very strong position.
We have the resources to emerge from this
latest economic crisis as a stronger country.
Sometimes we forget how blessed we already
are. America is still the most prosperous
nation the world has ever seen. We are
blessed with the natural gifts of land; all the
food, water and energy we need; the Atlantic
and Pacific oceans as natural borders; and
wonderful neighbors in Canada and Mexico.
And we are blessed with the extraordinary
gifts from our Founding Fathers, which are
still unequaled: freedom of speech, freedom
of religion, freedom of enterprise, the sanc-
tity of the individual, and the promise of
equality and opportunity for all. These gifts
have led to a bold and dynamic economy -
one that nurtures vibrant businesses large
and small, exceptional universities and a
welcoming environment for innovation,
science and technology. America was an idea
borne on principles, not based upon histor-
ical relationships and tribal politics. It has
and will continue to be a beacon of hope for
the world and a magnet for the world's best
and brightest.
America has strong and deep economic and
geopolitical relationships with a large part of
the world mainly, but not exclusively, with
our allies, including Canada and Mexico,
countries of the European Union, Great
Britain, Japan, South Korea and Australia, to
name a few. With these allies, we respect the
values of democracy, individual rights and
economic freedoms. Collectively, we need to
reassert our foundational strengths, which
are grounded in our common principles,
mutual trust and cooperation, and shared
prosperity. As a nation, America needs to
reassert its confidence in democracy and
re-establish that it can function competently
in the interest of our people. Fundamentally,
we need not fear the success of China; we
need to fear only our own failure because
that is the only thing that will truly limit us.
America should engage and exercise its
power and influence - cautiously, judiciously
and respectfully – with various international
organizations (the North Atlantic Treaty
Organization, the United Nations and the
World Trade Organization). While there are
many legitimate complaints about these
organizations, the world is better off with
these institutions. Americans should under-
stand that global laws, standards and norms
will be established whether or not we partic-
ipate in setting them. However, it is certain
that we will be happier with the evolution of
global standards around trade, immigration,
corporate governance and other important
issues if we help craft and implement them.
We should not abdicate this role - if we do,
that void will simply be filled by China and
-
VI. PUBLIC POLICY
65
AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
others. Our engagement and leadership in
the world are as important for our country as
they are for the rest of the globe.
My fervent hope is that America will roll up
its sleeves and bring bold leadership to our
self-inflicted problems. Business and govern-
ment collaborating together can conquer
our biggest challenges – income inequality,
economic opportunity, education and health-
care for all, infrastructure, affordable housing
and disaster preparedness, to name a few.
We can be unabashed about the exception-
alism of America while acknowledging that
we have problems. As we work together for
an inclusive recovery that is long lasting, we
must never forget that America's economic
prosperity is a necessary foundation for
our military capability, which keeps us free
and strong and is essential to world peace.
America is still the arsenal of democracy.
While I have a deep and abiding faith in the
United States of America and its extraordi-
nary resiliency and capabilities, we do not
have a divine right to success. Our chal-
lenges are significant, and we should not
assume they will take care of themselves.
Let us all do what we can to strengthen our
exceptional union.
66
IN CLOSING
I would like to express my deep gratitude and appreciation for the employees of
JPMorgan Chase. From this letter, I hope shareholders and all readers
gain an appreciation for the tremendous character and capabilities of our people
and how they have helped communities around the world.
They have faced these times of adversity with grace and fortitude.
I hope you are as proud of them as I am. Finally, we sincerely hope
that all the citizens of the global community will be able to move beyond this
unprecedented pandemic and look forward to a brighter future.
VI. PUBLIC POLICY
64
Autocratic and authoritative leadership
works well when you can manage top down
and you are starting from a very low base.
China's recent success definitely has its
leadership feeling confident. Many believe
that America is in permanent decline and
that democracy is failing. Regardless of
their opinions, we should neither over- nor
underestimate them. Only 100 million
people in China effectively participate in the
nation's one-party political system. No other
developed nation has such low participa-
tion. Growing middle classes almost always
demand political power, which helps explain
why autocratic leadership almost always
falters in a larger, more complex economy.
Under autocratic leadership, a major risk
is the allocation of economic assets (capital
and people), which are, over time, used to
further political interests, leading to ineffi-
cient companies and markets, favoritism and
corruption. In addition, autocratic leadership
diminishes the rule of law and transparency
- damaging the ability to create a well-
functioning financial system (this certainly
restricts the internationalizing of the RMB).
Disruption of trade is another risk China
faces. The United States' trade issues with
China are substantial and real. They include
the theft or forced transfer of intellec-
tual property; lack of bilateral investment
rights, transfer of ownership or control of
investments; onerous non-tariff barriers;
unfair subsidies or benefits for state-owned
enterprises; and the lack of rapid enforce-
ment of any disagreements. Our position
is supported, though, in an uncoordinated
way, by our Japanese and European allies.
We should expect China to do only what is
in its own self-interest. Near term, we expect
challenge and conflict to characterize the
relationship between China and the West
over a range of economic, human rights and
strategic issues. There may, however, be areas
and wars with India, the Soviet Union and
Vietnam since World War II. These neigh-
bors do not all look at the rise of China as
being completely beneficial.
62
22
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AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
Companies can go further by building a
more diverse and inclusive workforce,
including in their top ranks; tying executive
compensation to diversity commitments;
developing a more robust pipeline of
diverse talent; improving supplier diversity;
cutting ties with customers who make racist
comments and treat employees disrespect-
fully; helping young men and women of
color get ahead personally and profession-
ally; and increasing the diversity of busi-
nesses with whom they partner. Above all,
it means building a company culture that
respects and listens to everyone. Compa-
nies might not always get it right, but they
should keep trying. The feature in The
Path Forward in Section I outlines
the specific efforts underway at JPMorgan
Chase to help advance racial equity.
many
of
The cumulative, multi-year effect of doing just
some of the measures mentioned above would
lead to a healthier, more resilient and robust, and
fairer America.
It is my belief that the underlying U.S.
economy is so strong that it could over-
come many of the things we have failed to
do and still grow at 2%. If we could grow
at 3% versus 2% over a 10-year period, that
would lead to $2.3 trillion in additional GDP
by the end of the decade or an increase in
household income of about $18,000. A 3%
growth rate is what we used to have - and it
is achievable again. This growth will help all
Americans, but particularly poor and disad-
vantaged citizens (even before implementing
special assistance programs) by increasing
opportunities for better jobs, higher incomes,
affordable housing and other benefits.
We owe it to ourselves to restore our compet-
itiveness, our common purpose and our true
sense of civility in the pursuit of building a
more perfect union.
5. America's global role and engagement are indispensable to the health and well-being
of America.
One of the biggest uncertainties today is
America's role on the world stage. A more
secure and prosperous world is not only
good for the rest of the world but also for
our country's long-term security and pros-
perity. Our role in building that more secure
world has been, and will likely continue to
be, indispensable. It is a complex role, and
if we don't fulfill it, others will - and not
with our best interests in mind. It is even
more complex now because since the Cold
War, the United States has not had to deal
with another great world power. Now we
have the relentless rise of China, which will
likely overtake America in the next 20 years
as both the world's largest economy and
the largest financial market. Throughout
history, the rise of a second great power has
always been disruptive. Increasingly and
appropriately, most of the world, including
Americans, looks at our global position,
particularly our economic and military
strength, and compares it with that of China.
There is no question that the relationship
with (and intense competition between) the
United States and China will be the most
critical relationship for the next 100 years so
it is important to deeply understand all of
China's strengths and weaknesses.
China has done a good job in building its economy
- but it still has a way to go.
-
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AMERICAN EXCEPTIONALISM, COMPETITIVENESS AND LEADERSHIP: CHALLENGED BY CHINA, COVID-19 AND OUR OWN COMPETENCE
and coherent. And unlike developed demo-
cratic nations, it can both macromanage and
micromanage its economy and move very
fast. Government officials can pull, in a coor-
dinated way, fiscal, monetary and industrial
policy levers to maintain the growth and
employment metrics they want, and they
have the control and wherewithal to do it.
Unlike Western democracies that frequently,
and increasingly, have changes in govern-
ment leadership and policy approaches,
China's system allows for consistent lead-
ership and consistent execution of policies
and regulations over the long term. But their
most important economic advantage is their
huge home market, which they can use to
develop their economy and their companies.
They have, as a result, been able to use this
home market to subsidize some very compet-
itive industries.
But in the next 40 years, the country will
have to confront some serious issues: The
Chinese lack enough food, water and energy
to support their population; pollution is
rampant; corruption continues to be a
problem; state-owned enterprises are often
inefficient; corporate and government debt
levels are growing rapidly; financial markets
lack depth, transparency and adequate rule
of law; income inequality is higher than in
the rest of the world; and their working age
population has been declining since 2012.
America's demographics, by contrast, will
remain strong, particularly if we continue
to have healthy immigration. China will
continue to face pressure from the United
States and other Western governments over
human rights, democracy and freedom in
Hong Kong, and activity in the South China
Sea and Taiwan.
Asia is a very tangled part of the world,
geopolitically speaking. Unlike America,
which is at peace with its neighbors and is
protected by the Atlantic and Pacific oceans,
many of China's neighbors (Afghanistan,
India, Indonesia, Japan, Korea, Pakistan, the
Philippines, Russia and Vietnam) are large,
complicated and not always friendly to China
in fact, China has had border skirmishes
Jamie Dimon
The free flow of credit and investments - disci-
plined capital allocation - is critical to being
globally competitive. It is the flywheel of the
economy as capital is seeking out good invest-
ments (across the risk spectrum) and individ-
uals and ideas that drive growth and innova-
tion. A country's economy can hardly be better
than its financial system and vice versa.
Conclusion
NEW TOOLS FOR CUSTOMERS
Customers
As in years past, our performance
in 2020 resulted from our contin-
ued focus on four key areas: cus-
tomers, profitability, people and
controls. Below are some of the
noteworthy accomplishments in
each of these areas.
small businesses provided a bridge
to our customers; and, as a result,
credit performance was better than
we anticipated.
We built our credit reserves by
$7.8 billion in response to the
pandemic's economic impacts.
Losses did not materialize at the
pace we expected in the early stages
of the crisis; critical federal govern-
ment support to consumers and
year. Our customer base of active
mobile users is the largest and the
fastest growing among U.S. banks:
40.9 million, up 10% year-over-year.
U.S. households, including 4.3 mil-
lion small business relationships.
Our average deposits of $851 billion
were up 22% over 2019, and client
investment assets reached $590 bil-
lion, up 18%. We ended 2020 with
$448 billion in average loans, down
6%, reflecting the decline in credit
card spend and loan balances during
the
0
$349
5488
5499
Cash flow
Checking and savings
This month's top 3 card transactions
-1902
$1.1K
December
Credit & debit card usage
$1,136
IKEA
We supported our growing base of
consumer and small business cus-
tomers throughout the year in mul-
tiple ways: 1) direct relief, including
payment deferrals and fee waivers,
2) facilitation of federal government
relief and 3) commitments to
advance racial equity in the U.S.
The firm provided customer assis-
tance to approximately 2 million
accounts with balances totaling
roughly $83 billion. We facilitated
federal stimulus payments to tens of
millions of our customers. Through
the Small Business Administration's
(SBA) Paycheck Protection Program
(PPP), we delivered firmwide $32
billion in loans to small businesses
($28 billion excluding SBA safe
harbor refunds), more than any other
lender on a dollar basis. No less than
75% of our branches continued oper-
ating throughout the pandemic. We
also committed $30 billion across the
firm to advance racial equity over the
next five years, promoting and
expanding affordable housing and
financial health, among other initia-
69
60+%
158
CHASE
More than 40 million
active mobile customers
40+M
We entered this challenging year in a
position of strength and were able to
adapt quickly, adjusting risk decisions
throughout. While the events of
2020 interrupted the recent down-
ward trend in our overhead ratio,
they did not disrupt our focus on
becoming more efficient and serving
Profitability
use more than one of our products.
Navigating across our products and
channels can be disjointed. While we
remove friction wherever we detect
it, we must step up our progress
toward simplifying the experience
for our customers.
Customers continue to choose Chase
and stay with us because of our
best-in-class products and the value
they offer. Still, we have an opportu-
nity to improve the customer experi-
ence, particularly for those who
Submit dispute
tives. As an example, we will provide
$12 billion in home loans for Black
and Latinx households.
PERCENTAGE POINTS
~10
More than 55 million
active digital customers
55+M
Chase Business Complete
BankingSM with QuickAccepts
CHASEO
$50.00
Digital share of consumer
Home Lending Applications (Q4)
Increase in share of
checks deposited
through QuickDeposit™M (Q4)
Customers received
more than 7 billion
personalized insights.
Snapshot
I'm still being charged for a product or
service.
Great, I've locked your card.
216PM
Chase
I'm happy to do that. Which of these
cards do you want to lock?
2:16 PM
I want to lock my card
HL it's always good to hear from you,
Dan. Here are some things I can help
you dec
Chase Digital Assistan
O
PM
based conversation,
customers can use
the assistant to
complete tasks in
their account, such as
replacing or locking
their card, viewing
account balances or
getting help with an
investment rollover.
Through a text-
Assistant
Chase Digital
We continue to innovate and invest in our
digital capabilities to complement our strong
branch network, enabling our customers to
bank how and where they want.
Mobile app give customers a more personal-
ized look at their finances. SnapshotSM, for
example, provides easy-to-digest daily insights
into customers' everyday spending, saving,
earning and more.
Additionally, we remained committed to offer-
ing new tools that support our customers'
financial education and well-being. To help
parents teach their kids good money habits,
we launched Chase First BankingSM - an account
that puts parents in control but gives their
children the freedom to learn how to earn,
spend and save through the Chase Mobile® app.
We also launched new goals-based savings and
budgeting tools. New features in the Chase
In 2020, customers engaged even more with
our digital tools. We accelerated the rollout of
some features and added functionality to help
customers navigate the impacts of the pandemic.
With Chase Digital Assistant SM, we added the
ability to inquire about stimulus payments,
change travel plans booked with rewards and
dispute transactions. We also made it easier
for customers to schedule an in-person meet-
ing or a phone call with a banker or advisor
from their local branch.
Chase
our growing customer base more
profitably. We invest in our busi-
nesses to drive long-term, profitable
growth and one of the ways we
have done that, over time, is by
investing in efficiency.
2:16 PM
↑
transaction?
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What de
12/18/2018
Posted date
12/18/2018
Transaction amount
$XXXXXX
Type your message
Amount
Merchant
You can still make changes on previous pages
Does everything look OK?
Dispute transaction
<
9:41
Chase Mobile app and
chase.com.
Transaction disputes
Customers can now
report a problem with
a debit or credit card
transaction via the
Amazon
account launched
($ in trillions)
We created new ways for customers
to self-serve, including digital and
interactive voice response tools,
which we launched within days so
customers could request help
quickly. These tools also enabled us
to serve a greater volume of custom-
ers and proved to be critical when so
many of them needed us urgently
and all at the same time. We also
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
75
Commercial Banking
I want to begin this letter with a
heartfelt thank you to all of
my col-
leagues in Commercial Banking (CB).
Without a doubt, 2020 presented
tremendous challenges, which our
team met directly with unwavering
commitment and dedication. Amid
enormous uncertainty and adapting
to a new work environment, we
remained relentlessly focused on
supporting our clients, our commu-
nities and each other.
Looking back, we faced this past
year from a position of strength,
having maintained our credit disci-
pline, prepared extensively for a
potential downturn, and made sig-
nificant investments in our plat-
forms and technology. It was this
consistent execution of our long-
term strategy that led to CB's strong
performance last year.
-
There's so much to highlight about
our business and our team this letter
will give you but a small glimpse.
Standing with our clients
We take great pride in standing with
our clients during challenging times.
The breadth and magnitude of finan-
cial stresses across the globe in 2020
were astounding - operations were
halted, supply chains were disrupted
and revenue across many industries
fell dramatically. Through all of this,
our CB team supported our clients
and helped them access vital liquid-
ity as they adapted to the pandemic
and faced tremendous uncertainty.
-
For example, we extended $13 billion
in new credit¹ to many healthcare cli-
ents, including New York-Presbyterian
Health System which experienced
a significant increase in overnight
patients as a result of COVID-19.
We moved quickly to provide neces-
sary liquidity, enabling them to
acquire additional medical supplies
and equipment, expand their staff,
and serve the community in a time
of crisis.
Moreover, our team worked tirelessly
to facilitate the distribution of fed-
eral government emergency funding
through various stimulus programs.
In March of 2020, we rapidly built
the processes, platforms and technol-
ogy needed to deliver critical financ-
ing to our clients, partnering across
the firm to help protect millions of
jobs. This important work has con-
tinued into 2021.
Supporting our communities
The pandemic has had a profound
impact on our communities and has
magnified the challenges they face,
especially in underserved segments
of society. In 2020, we extended
$21 billion in financing to states and
municipalities, educational institu-
tions and healthcare providers. Given
the importance of these vital institu-
tions, particularly during times of
crisis, we are proud to support them
in their delivery of essential services
to our communities.
In addition, our Commercial Real
Estate businesses continued to pro-
vide much-needed resources to help
expand and preserve access to
affordable housing. As part of the
firm's Path Forward commitment
to advance racial equity, we have
committed to finance an additional
100,000 affordable rental units over
the next five years to further address
this systemic challenge. Through
this commitment, we will provide
$14 billion in new loans, equity
investments and other support to
increase and sustain affordable hous-
ing in underserved communities.
EXTENDING CREDIT TO SUPPORT OUR COMMUNITIES¹
1888:
888:
$13B
TO HOSPITALS AND
HEALTHCARE SERVICES
$4B
TO EDUCATIONAL
INSTITUTIONS
|000
0000
$4B
TO STATE AND
LOCAL GOVERNMENTS
Daniel E. Pinto
[0000
The performance of the CIB in 2020
is testament to the extraordinary com-
mitment of our employees who sup-
ported clients while facing their own
personal challenges. I am very proud
of what they have accomplished.
From the pandemic crisis, we take
forward some vivid lessons; namely,
Clients want to access the full
breadth of our franchise from any-
where and at any time, and we are
transforming to meet that future.
This transformation presents differ-
ent opportunities across our busi-
nesses. For example, in Securities
Services, we are evolving from a pro-
vider of back office services to a fully
integrated platform that delivers
scale and efficiency for clients across
the entire investment life cycle.
In the U.S., the number of publicly
listed companies has fallen by 24%
since the mid-1990s as start-ups delay
IPOs. To help those private compa-
nies through their extended life
cycles, we are working to provide a
platform that offers everything from
primary issuance to secondary trad-
ing, as well as data and equity
administration capabilities. In part-
nering with Commercial Banking,
which serves thousands of smaller,
privately held companies, we see a
wealth of untapped opportunities.
The trend in electronification contin-
ues in market trading, and we are
expanding connectivity options for
our clients, improving efficiency
through automation and digitization,
and more effectively participating in
multi-dealer platforms. There is also
an opportunity to act as the trading
interface for smaller banks and to
partner with Commercial Banking
and Treasury Services to manage the
FX needs of smaller companies oper-
ating in international markets. Our
ambition is to create a single pay-
ment and hedging platform for cor-
porations that enables them to more
efficiently reduce currency exposure
and manage cross-border payments.
And in Wholesale Payments, where
we now have the world's most com-
plete payments network, our focus is
on global e-commerce and online
marketplaces. We want to help clients
plug into a comprehensive payments
and account administration service
in one place and support more small
businesses looking for FX expertise
and working capital.
Central to all this change is a multi-
year program to modernize our
technology infrastructure. We are
becoming a digital-first organiza-
tion, able to harness - safely and
smartly the power of data and
artificial intelligence across our firm
in order to provide a more seamless
client experience.
-
74
A sustainable future ...
Climate change is a defining issue of
our age. Given our firm's scale and
financing capabilities, we can play a
leading role in helping companies
and economies transition to a low-
carbon world. As part of our efforts to
limit global temperature rise by 2050,
we are aligning our financing portfo-
lio with the Paris Agreement. We will
also establish intermediate emission
targets for 2030, with a focus on the
oil and gas, electric power and auto-
motive manufacturing sectors.
In 2020, we achieved our goal of
becoming carbon neutral in our
operations, which includes sourcing
renewable energy for 100% of our
global power needs. The firm also
launched the Center for Carbon Tran-
sition to provide clients with central-
ized access to sustainability-focused
financing, research and advice.
Business and government must join
forces to address the challenge of
climate change. Meeting the
target of
the Paris Agreement requires massive
restructuring in how the world pro-
duces and consumes energy. We are
helping clients make the transition by
financing technology to reduce emis-
sions and by supporting investment
in
green energy. In industrialized
sectors, we will continue to advocate
for market-based policy solutions,
including a price on carbon.
. and a diverse future
Stubborn structural challenges per-
sist across our society, and in every
industry human potential continues
to go untapped as racial prejudice
goes unchallenged.
The killing of George Floyd in May
2020 and the subsequent protests
across the U.S. and around the world
impelled us to seek new solutions to
address the challenges Black and
minority individuals face in the
workplace and in society.
-
Our efforts to close the racial wealth
divide include a $30 billion injection
of additional capital and other
resources for Black and Latinx cli-
ents, employees and communities in
the U.S. and globally over the next
five
years. As part of our invest-
ments, we will work to boost the
flow of capital to minority-owned
banks and businesses, expand sup-
port for minority-owned enterprises,
improve financial health and
broaden the diversity of our suppli-
ers. Programs such as the Entrepre-
neurs of Color Fund and Advancing
Black Pathways, for example, provide
Black and other minority groups
with access to capital, education and
our technical expertise.
Our own success depends on hiring
the best people, no matter where they
grew up, how they were educated or
what they look like. Internally, we
have focused on inclusive recruiting,
invested in new programs to advance
Black talent and created a team dedi-
cated to discovering recruits from
more diverse communities.
In a year like no other, we did what
we have always done: We supported
our clients and employees through
tough times.
The strategy we set years ago
remains as relevant as ever. We are
focused on running our business effi-
ciently, managing risk prudently and
delivering for clients. We are opti-
mizing our business and closing any
addressable gaps in our offering, and
we are continuing to transform our
business for the future.
to preserve our ability to innovate
and execute at speed, even as a large
and complex organization. And we
must do that in a way that enables
our people, communities and planet
to thrive over the long term.
The global vaccine rollout provides
hope for our collective long-term
health and economic well-being. As
we emerge from this tumultuous
time, one of the lingering concerns is
whether the extreme infusion of
liquidity and fiscal stimulus might
ultimately create inflationary condi-
tions in the medium term.
$3B
TO AFFORDABLE
HOUSING
$1.4
$1.3
2010
2011 2012 2013 2014 2015 2016
2017 2018
2019
3 Represents total JPMorgan Chase revenue from investment banking products provided to CB clients.
As always, we remain focused on hir-
ing, training and enabling the best
team to execute our strategy. Our
technology investments are connect-
ing us in meaningful new ways, rein-
forcing our values of teamwork and
collaboration. As we seek to foster
even more innovation across our
business, we're adding expertise and
training in design, data and technol-
ogy. We're empowering our people
with tools and analytics that allow
them to more effectively and effi-
ciently serve our clients.
Fostering an inclusive workplace took
on new meaning last year, and we
are committed to building an
organization representative of the
communities we serve. Despite
the recruiting challenges posed by
COVID-19, we increased diverse rep-
resentation across all demographics
and welcomed our most diverse full-
time analyst class in recent years.
Solid financial performance
We don't measure our success on an
annual basis; rather, we take a long-
term view and invest through the
cycle. The investments we've made
in our people and capabilities, com-
bined with our patience and disci-
pline, continue to drive strong
results across our business. In 2020,
$3.3
$4.0
2020 Long-term
target
CB delivered net income of $2.6 bil-
lion on $9.3 billion in revenue, gen-
erating a return-on-equity of 11%.
We are proud of our performance
despite market volatility, lower inter-
est rates and a significant build in
our credit reserves.
Our underwriting discipline and
client selection helped drive our
solid credit performance last year,
with net charge-offs of 18 basis
points, primarily concentrated in
certain industries. While our actual
credit losses were modest, CB added
$1.7 billion in credit reserves for the
year as we prepared for a variety of
economic outcomes.
Being able to deliver the full power
of JPMorgan Chase to our clients
remains a key value driver. Perhaps
the best example is our close partner-
ship with the Corporate & Investment
Bank, which resulted in record gross
Investment Banking (IB) revenue of
$3.3 billion, up 22% year-over-year
and surpassing our $3 billion long-
term target. We see tremendous
opportunity in the years to come
and have increased our long-term
IB revenue target to $4 billion.
While no one could have predicted
the events of 2020, our results con-
firm our strategy and highlight the
resilience of our business.
Looking forward
I am more optimistic than ever about
the future for CB. We have excep-
tional talent, outstanding capabilities
and enormous potential. We have an
incredible opportunity to continue to
grow our franchise, and we are not
standing still
- we are innovating
and investing across our business for
the long term.
Looking forward, we do not intend to
simply go back to normal. Last year's
challenges made us stronger, giving
us an opportunity to learn and grow
as a business - finding new ways to
serve our clients and strengthen the
places we call home. We will capture
the many lessons learned in 2020 to
help accelerate the execution of our
strategy and position CB for even
greater success in the future.
I'll close this letter the same way I
began, by acknowledging our excep-
tional team and thanking them for
their unbelievable support of our
clients and each other.
Dine
Douglas B. Petno
CEO, Commercial Banking
78
$1.6
$1.7
$2.0
$2.2
1 Includes new credit commitment originations and existing credit commitments that experienced a major modification during 2020.
76
FINANCING AFFORDABLE HOUSING
Mercy Housing is a nonprofit that helps people
access safe, stable and quality affordable
housing. In 2020, we provided the construction
financing and equity for two major Mercy
projects in California: 1064 Mission Street,
co-developed with Episcopal Community
Services, in San Francisco and Capitol Park
Hotel in Sacramento. These projects will create
nearly 400 affordable housing units and
house vital services for people experiencing
homelessness.
1064 Mission Street
Capitol Park Hotel
Investing in our long-term strategy
In CB, we are executing a long-term,
disciplined strategy, focused on add-
ing great clients and delivering valu-
able solutions to help them succeed.
Throughout 2020, we remained
focused on our strategic priorities
and continued to invest and innovate
across our business.
Investing to serve more clients
Being able to deliver our broad-based
capabilities at a very local level dis-
tinguishes us from our competitors.
As such, we now have teams in 137
U.S. locations. Through data-driven
analysis, we've identified over 50,000
prospective clients across our Com-
mercial & Industrial businesses² and
have expanded local coverage accord-
ingly. Since 2008, we've essentially
doubled our footprint across the U.S.,
as we moved into 47 new, high-
potential markets, and we're excited
to deepen our presence in these mar-
kets in the years to come.
We also have an incredible opportu-
nity to serve non-U.S.-headquartered,
multinational companies overseas.
Since launching our international
expansion initiative in 2018, we've
2 Commercial & Industrial businesses are generally based on
client segments and do not align with regulatory definitions.
added bankers to cover high-quality
companies across 17 countries. While
we're just getting started, we're very
excited about the client response and
activity we have seen so far. Similar
to our domestic strategy, we are tak-
ing a long-term view and focused on
covering only the best clients.
2020
Market expansion is only one part
of CB's growth strategy - deepening
relationships with clients is equally
important. We know our clients
have unique needs and value indus-
try-specific insights and solutions.
To better serve them, we've added
a number of new industries to our
coverage model over the last several
years and now have specialized
teams aligned to 17 industry sectors.
We expect these dedicated efforts to
drive meaningful future growth in
our business.
We are innovating and building for
the future while at the same time
managing a franchise at scale. As we
look forward, we continue to take a
design-driven approach to assess our
clients' evolving needs and expecta-
tions, directing our investments in
data capabilities, technology, plat-
forms and solutions to help further
differentiate our value proposition
and how we do business.
With many working remotely, our
clients faced complex challenges in
2020. Through our digital banking
platforms and payment solutions,
we provided ready access to the
tools clients needed to continue to
run their businesses. Digital adop-
tion accelerated last year, and we
added more than 1,800 new relation-
ships - many onboarded completely
virtually. We are continuing to
invest substantially across all of our
platforms to more seamlessly inte-
grate them with those of our clients
and deliver a superior experience.
Investing in our team
Our outstanding team and culture of
excellence are the foundation of our
success in CB - this was especially
true last year. By the end of March,
98% of our team was working
remotely - and a small group of truly
heroic colleagues continued to carry
out essential operations on-site. The
leadership, creativity and partner-
ship demonstrated across our busi-
ness were inspiring and reinforced
the importance of our people.
77
DELIVERING THE BEST INVESTMENT BANK TO CB CLIENTS
Commercial Banking Gross Investment Banking Revenue³
($ in billions)
$2.7
$2.5
$2.4
$2.3
Investing in innovation
Our digital and mobile capabilities
are a great example. Digital adoption,
including mobile, increased at an
accelerated rate due to the pandemic.
Overall, 69% of our customers are
digitally engaged. Among Business
Banking customers, that figure is
86%. During the pandemic, we
encouraged and drove - self-service
to reduce the need to visit a branch
or speak with us by phone.
2019
Source: J.P. Morgan's SWIFT market share for U.S. dollar wire payments
Our firm's strategy - to be global,
complete and at scale - has cemented
its reputation as a port in the storm,
able to shore up crisis-hit firms and
national economies while continuing
to grow even as margins tighten and
capital buffers increase. That strategy
has also provided the springboard for
our growth into new markets and
geographies and has enabled our
heavy investment in technology. In
2020, that investment meant that we
could not only move forward with
advancements in artificial intelli-
gence, cloud and blockchain but also
ensure that more than 90% of our
employees could work securely from
home in a matter of days.
An exceptional performance
The Corporate & Investment Bank
(CIB) achieved a 20% return on
equity in 2020 by generating earn-
ings of $17.1 billion on revenue of
$49.3 billion - a historic performance
in a tumultuous, impossible-to-
predict year. Discounting that excep-
tional performance, over the last five
INVESTMENT BANKING FEES AND MARKET SHARE HAVE RISEN STEADILY
($ in billions)
■Market share
Investment banking fees
9.2%
8.9%
8.6%
8.1%
7.9%
$9.5
$7.4
$7.5
$7.6
$6.5
2017
2018
2019
2020
years our return on equity has stood
consistently between 14% and 16%
on an adjusted basis¹. In fact, during
that time, we have increased revenue
by 16% and net income by 32%.
Our Investment Banking business
ended the year with 9.2% of global
market share, its highest since 2009,
and generated record fees of $9.5 bil-
lion to maintain our #1 ranking.
As COVID-19 spread across the globe,
we helped clients bolster their balance
sheets, including those in hard-hit
sectors like retail, travel and hospital-
ity. As a result, underwriting fees in
our Debt Capital Markets business hit
an all-time record. The business,
which has ranked #1 for the last five
years, extended its leadership posi-
tion with nearly 10% of market share.
Stimulated by unprecedented cen-
tral bank support, the reversal in
market sentiment and the activity
that followed in the second half of
the year were extraordinary. In 2020,
our Equity Capital Markets team
helped clients raise $389 billion of
capital in 563 deals around the
world, which represented one-third
of the total market.
One major development in 2020 was
the evolution of the initial public
offering (IPO) market as special pur-
pose acquisition companies (SPAC)
became mainstream, a byproduct of
low interest rates and excess capital
stockpiled by investors. These "blank
check" companies, which are formed
for the sole purpose of acquiring a
private company, accounted for more
than half of all IPOs in 2020. We
have led our share of SPACs, but as
with any growing trend, we want to
remain diligent and seek to do the
right deals with credible sponsors.
2016
As the pandemic took hold, markets
saw the most rapid sell-off in history.
Amid spiking volatility, our Equities
business witnessed many days of
record volumes, while at the height
of the crisis, our Wholesale Payments
team processed up to $11 trillion in
payments in a single day.
Source: J.P. Morgan; Dealogic
The demand for our balance sheet
in terms of capital and liquidity -
was unprecedented last year. In the
months of March and April alone, we
helped clients raise more than $940
billion in the capital markets and
extended more than $80 billion in
credit, giving companies and govern-
ments the lifelines they needed.
Corporate & Investment Bank
built a digital intake process and
application for PPP loans in a matter
of days and revised those applica-
tions as new SBA guidance or
requirements evolved.
In addition to tools created to facili-
tate much-needed pandemic relief, we
continued to release and refine digital
features and capabilities so they could
be used more widely by our custom-
ers. Our digital account opening prod-
uct processed nearly 80% of all new
accounts last April. We processed
more than 40% of all checks through
QuickDeposits in the last quarter of
2020, up nearly 10 percentage points
year-over-year. More than 60% of con-
sumer home loan applications were
opened digitally in the fourth quarter,
a rate six times higher than the prior
year. In addition, customers were able
to dispute credit and debit card
charges digitally. We also developed
convenient, less intrusive and more
effective ways to communicate with
and collect payments from – custom-
ers who fall behind. By updating our
communication strategy and tactics,
we reduced the time required to set
up a payment plan and, as a result,
doubled the share of digital payment
plans year-over-year.
We continue to seek out opportuni-
ties to invest in future growth. In
2020, we saw such an opportunity
and acquired cxLoyalty, a leading U.S.
travel and loyalty business. We are
optimistic that consumer travel will
rebound after the pandemic. This
transaction allowed us to upgrade our
travel-focused credit card products so
we can own the end-to-end travel
experience. This offering also allowed
us to address a pain point for our
customers: Millions of travel plans
were disrupted simultaneously at the
start of the pandemic, and customers
needed our help making adjustments.
70
While these investments drive
returns, they also serve to position
Chase as the financial partner of
choice for all our customers. We
want to build deeper, lifelong cus-
tomer relationships that allow us to
do more for them. When we already
know a customer, we can make it eas-
ier to do more with us. For example,
we can often pre-approve existing
customers for credit and provide
certainty of ultimate approval. We can
verify income when deposit custom-
ers apply for a loan, prefill the infor-
mation we have on file and so on.
These stronger relationships also last
longer and, as a result, are more profit-
able. As an example, deposit custom-
ers who also have a Chase credit card
are almost 60% less likely to leave us
than those without a card relationship.
People
Our team of more than 122,000
continued to shine during this
challenging year. I have such deep
appreciation for everything they
have done and continue to do for our
customers, clients and communities
each day. This is especially true for
those on the front lines in our
branches interacting with our cus-
tomers face to face. Those who could
work from home pivoted quickly to
do so, and, after an adjustment
period, most performed their job
remotely as well as they had on-site
before the crisis. Those who could
not do their job remotely continued
to serve our customers from our
offices and branches, executing criti-
cal processes that kept our business
running-generating cards for cus-
tomers, printing statements, moving
currency and much more.
We took additional steps to make sure
our employees could work safely and
to give them peace of mind during
an uncertain time. All employees
received extra days off to deal with
impacts of the crisis. We distributed
special payments to employees serv-
ing customers in branches and call
centers, recognizing their exceptional
contributions. Employees who worked
in locations that were temporarily
closed or had reduced operating
schedules continued to be paid for
full-time work. We offered alternative
positions to those who were unable
or unwilling to return to their pre-
pandemic role. We also provided extra
benefits for employees with children
to help with childcare and education.
We have a sustained commitment to
diversity and inclusion on our team.
In 2020, we made progress toward
establishing new representation goals.
Our actions took on even greater
meaning and importance amid our
country's social unrest in response to
profound racial inequalities.
Controls
Our customers rely on us to protect
them, especially during a crisis. That
responsibility guides all our work.
We use many systems, processes
and procedures to ensure we exe-
cute within all the laws and require-
ments that govern us. Crisis situa-
tions demand even more focus and
attention so we can respond quickly
but in a well-controlled manner.
Where we miss the mark, we work
tirelessly to address it so that we
resolve issues and ensure they don't
reoccur. We evaluate and upgrade
these safeguards as an ongoing,
evergreen practice.
Our resiliency planning is a key disci-
pline we leaned on heavily through-
out the year. Although we test and
revise our resiliency planning annu-
ally, 2020 proved to be its greatest
test yet. While we learned our limita-
tions, we also discovered that we had
underestimated what was possible
out of our remote work capabilities.
Providing work-from-home capabili-
ties to customer service specialists -
sending work-from-home technology
kits to employees across the globe -
is one such example.
Conclusion
We always aspire to be better, faster
and more efficient. Customers expect
it, competition is fierce and we take
nothing for granted. We strive every
day to improve and make it both
simple and easy for customers to
manage their finances with us.
Despite the challenges of 2020 -
some of which we still are facing -
I remain hopeful and optimistic
about our future. We demonstrated
what we are capable of doing under
the most trying of circumstances,
and what we learned will continue to
inspire us to achieve even more.
Pardon
Gordon Smith
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Consumer & Community Banking
71
In the dozen years since the global
financial crisis, the banking system
has been rigorously stress tested to
ensure it can withstand severe mar-
ket shocks. In 2020, the COVID-19
pandemic offered a stress test
beyond any that our industry has
experienced to date.
72
1 As reported for 2020 Investor Day.
In our M&A business, announced
volumes returned to pre-pandemic
levels later in the year as government
stimulus packages took effect and
companies shifted their stance from
defensive to more opportunistic.
Our M&A ranking in EMEA rose to
the #1 position, and we retained the
#2 spot in North America.
Legacy of a pandemic
The pandemic has accelerated the
shift to digital platforms and has
transformed the way we and our
clients work. Last year showed us
how quickly we can adapt; for the
first time, many of the year's biggest
banking deals were conducted
virtually or by phone - unthinkable
before 2020.
Our Wholesale Payments unit, which
includes Treasury Services, Trade
Finance and Merchant Services, also
experienced strong growth in 2020.
A decline in revenue, mostly attrib-
utable to low rates, was offset by
notable deposit growth. Throughout
the pandemic, Treasury Services has
processed payments and facilitated
the flow of essential funds to compa-
nies and governments. As the world's
largest transaction bank, the business
moves trillions of dollars every day
and remains #1 in U.S. dollar clearing ing together is critical to innovation,
by volume. Innovation in payments
is exploding, driven by the growth in
e-commerce and digital wallets. In
2020, we went live with Concourse™
a highly configurable global platform
that allows clients to send and receive
payments in a more seamless way;
J.P. Morgan also announced fintech
partnerships in areas such as sup-
ply chain finance and corporate
credit cards.
As the crisis recedes, it is likely that
we will adopt the best of these new
virtual environments to complement
what we miss most about working
together in person. We are, at heart,
a collaborative business – and work-
creativity and a stronger culture.
After the pandemic, we will likely
see some shift in working patterns.
While some job functions will need
to remain on-site full time, a differ-
ent working model is starting to
emerge in which employees rotate
between working at home and in the
office. This creates more flexibility
for employees and also enables us to
73
ASSETS UNDER CUSTODY HAVE CONTINUED TO GROW IN SECURITIES SERVICES
NEW
BRANCHES
$19.9
2015
+55%
$31.0
2020
INNOVATION AND SCALE HAVE CONTRIBUTED TO GROWING SHARE IN PAYMENTS
23.8%
22.0%
22.5%
20.8%
19.5%
2016
2017
2018
of the CIB to offer market-leading
solutions to our clients at a time of
industry consolidation and growth
in complex assets.
Source: Coalition Competitor Analytics. Rankings and share based on J.P. Morgan's internal business structure
CO-#1
#3
The pandemic, the U.S. presidential
election and Brexit all spurred trading
activity. With so much to navigate,
investors turned to J.P. Morgan as a
reliable provider of liquidity, which
resulted in record volumes across
many of our trading areas. At peak
moments, our foreign exchange (FX)
desk was executing 730 trades per sec-
ond, underlining years of investment
in technology and highlighting just
how critical we are to well-functioning
markets during times of volatility.
Overall, Markets revenue climbed
41% to a record $29.5 billion, with our
Fixed Income Markets business gen-
erating $20.9 billion and Equity Mar-
kets producing $8.6 billion.
Our Securities Services business,
which provides pre- and post-trade
services to asset manager clients,
had a strong year of growth in 2020.
Clients outsourced more of their
middle and back office functions to
J.P. Morgan as scalable infrastructure
and timely insights became critical to
handling massive spikes in volume
and volatility. The team onboarded
$4 trillion in assets under adminis-
tration2, further strengthening our
position as a leader in fund account-
ing and administration, and ended
the year with record assets under
custody³ of $31 trillion. We launched
our next-generation Middle Office
offering, leveraging the capabilities
2 Assets under administration: Represents the market value
of client assets for which administrative and other related
services are performed.
3 Assets under custody: Represents assets held directly or
indirectly on behalf of clients under safekeeping, custody and
servicing arrangements.
CONSISTENT INVESTMENT HAS LED TO SHARE GAINS IN MARKETS
Markets
J.P. Morgan share of wallet
Fixed Income
Equities
12.9%
13.1%
12.3%
shrink our real estate footprint, oper-
ate buildings more efficiently with
fewer empty seats and eliminate the
need for costly recovery sites.
Meeting the needs of the future
From established rivals to tech
giants and fast-moving fintechs
adept at delivering a great client
experience, competitors are crowd-
ing up across all fronts. The CIB is
not immune to these competitive
threats, which is why our focus on
innovation and technology is at the
heart of our investments.
9.4%
8.6%
2015
2020
2015
2020
2015
2020
J.P. Morgan rank
#1
#1
#1
#1
9.8%
158 new branches,
including 87 in
new markets, in 2020
When last year's shareholder letter
was published, the world and finan-
cial markets were just coming to
grips with COVID-19. Since then, the
global pandemic has affected all of
us in unforgiving ways - with loss of
life, strained healthcare systems and
economic setbacks that will be felt
for years to come.
JPMorgan Chase & Co./2020 Form 10-K
-In India, the Financial Inclusion Lab sup-
ported 30 fintechs, which have expanded
their services to reach over 20 million
people in underserved communities.
- To date, the Financial Solutions Lab Accel-
erator has supported 43 fintech start-ups
across six cohorts.
- We provided immediate support to orga-
nizations, such as Mission Asset Fund and
the International Rescue Committee (and
its CDFI affiliate, the Center for Economic
Opportunity), to provide financial coaching
and affordable loans to households and
small business owners with a focus on
underserved communities.
•
•
•
- We have been long-standing supporters
of the Cities for Financial Empowerment
Fund, including its Bank On initiative to
equip accounts with common standards that
make banking accessible to more people.
We worked closely with them to ensure our
clients could receive stimulus and other
emergency payments safely through Chase,
following social distancing protocols.
Sustainability: Since 2003, our firm has com-
mitted over $23.9 billion in tax equity financ-
ing for wind, solar and geothermal energy
projects in the U.S., including $5.7
billion for wind and solar projects in 2020.
Through the Climate Leadership Council and
membership in Business Roundtable, we've
also supported market-based policy solutions
to address carbon emissions. In 2020, we
completed our inaugural green bond issuance
of $1 billion.
Small business expansion: JPMorgan Chase
launched its Small Business Forward initia-
tive in 2015. Over the last five years, the firm
has provided more than $200 million in phi-
lanthropy, including $20 million in COVID-19
relief, to support underserved small busi-
nesses in cities around the world. These
funds provided access to capital and techni-
cal support to over 1 million diverse small
businesses, which have raised nearly $10
billion in capital and increased revenue by
an average of 22%.
Employees serving our communities:
- More than 18,000 employees volunteered
over 116,000 hours in 2020. This includes
nearly 220 JPMorgan Service Corp volun-
teers from 13 countries who contributed
nearly 9,500 hours working with nearly
50 nonprofits.
More than 500 employees participated in
the Board Match Program, which deepens
the impact of employees' donations to
nonprofits when they also serve on the
organization's board. In 2020, the firm
matched more than $1.9 million in
contributions to those nonprofits.
- In 2020, our firm and its employees donated
over $1 million to COVID-19 relief efforts and
$7.2 million to disaster relief efforts around
the globe.
84
- We celebrated 10 years of The Fellowship
Initiative (TFI) and renewed our commit-
ment to improving economic and social
outcomes for young Black and Latinx men.
TFI will triple the number of young people it
serves to more than 1,000 over the next 10
years and broaden its reach across several
U.S. cities. The program has driven 100%
admission to college among graduating
Fellows; among these, more than half were
the first in their family to attend college.
Financial health:
Table of contents
44 Five-Year Summary of Consolidated Financial
Highlights
45 Five-Year Stock Performance
Management's discussion and analysis:
46 Introduction
47
Executive Overview
54 Consolidated Results of Operations
57 Consolidated Balance Sheets and Cash Flows Analysis
60 Off-Balance Sheet Arrangements and Contractual
Cash Obligations
62 Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures
65 Business Segment Results
85 Firmwide Risk Management
Audited financial statements:
158 Management's Report on Internal Control Over
Financial Reporting
Financial:
FU
JPMORGAN CHASE & CO
NEW SKILLS AT WO
Supporting small business growth and
entrepreneurship
Small businesses are the backbone of our
communities, and the COVID-19 pandemic has
profoundly affected the entire sector. Accord-
ing to the JPMorgan Chase Institute, Black-,
Latinx- and women-owned small businesses
are underrepresented among firms with sub-
stantial external financing, limiting opportuni-
ties to scale their business.
To help eliminate these barriers, JPMorgan
Chase announced a new $350 million, five-year
global commitment to foster Black-, Latinx-,
women-owned and other underserved small
businesses. This includes philanthropic invest-
ments to support diverse-led nonprofit organi-
zations; low-cost loans to invest in community
development financial institutions (CDFIs);
and direct equity investments in early-stage
companies. As part of our commitment,
JPMorgan Chase is also expanding its signature
Entrepreneurs of Color Fund, which provides
low-cost loans to minority-owned small busi-
nesses, to more U.S. cities in 2021.
Promoting neighborhood development
Affordable housing and homeownership are
among the greatest factors that fuel the racial
wealth divide. As a result, we are changing our
business practices, advancing product innova-
tion and advocating for more effective housing
policies through our $30 billion commitment
to advance racial equity.
In Chicago, seven organizations received a
$7.2 million philanthropic investment to boost
long-term homeownership. This includes pro-
moting innovative modular home construction,
as well as providing financial products and
coaching in South and West side neighbor-
hoods, including Back of the Yards, North
Lawndale and Chicago Lawn.
Expanding financial health and wealth
creation
As part of our five-year, $125 million commit-
ment to improve financial health, JPMorgan
Chase is leveraging its philanthropic capital
and expertise to seed and scale technology-
based innovations specifically for low- and
moderate-income households around the
world. Through the Financial Solutions Lab,
part of our 10-year partnership with the
Financial Health Network program, we have
supported 40 fintech companies, whose
innovative products collectively reach more
than 4.5 million people and have helped U.S.
residents save over $1 billion.
Globally, we support similar efforts to address
the financial health needs of communities out-
side the U.S., including the Financial Inclusion
Lab in India and the Catalyst Fund to stimulate
financial inclusion in emerging markets.
Tackling climate change
JPMorgan Chase is committed to advancing
sustainable solutions for our clients and within
our own operations. We are adopting a financ-
ing commitment aligned with the goals of the
Paris Agreement to help clients navigate the
challenges and capitalize on the long-term
economic and environmental benefits of transi-
tioning to a low-carbon world. We'll establish
intermediate emission targets for 2030 for our
financing portfolio, focusing first on the oil and
gas, electric power and automotive manufac-
turing sectors. We also committed to source
renewable energy for 100% of the firm's power
needs such as installing on-site solar panels
at our retail branches and commercial offices.
83
2020 HIGHLIGHTS AND ACCOMPLISHMENTS
Awards and recognition
•
Ranked in Top 10 on Fortune magazine's
World's Most Admired Companies list
Ranked in Top 10 in Top Corporate Respond-
ers, a list assessing pandemic mobilization
compiled by Forbes and JUST Capital
Recognized by Inside Philanthropy as
Corporate Funder of the Year for the firm's
response to the COVID-19 crisis and demand
for racial equity
THE
We invested $75 million to better prepare
young people for the jobs of today and
tomorrow, beginning in six U.S. cities:
Boston, Columbus, Dallas, Denver,
Indianapolis and Nashville.
- Advancing policy solutions: We released
new policy papers to provide data-driven
analyses and policy recommendations that
address the pandemic's immediate and
long-term financial impacts on households,
small businesses and communities, as well
as the need to ensure an equitable recovery.
Careers and skills:
•
- Building on JPMorgan Chase's $500 million
commitment to drive inclusive growth and
create greater economic opportunity in
cities around the world, the firm awarded
a total of $35 million to organizations in
seven U.S. cities that won the firm's 2020
AdvancingCities Challenge: Baton Rouge,
Boston, Chicago, Minneapolis, New Orleans,
Philadelphia and Portland.
Community development and AdvancingCities:
We helped bolster the long-term vitality of
global cities through low-cost, long-term
loans and philanthropic investments:
159 Report of Independent Registered Public Accounting
Firm
-JE
Hello
Cherry Hill
ted more than $500 million in low-cost loans,
equity and philanthropic grants to address
the immediate COVID-19 crisis, drive an inclu-
sive recovery and advance racial equity.
These efforts are targeted to help 1.3 million
individuals gain access to financial coaching,
help another 172,000 individuals enroll in
jobs and skills programs, assist 64,000
underserved small businesses and create or
preserve 43,000 affordable housing units.
Inclusive recovery: In 2020, the firm commit-
•
Accomplishments
Earned 100% rating on the Human Rights
Campaign's Corporate Equality Index 2020 -
18th consecutive year
Wonto CHASE
162 Consolidated Financial Statements
167
Notes to Consolidated Financial Statements
Diluted
2020
2019
2018
2017
2016
$ 119,543
66,656
$ 115,399
65,269
$ 108,783
63,148
$ 100,460
59,270
$ 96,275
56,378
52,887
50,130
45,635
41,190
11,459
34,536
35,900
40,764
8,114
8,290
29,131 $ 36,431 $ 32,474
$
6,276
Basic
44,545
5,361
5,290
4,871
5,585
17,480
39,897
35,407
million, five-year investment to equip young
people and adults with the skills they need to
be successful in a rapidly changing economy,
JPMorgan Chase is developing pathways and
policy recommendations to help underserved
students gain better access to higher education
and real-world work experiences. We have
made this support also available to those
workers, regardless of age, most affected by
the COVID-19 pandemic. In addition, we are
testing new strategies to upskill and reskill our
own employees to address changes in technol-
ogy and business needs.
Average shares:
Basic
Supplementary information:
299 Selected quarterly financial data (unaudited)
300 Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
305 Glossary of Terms and Acronyms
90 Strategic Risk Management
91 Capital Risk Management
102 Liquidity Risk Management
110 Credit and Investment Risk Management
135 Market Risk Management
Note:
The following pages from JPMorgan Chase & Co.'s 2020
Form 10-K are not included herein: 1-42, 312-323
143 Country Risk Management
145 Operational Risk Management
152 Critical Accounting Estimates Used by the Firm
156 Accounting and Reporting Developments
157 Forward-Looking Statements
JPMorgan Chase & Co./2020 Form 10-K
Net income:
Earnings per share data
Net income
Income tax expense
Income before income tax expense
Provision for credit losses
Diluted
Pre-provision profit(b)
Total net revenue(a)
(in millions, except per share, ratio, headcount data and where otherwise noted)
Selected income statement data
As of or for the year ended December 31,
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
Financial
43
Total noninterest expense (a)
Advancing policy solutions through data
Our JPMorgan Chase Institute and PolicyCenter
use firmwide data to analyze, develop and pro-
mote policy insights and solutions, educating
and informing policymakers and business and
nonprofit leaders. Through this work, we are
able to advocate for sustainable solutions to
economic inequality and help address other
critical issues our communities are facing today.
Preparing workers for the future of work
Even before the pandemic, rapid changes in
technology, automation and artificial intelli-
gence continued to exacerbate the disconnect
between skills and jobs. As part of our $350
Over the next five years, the firm will put this
commitment into practice and help close the
racial wealth divide by combining our business,
policy, data and philanthropic expertise to
increase affordable lending and housing, expand
minority-owned small business credit and capi-
tal, help more people gain the skills they need
to be successful and build a diverse workforce.
In October, JPMorgan Chase announced a
$30 billion initiative to advance racial equity
and address key drivers of the racial wealth
divide, combat systemic racism and support
our own employees.
Equity
Fixed Income
Multi-Asset Solutions
& Alternatives
80%
91%
57%
83%
AUM Assets under management
2020 - A Record Year for J.P. Morgan Asset & Wealth Management?
Revenue
Pretax
Income
Net
Income
Loans
(EOP)
Deposits
(EOP)
Assets
•Liquidity: $104 billion in flows, as
more risk-averse clients looked to
reduce their market exposure, par-
ticularly during the first half of the
year when flows reached $170 bil-
lion. Two of our money market
funds, U.S. Government and U.S.
Treasury, each attracted over $25
billion in flows last year³.
.
EOP = End of period
Record
performance
$276B
Asset Management
$3.7T
$187B
$3.0B
$4.0B
$14.2B
2020
Flows
$199B
80
Total J.P. Morgan
2020 % of J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Outperforming Peer Median¹ over 10 Years
Fortunately, governments and central
banks acted swiftly and decisively to
infuse capital and provide support for
what could have been very fragile
markets. If there is a silver lining to
this horrible pandemic, it is how
much the world acted in unison to try
to do the right thing. We are hopeful
that 2021 will be a better year for all.
Rising to meet an unprecedented
challenge
In March 2020, over the course of
two weeks, we transitioned more
than 90% of our global Asset &
Wealth Management (AWM) team
from on-site to remote work settings.
In doing so, we proved that we can
serve our clients under any and all
circumstances, even without ever
leaving our homes. We also showed
that we can make sound and fast
decisions under intense pressure
and uncertainty.
As always, clients were our focus.
Helping them as we all went through
.
these challenges, together, was a
source of great pride and drove us
to be at our best.
Across AWM, our years of resil-
iency testing and preparation
enabled us to pivot swiftly and
seamlessly. As CEO, I have written
annually about how proud I am of
my colleagues and our firm. This
was especially true in 2020, when
we intensified our work on:
Digital acceleration. Operating
almost exclusively in a digital
world, we were able to quickly
identify manual or inefficient proc-
esses. As volumes surged and we
overcame various work environ-
ment and personal challenges, we
worked tirelessly to accelerate our
digital engagement with clients,
counterparties and one another.
In 2021, we are focused on closing
remaining process gaps and pull-
ing forward multi-year plans.
Connectivity with our clients. As the
world locked down, we were
given the gift of redirecting time
previously devoted to travel and
other in-person activities to con-
nect with tens of thousands of cli-
ents eager for our insights and
thought leadership. The success
of this shift is demonstrated by
our results: record attraction and
retention of assets and clients.
Operational excellence. With an agile
mindset, we accelerated the move-
ment of reports to dashboards, sim-
plified processes and strengthened
the governance of our technology
investments.
Strong investment performance for
clients
Year in and year out, we are focused
on delivering outstanding investment
performance. This is why maintain-
ing a 95+% retention rate of our top-
performing investment team heads,
portfolio managers and research ana-
lysts is such a high priority. With the
volatility that occurred in 2020, active
management was never more impor-
tant and its value never more appar-
ent, and, accordingly, our long-term
investment performance was strong
across asset classes.
Clients vote with their feet, and they
continue to entrust us with more of
their assets every year. In 2020, our
client assets grew to a record $3.7
trillion, and we received a record
$276 billion in net client asset flows.
Our record flows were the result of a
diversified business that meets all of
our clients' needs - we had positive
flows across all regions, segments
and products. Having our breadth
and depth of solutions was especially
important during a very volatile
market environment.
AWM COVID-19 RESILIENCY HIGHLIGHTS
88
88
360M
MINUTES
670,000
79
FRAUDULENT
TRANSACTIONS
PREVENTED
ANALYSES COMPLETED
INSIGHTS
DIGITAL PORTFOLIO
YOY INCREASE IN EQUITY
TRADING VOLUMES
FOR WM CLIENTS
(net of fees)
WM Wealth Management
EXTERNAL
YoY Year-over-year
TIME SPENT ON
ZOOM BY
AWM EMPLOYEES
>$60M
135,000
>3x
ATTENDEES JOINING
DIGITAL EVENTS
9,803
Fixed Income: $48 billion in flows, as
market volatility and the low inter-
est rate environment caused clients
to seek high-quality income
sources. We had strong flows into
our Income funds ($8 billion)+,
High Yield Bond funds ($6 billion)5
and Ultra-Short Income ETF (JPST)
($5 billion) 6.
•
Over a century ago, we launched one
of our first investment funds, Mercan-
tile Investment Trust. That fund, with
a 136-year track record, thrives today
as a great example of our consistent
and steadfast management of assets.
Clients choose J.P. Morgan as a long-
term partner because we have with-
stood the test of time and are well-
positioned for centuries to come.
As our business helps governments,
central banks, individuals, corpora-
tions and pensions all around the
world, we have a global perspective
that few others enjoy. This, coupled
with top-ranked performance in
successfully managing client assets
directly and in choosing third-party
managers who we believe can do the
same, gives us a unique understand-
ing of the ever-changing investment
landscape. That is why clients turn to
us in uncertain times just as much as
they do in more optimistic times. In
2020, we experienced both extremes.
Simply put, delivering performance
and doing first-class business in a
first-class way, decade after decade, is
the core of what we do in AWM.
While new challenges undoubtedly
lie ahead, I have never been more
proud of the resiliency of our people,
more grateful for our clients' trust
and confidence or more optimistic
about our business's future.
Wary
Mary Callahan Erdoes
CEO, Asset & Wealth Management
81
Corporate Responsibility
2020 will be remembered as a defin-
ing moment for humanity. It was a
year that both reinforced and exacer-
bated profound inequities – from the
pandemic's disproportionate impact
on Black and Latinx communities, to
the killing of Black citizens by police
officers, to violence against members
of the Asian and Pacific Islander
community amid cries for racial
justice. These events have brought
a long overdue focus on removing
barriers to racial equity, and they
demand fundamental change around
the globe.
Last April, I wrote that business
needed to step up and collaborate
with local, government and commu-
nity leaders by providing resources
and expertise to find solutions for
those most in need. That same
month, first-ever National Youth Poet
Laureate Amanda Gorman shared a
poem that read in part, "Do not
ignore the pain. Give it
purpose. Use
it." Her sentiments have reverberated
over this past painful year. It is time
to change how we operate both pub-
lic and private systems, dismantling
what has been holding too many
people back for far too long.
Today, 10 million Americans are out
of work. The most financially vulner-
able have been hit hardest, with
Black and Latinx workers facing the
highest unemployment rates, espe-
cially women¹. Lower-income fami-
lies are dealing with the largest drop
in savings since April 2020. Even
pre-pandemic, Black and Latinx fami-
lies held less than 50 cents for every
dollar in liquid assets compared with
families who are white² - underlin-
ing the dire need for a truly inclusive
economic recovery.
1 https://www.dol.gov/sites/dolgov/files/OPA/newsreleases/
ui-claims/20210420.pdf
2 https://www.jpmorganchase.com/content/dam/jpmc/
jpmorgan-chase-and-co/institute/pdf/institute-race-report.pdf
Getting back to better business
not business as usual - starts with
acknowledging that we all have
fallen short.
Throughout 2020, several thousand
colleagues looked across our entire
firm to examine where JPMorgan
Chase could do more and do better.
In October, we announced a massive
$30 billion commitment over the
next five
years to advance racial
equity, drive an inclusive recovery,
support employees and break down
barriers of systemic racism, includ-
ing changes across our firm to help
us better serve our customers, our
communities and our own employ-
ees by leading with diversity, equity
and inclusion. We were deeply hon-
ored that JPMorgan Chase was
named the Corporate Funder of the
Year by Inside Philanthropy, which
noted the size, substance and strate-
gic focus of our commitments.
Advancing racial equity
In a year where our customers, employees and
communities faced devastating social, eco-
nomic and commercial consequences from the
COVID-19 pandemic, JPMorgan Chase focused
on applying the full force of its resources to
serve all of its stakeholders. To address the
immediate and long-term impact of COVID-19,
our efforts included quickly deploying an initial
$250 million in global business and philan-
thropic support to vulnerable and underserved
communities, existing nonprofit partners and
underserved small businesses.
Driving an inclusive recovery
INSIDE PHILANTHROPY
For the sheer speed and size of its response to COVID and demands for
racial equity, JPMorgan Chase earns the nod this year. It pledged – and
is moving - a $250 million response to the pandemic, and a $30 billion
(with a "b") commitment in loans, equity and direct funding toward
racial equity. The company's giving is always strategic and substantial."
66
Optimism for our future
82
Peter L. Scher
Pota
Bringing bold ideas about an inclu-
sive recovery and removing structural
barriers are not just matters of better
government policy and programs.
Businesses must be at the table with
ideas and have a willingness to
change their own practices – to effec-
tively advance solutions that have the
impact we so desperately need. That
is why JPMorgan Chase is investing
in economic opportunity. We will con-
tinue to develop better programs and
products and advance policies that
can lead to an inclusive economic
recovery and opportunity for all.
J.P. Morgan International Council
also put forth a series of recommen-
dations, focused on the future of the
international system and the future of
work, advocating for business leaders
to engage with policymakers to
advance the public's interest - not
just business - and drive solutions in
the post-pandemic world.
Our company alone cannot end sys-
temic racism, but we can do our part
to drive clear policy, as well as busi-
ness and community solutions, that
create an inclusive recovery and pro-
mote shared prosperity. In February
the JPMorgan Chase Institute
and PolicyCenter shared new research
and data-driven policy recommenda-
tions to inform immediate support
to those most impacted by COVID-19,
as well as longer-term policies to
increase the financial health and
stability of households and small
businesses. These include support
for extending and expanding unem-
ployment benefits, providing addi-
tional rental assistance funding to
stabilize families, and reforming
Small Business Administration
programs to better support Black,
Latinx, women and other under-
served entrepreneurs. This year, the
2021,
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region
Equity: $33 billion in flows, as mar-
kets rebounded and clients
increased their exposure, particu-
larly during the second half of the
China: Become the #1 foreign asset
manager onshore in China.
Digital and Data: Digitize everything,
and leverage data to deliver insights
to our clients, investors and advisors.
•
•
year. There was strong activity
across our offering, including signif-
icant flows into our Emerging
Markets Equity funds ($6 billion),
U.S. Large Cap Growth funds
($4 billion) and China A-Share
funds ($3 billion).
Multi-Asset: $5 billion in flows, as
clients continued to seek actively
managed, outcome-oriented strate-
gies. Our SmartRetirement Blend
Target Date funds were an example
of this, with $4 billion in flows³.
Alternatives: $6 billion in flows
across a range of income-oriented
and higher-returning strategies,
including Infrastructure, Private
Credit and our Highbridge offering.
Custody/Brokerage/Administration/
Deposits: $80 billion in flows, as cli-
ents trusted us to support their
trading and banking needs.
Having dedicated market experts to
support our clients is almost as impor-
tant as the breadth and depth of our
offering. In addition to the nearly
2,500 Global Private Bank 10 client advi-
sors and more than 1,000 Asset Man-
agement investment professionals, we
have over 120 market strategists, port-
folio analysts and goals-based advisors
whose sole job is to provide timely
advice and insights to our clients.
1 For footnote, refer to page 67 footnote 32 in this Annual Report.
2 For footnote, refer to page 67 footnote 29 in this Annual Report.
3 Source: ISS Market Intelligence Simfund
4 Source: ISS Market Intelligence Simfund. Total flows into U.S.-
and Luxembourg-domiciled funds
5 Source: ISS Market Intelligence Simfund. Total flows into High
Yield Fund (U.S.-domiciled) and Global High Yield Bond Funds
(Luxembourg- and U.K.-domiciled)
6 Source: ISS Market Intelligence Simfund. U.S.-domiciled ETF
7 Source: ISS Market Intelligence Simfund. Total flows into
Emerging Markets Equity Funds (U.S.- and Luxembourg-
domiciled) and Emerging Markets Fund (U.K.-domiciled)
8 Source: ISS Market Intelligence Simfund. Total flows into
Large Cap Growth Fund (U.S.-domiciled) and U.S. Growth Fund
(Luxembourg-domiciled)
9 Source: ISS Market Intelligence Simfund. Total flows into
China A-Share Opportunities Funds (Luxembourg- and Hong
Kong-domiciled), China Pioneer A-Share Fund (Hong Kong-
domiciled) and China A Share Equity Fund (Taiwan-domiciled)
10 For footnote, refer to page 67 footnotes 29 and 30 in this
Annual Report.
100
YEARS OF
Hiring: Grow market share
domestically and internationally
by hiring advisors and investment
professionals.
•
•
.
Our success would not be possible
without constant reinvestment in our
business to accelerate our growth,
expand our offering, and maintain a
strong risk and control framework.
As a result of our long-term focus,
increased scale and business momen-
tum, our investment budget for 2021
is the largest in AWM's history. Our
most significant investments are
aligned with the following areas:
Investing in our business
Environmental, Social and Governance:
Rank among the top three in active
sustainable funds.
12 For footnote, refer to page 67 footnote 26 in this Annual Report.
Both of AWM's lines of business also
performed well. Asset Management
reached record revenue of $7.7 billion
and record pretax income of $2.2
billion. The Global Private Bank was
an equally powerful story, with record
revenue of $6.6 billion and pretax
income of $1.8 billion, despite the
headwind of $263 million in credit
costs as we grew our franchise 10
As a result of our clients' trust in us
and the incredibly hard work of our
employees, we delivered extraordi-
nary results for our shareholders. This
included record performance across
nearly all financial metrics, including
revenue, pretax income, net income,
loans, deposits and assets.
Record year for shareholders
When you bring these strengths
together the focus on investment
performance, the breadth and depth
of our offering, and the expertise and
advice we offer our clients - it's clear
how, since 2010, we have averaged
more than $100 billion per year in cli-
ent flows² quite rare in our industry.
Equally important, the acknowledg-
ment from our clients has validated
our strategy to be the leader in active
management. Looking specifically at
flows through this lens, I am very
proud of the fact that Asset Manage-
ment ranked #1 in global long-term
active fund flows in 202011. And
across all of AWM, we maintained
our #2 ranking against publicly
traded peers in five-year cumulative
total client asset flows¹².
In 2021, J.P. Morgan will celebrate its 100th year in China. Today, the country represents
one of the largest opportunities for our clients and the firm. For AWM, 2021 is especially
important because we have agreed on terms with our joint venture partner to purchase
China International Fund Management (CIFM), the culmination of a successful 17-year
partnership. Given our firm's heritage in China, established brand, and current on-the-
ground investment teams and distribution channels, we are very excited about the
possibilities that full ownership of CIFM will bring to our business and clients - and we
look forward to our next 100 years in China.
J.P. MORGAN IN CHINA
11 Source: ISS Market Intelligence Simfund retrieved March 17,
2021. Excludes index, fund of funds and money market funds
(h)
Asset & Wealth Management
$ 24,733
Allowance for loan losses to total retained loans
2.95 %
1.39 %
Nonperforming assets (d)
$ 10,906 $
Net charge-offs
Net charge-off rate
5,259
0.55 %
5,054
5,629
$
1.39 %
5,901 $
14,672
1.47 %
$ 14,854
1.55 %
7,119
$
7,754
(g) The Basel III capital rules became fully phased-in effective January 1, 2019, and for the SLR became fully phased-in effective January 1, 2018. Prior to these dates,
the required capital metrics were subject to the transitional rules. As of December 31, 2018, the risk-based capital metrics were the same on a fully phased-in and
transitional basis. Refer to Capital Risk Management on pages 91-101 for additional information on these capital metrics.
(f) As of December 31, 2020, the capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including the CECL
capital transition provisions that became effective in the first quarter of 2020. As of December 31, 2020, the SLR reflects the temporary exclusions of U.S.
Treasury securities and deposits at Federal Reserve Banks that became effective in the second quarter of 2020. Refer to Regulatory Developments Relating to the
COVID-19 Pandemic on pages 52-53 and Capital Risk Management on pages 91-101 for additional information.
(e) For the years ended December 31, 2020, 2019, 2018 and 2017, the percentage represents average LCR for the three months ended December 31, 2020, 2019,
2018 and 2017. The U.S. LCR public disclosure requirements for the Firm became effective in 2017. Refer to Liquidity Risk Management on pages 102-108 for
additional information on the LCR results.
(d) In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-
period amounts have been revised to conform with the current presentation.
(b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity ("TCE") is also a non-GAAP financial measure. Refer to
Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 62-64 for a further discussion of these measures.
(c) Quarterly ratios are based upon annualized amounts.
Effective January 1, 2020, the Firm adopted the Financial Instruments - Credit Losses ("CECL") accounting guidance. Refer to Note 1 for further information.
(a) In the second quarter of 2020, the Firm reclassified certain spend-based credit card reward costs from marketing expense to be a reduction of card income, with
no effect on net income. Prior-period amounts have been revised to conform with the current presentation.
$
0.54 %
0.52 %
0.60 %
(i)
4,692
5,387
4,856
0.60 %
(h) In December 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law. The Firm's results for the year ended December 31, 2017 included a $2.4 billion
decrease to net income as a result of the enactment of the TCJA.
$ 14,500
$ 30,737 $
2,144,257
1,562,431
1,470,666
1,443,982
1,375,179
Long-term debt
Common stockholders' equity
281,685
291,498
282,031
284,080
295,245
249,291
234,337
230,447
229,625
228,122
Allowances for loan losses and lending-related commitments
Credit quality metrics
243,355
252,539
256,105
256,981
14,314
255,351
255,693
256,515
261,330
279,354
Headcount
Total stockholders' equity
254,190
2,490,972
(i) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have
been 0.55%.
JPMorgan Chase & Co./2020 Form 10-K
169.19
100.00
111.95
136.38
130.39
171.44
202.96
JPMorgan Chase
KBW Bank
S&P Financials-
S&P 500
-
75
2015
2016
2017
2018
$ 24,441
46
46
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are the Corporate & Investment Bank ("CIB"), Commercial
Banking ("CB"), and Asset & Wealth Management ("AWM").
Refer to Business Segment Results on pages 65-84, and
Note 32 for a description of the Firm's business segments,
and the products and services they provide to their
respective client bases.
JPMorgan Chase's principal bank subsidiary is JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
38 states and Washington, D.C. as of December 31, 2020.
JPMorgan Chase's principal nonbank subsidiary is J.P.
Morgan Securities LLC ("J.P. Morgan Securities”), a U.S.
broker-dealer. The bank and non-bank subsidiaries of
JPMorgan Chase operate nationally as well as through
overseas branches and subsidiaries, representative offices
and subsidiary foreign banks. The Firm's principal operating
subsidiary outside the U.S. is J.P. Morgan Securities plc, a
U.K.-based subsidiary of JPMorgan Chase Bank, N.A.
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading financial services firm based in the United States of
America ("U.S."), and has operations worldwide; JPMorgan
Chase had $3.4 trillion in assets and $279.4 billion in
stockholders' equity as of December 31, 2020. The Firm is
a leader in investment banking, financial services for
consumers and small businesses, commercial banking,
financial transaction processing and asset management.
Under the J.P. Morgan and Chase brands, the Firm serves
millions of customers in the U.S. and globally many of the
world's most prominent corporate, institutional and
government clients.
153.12
INTRODUCTION
The following is Management's discussion and analysis of the financial condition and results of operations ("MD&A") of JPMorgan
Chase for the year ended December 31, 2020. The MD&A is included in both JPMorgan Chase's Annual Report for the year ended
December 31, 2020 ("Annual Report") and its Annual Report on Form 10-K for the year ended December 31, 2020 ("2020 Form
10-K") filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 305-311
for definitions of terms and acronyms used throughout the Annual Report and the 2020 Form 10-K.
Management's discussion and analysis
45
2020
JPMorgan Chase & Co./2020 Form 10-K
2019
The MD&A contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to
significant risks and uncertainties. Refer to Forward-looking Statements on page 157) and Part 1, Item 1A: Risk factors in the
2020 Form 10-K on pages 8-32 for a discussion of certain of those risks and uncertainties and the factors that could cause
JPMorgan Chase's actual results to differ materially because of those risks and uncertainties.
44
$ 221.52
130.37
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financials Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America ("U.S."), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P
Financials Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all
three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2015, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends were reinvested.
December 31,
(in dollars)
JPMorgan Chase
S&P Financials Index
S&P 500 Index
250
225
200
175
150
125
100
December 31,
(in dollars)
2015
149.92
122.75
100.00
125.42
$ 159.20
$ 170.54
152.41
$ 234.46
170.72
172.21
$ 134.57
128.51
$ 100.00
2020
2019
2018
2017
2016
100.00
2,533,600
KBW Bank Index
2,687,379
1.88
Market and per common share data
Market capitalization
Common shares at period-end
Book value per share
Tangible book value per share ("TBVPS")(b)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity ("ROE") (c)
Return on tangible common equity ("ROTCE")(b)(c)
Return on assets ("ROA") (b)
$ 387,492
3,049.4
81.75
12 %
15 %
13 %
10 %
10 %
58
57
56
Overhead ratio
1.00
0.96
2.12
1.24
0.91
13
12
17
19
14
1.33
59
2.72
51.44
$
2,622,532
8.89
8.88
$
10.75 $
10.72
9.04
$
6.35
$
6.24
3,082.4
3,087.4
3,221.5
3,230.4
9.00
3,396.4
3,414.0
6.31
6.19
3,551.6
53.56
56.33
60.98
66.11
3,561.2
64.06
3,425.3
67.04
3.40
70.35
$ 307,295
3,658.8
3,690.0
$ 366,301
$ 319,780
$ 429,913
3,084.0
75.98
3,576.8
3,275.8
59
3.60
47
15.5
15.9
15.5
Tier 1 leverage ratio (f)(g)
Supplementary leverage ratio ("SLR") (f) (g)
Selected balance sheet data (period-end)
Trading assets (d)
7.0
7.9
8.1
8.3
8.4
6.9 %
6.3 %
6.5 %
6.5 %
$ 503,126
3,386,071
Loans-to-deposits ratio(d)
922,831
959,429
289,059
$ 342,436
16.0
$ 349,053
249,958
$ 369,687
398,239
997,620
589,999
1,012,853
Deposits
Total assets
Loans (d)
Investment securities, net of allowance for credit losses
$ 378,551
261,828
1,015,760
17.3
6.4 %
13.9
108
111
116
160
JPMorgan Chase Bank, N.A. LCR (average) (e)
113
༠༦
116
Firm Liquidity coverage ratio ("LCR") (average) (e)
67
66
14.0
69
64
110
금금
119
ΝΑ
13.7
14.1
15.0
Total capital ratio (f)(g)
(f)(g)
12.3
Tier 1 capital ratio
12.0
12.4
13.1
Common equity tier 1 ("CET1") capital ratio (f)(g)
NA
12.2
Debit card sales ($B)
22%
$491
ΝΑ
$205
$467
Debit and credit card sales volume ($B)
Credit card sales market share
$586
$1,361
$1,555
22%
16%
20%
$1,065
ΝΑ
$894
NA
$257
$647
Credit card loans ($B, EOP)
$718
Consumer &
Total payments volume ($T)4
$1.8
$5.0
$381
$5.6
% of digital non-card payments
<25%
~40%
75%
77%
Banking
Credit card sales ($B)
Community
$153
Total Markets revenue¹5
$154
5,029
Global investment banking fees¹4
#2
#1
8.6%
Market share¹4
8.7%
4,725
7.7%
#1
8.0%
#8
#1
#1
Market share15
$159
6.3%
#1
9.3%
$128
2,963
# of advisors¹
$185
Credit card loans market share
19%
18%
17%
17%
Active mobile customers (M)
NM
ΝΑ
45.5
49.7
# of branches
3,079
5,614
4,790
4,787
12.4
~$80
Tangible book value
9.3%
Compounded annual gain
Overall gain
11.3%
1,047.8%
6.1%
287.7%
4.6%
176.1%
Performance since the Bank One and JPMorgan Chase & Co. merger
(7/1/2004-12/31/2022)
(3/27/2000-12/31/2022)¹
Compounded annual gain
Performance for the period ended December 31, 2022
Compounded annual gain/(loss)
JPMorgan Chase & Co.
S&P 500 Index
S&P Financials Index
9.9%
471.6%
8.9%
386.8%
Overall gain
4.4%
120.0%
Performance since becoming CEO of Bank One
S&P 500 Index
2007 2008
12.1%
2009 2010
2011
2012
2013
2014
S&P Financials Index
2015 2016
2018
2019
2020 2021 2022
Average stock price
1 9% compound annual growth rate since 2004.
Stock total return analysis
Bank One
2017
One year
Five years
(12.6)%
4.4%
7.1%
10.3%
10.9%
■Serve 79M U.S. consumers and 5.7M small
businesses
# of top 50 markets where
we are #1 (top 3)
Deposits market share²
7 (14)
8 (25)
11 (25)
Business Banking primary market
share³
5.1%
6.2%
9.2%
7 (18)
$1,163
$1,055
$414
7.7%
(18.1)%
9.4%
(10.5)%
6.4%
Ten years
14.9%
12.6%
12.1%
This chart shows actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co. vs. the Standard & Poor's 500 Index
(S&P 500 Index) and the Standard & Poor's Financials Index (S&P Financials Index).
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
7
Client Franchises Built Over the Long Term
2006
2012
2021
2022
Average deposits ($B)¹
$204
Client investment assets ($B)¹
#1
11.7%
2,738
#7
LE
Asset & Wealth
Management
Loans ($B) 29
# of Global Private Bank client advisors²9
Global Private Bank (Euromoney)32
Mutual Funds with a 4/5-star rating28
Client assets ($T) 29
119
172
units financed in 202227
206
$1.3
$2.0
$4.3
$4.0
Traditional assets ($T)29,30
$1.2
$1.7
203
$3.6
■#1 overall Middle Market Bookrunner in the U.S.26
■Over 80,000 incremental affordable housing
■Credit, banking and treasury services to ~25K
Commercial & Industrial clients and ~31K real
estate owners and investors
■63M active digital customers, including 50M
active mobile customers⁹
■Primary bank relationships for 78% of consumer
checking accounts
■#1 retail deposit share
■#1 deposit market share position in each of the
largest banking markets in the country (NYC, LA
and Chicago) while maintaining branch presence
in all contiguous 48 U.S. states
■#1 primary bank for U.S. small businesses
■#1 U.S. credit card issuer based on sales and
outstandings 10
■■■#2 among lenders in the J.D. Power 2022 U.S.
Mortgage Origination Satisfaction Study"
■#2 owned mortgage servicer¹²
■18 specialized industry coverage teams
■#3 bank auto lender¹³
■Presence in over 100 markets globally
■■■#1 in global investment banking fees for the
14th consecutive year¹4
■Consistently ranked #1 in Markets revenue
since 201115
■J.P. Morgan Research ranked as the #1 Global
Research Firm, #1 Global Equity Research Team
and #1 Global Fixed Income Research Team¹9
■■#1 in USD payments volume20
■■#1 in U.S. Merchant transaction processing²¹
■■■#2 custodian globally²²
■141 locations across the U.S. and 34 international
locations, with 7 new cities added in 2022
■ $1.5B revenue from Middle Market expansion
markets, up 26% YoY
■>90% of Fortune 500 companies do business
with us
#1
$3.4
$100
AUM Assets under management
EOP = End of period
FICC = Fixed income, currencies and commodities
JPMAM = J.P. Morgan Asset Management
MSA Metropolitan statistical area
For footnoted information, refer to page 43 in this Annual Report.
8
NM = Not meaningful
USD U.S. dollar
Year-over-year
M = Millions
B = Billions
T = Trillions
K = Thousands
■90% of 10-year JPMAM long-term mutual fund
AUM performed above peer median33
■■Business with 61% of the world's largest pension
funds, sovereign wealth funds and central banks
■■■#3 in 5-year cumulative net client asset flows
behind BlackRock and Morgan Stanley34
■■■Positive client asset flows in 2022 across all
regions, with strength in brokerage, equity,
custody and fixed income
■■$98B in Alternatives fundraising over two years
YOY
Alternatives assets ($B) 29,31
Deposits ($B)29
NA Not available
#1
$177
$364
$372
$52
$141
$282
$233
#1
$30
$218
$214
1,506
#7
2,371
#3
2004 2005 2006
3,137
$79
#1
#1
#28
Assets under custody ($T)
$13.9
$18.8
$33.2
$28.6
Average client deposits ($B)16
$190
Bank
$356
$687
Firmwide Payments revenue ($B)17
$5.0
$6.7
$9.9
$13.9
Firmwide Payments revenue rank
$715
(share) 18
13.1%
7.8%
#1
#1
Market share¹5
7.0%
9.0%
12.3%
#1
11.0%
11.8%
Corporate &
#8
#3
co-#1
#1
Investment
Market share¹5
5.0%
Equities¹5
ΝΑ
ΝΑ
#1 (7.2)%
$53.6
$120.1
Average deposits ($B)
$73.6
$195.9
$205.0
$301.5
$223.7
Average loans ($B)
$294.3
Gross investment banking revenue ($B) 24
$0.7
$1.6
$5.1
$3.0
Banking
Multifamily lending25
Commercial
2,277
2,252
NA
#1 (8.4)%
Firmwide average daily security
purchases and sales ($T)
NA
NA
$2.9
$3.1
# of top 75 MSAs with dedicated teams
36
52
# of bankers
1,203
1,240
66
2,254
69
2,360
New relationships (gross)23
ΝΑ
FICC15
$18.88
Fourth, we are united behind basic prin-
ciples and strategies (you can see the
How We Do Business principles on our
website) that have helped build this
company and made it thrive - from
maintaining a fortress balance sheet,
constantly investing and nurturing tal-
ent to fully satisfying regulators, contin-
ually improving risk, governance and
controls, and serving customers and
clients while lifting up communities
worldwide. This philosophy is embedded
in our company culture and influences
nearly every role in the firm.
$21.96 $22.52
134.10
$
158.35
$
127.07
Market capitalization
Common shares at period-end
$
393,484
2,934.2
387,492
2,944.1
3,049.4
Headcount
293,723
271,025
255,351
466,206
(a) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures on pages 58-60 for a discussion of these measures.
Closing share price
Total stockholders' equity
$1,077,714
$1,012,853
Total assets
3,665,743
3,743,567
3,384,757
Deposits
Market data
2,340,179
2,144,257
Common stockholders' equity
264,928
292,332
259,289
249,291
294,127
279,354
2,462,303
$1,135,647
(b) Refer to Liquidity Risk Management on pages 97-104 for additional information on this measure.
(c) Refer to Capital Risk Management on pages 86-96 for additional information on these measures.
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and about
Chase's capabilities at chase.com. Information about JPMorgan Chase & Co. is available at
jpmorganchase.com.
AFFORDABLE
HOUSING UNITS
Helped create or preserve over
210,000 affordable housing units
and financed $27 billion toward
affordable housing since 2021
TOP 5
MOST ADMIRED COMPANIES
Ranked in the top five on
Fortune magazine's Most Admired
Companies list for the first time
%
#1
210,000+
IN DEPOSITS AND FOR
SMALL BUSINESSES
•TILL
#1
IN ARTIFICIAL INTELLIGENCE
Ranked #1 on the Evident Al Index,
the first public benchmark of major
banks on their Al maturity
$
$1.1 TRILLION
AWM CLIENT ASSET INFLOWS
Over the last five years, Asset & Wealth
Management (AWM) client asset inflows
totaled $1.1 trillion
Named #1 in retail deposit
market share and #1 primary
bank for U.S. small businesses
JPMorgan Chase & Co. (NYSE: JPM) is a leading financial services firm with assets of
$3.7 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing and asset management. Under the J.P. Morgan and Chase brands,
the firm serves millions of customers, predominantly in the U.S., and many of the world's
most prominent corporate, institutional and government clients globally.
Wealth Management ranked #1 in
J.D. Power 2022 U.S. Wealth
Management Digital Experience Study
$10 million in humanitarian aid
1.5 MILLION
LOW-COST CHECKING ACCOUNTS
Opened 1.5 million Chase
Secure BankingSM low-cost
checking accounts since 2019
#1
CORPORATE & INVESTMENT BANK
Generated $15 billion of
net new income on revenue
of $48 billion
$40 BILLION
and philanthropic support
for Ukraine the largest giving
campaign in the firm's history
TO SUPPORT VITAL INSTITUTIONS
$2.5 TRILLION
SUSTAINABLE DEVELOPMENT TARGET
$10 MILLION
TO SUPPORT UKRAINE
#1
CUSTOMER SATISFACTION
Financed and facilitated
$482 billion toward this target
since 2021
Extended $40 billion to support
vital institutions like hospitals, schools
and local governments since 2021
Loans
Selected balance sheet data (period-end)
17.3
(9,256)
17,480
Net income
$
37,676
$
48,334
6,389
$
Per common share data
Net income per share:
Basic
$
12.10
$
15.39
29,131
8.89
Provision for credit losses
50,306
■■■ #2 in Institutional Money Market Funds AUM35
■49% of Asset Management AUM managed by
female and/or diverse portfolio managers36
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit (a)
53,295
2022
2020
$ 128,695
76,140
$ 121,649
$ 119,951
71,343
66,656
52,555
2021
Diluted
12.09
15.36
14
Liquidity coverage ratio (average)(b)
112
111
110
Common equity Tier 1 capital ratio (c)
13.2
23
13.1
Tier 1 capital ratio (c)
14.9
15.0
15.0
Total capital ratio (c)
16.8
16.8
13.1
18
Return on tangible common equity (ROTCE)(a)
12%
8.88
Book value per share
90.29
Financial Highlights
81.75
Tangible book value per share (TBVPS) (a)
73.12
71.53
66.11
Cash dividends declared per share
4.00
3.80
3.60
Selected ratios
Return on common equity
14%
19%
00000
$15.35 $16.45
1 MILLION
In its first year, Chase in
the U.K. acquired more than
2005 2006 2007 2008 2009
2010 2011 2012 2013
2014
2015
2016
2017
2018
2004
2019
2022
Net income
Diluted earnings per share (EPS)
Return on tangible common equity (ROTCE)
1 Firmwide results excluding reserve release/build are non-GAAP financial measures.
2 Adjusted net income excludes $2.4 billion from net income in 2017 as a result of the enactment of the Tax Cuts and Jobs Act.
GAAP Generally accepted accounting principles
Adjusted
ROTCE²
was 13.6%
for 2017
2020 2021
ROTCE excluding
reserve release/build
was 19.3% for 2020
$45 $1.35▬▬▬▬▬▬▬▬▬▬▬▬▬▬
14%
15% $14.4
10%
15%
15%
$5.19
$5.29 13%
13%
$2.35
12%
$4.48
$4.34
$8.5
$4.00 $4.33
6%
$3.96
$5.6 $2.26
$11.7
$15.4
and 18.5% for 2021
-
$43.93
$56.33
$38.70
$39.83
$36.07
$40.36 $39.36 $39.22
$53.56
$60.98
$51.44
$48.13
$44.60
$40.72
$38.68
$33.62
$30.12
$27.09
$35.49
ROTCE = Return on tangible common equity
$47.75
$66.11
An important note to describe why we are showing the table above: The loan loss reserve
accounting rules – which are life-of-loan estimated losses based upon probability-based economic
scenarios - generate huge swings in earnings that can be unrelated to actual credit performance.
This was particularly true for the COVID-19 years when, during the first six months of the pandemic,
we built approximately $16 billion in reserves. Then in the next six quarters, we released essentially
the equivalent number. We did so only because the scenarios used to estimate future credit losses
changed dramatically.
The table above shows reported net income, with and without loan loss reserve changes.
Throughout this period, the credit portfolio was healthy, and charge-offs remained below
pre-pandemic levels. Either way, the company had strong absolute and relative performance.
6
Tangible Book Value¹ and Average Stock Price per Share
2004-2022
$92.01
$113.80
$51.88
$110.72
$155.61
$128.13
High: $169.81
Low: $101.28
$63.83 $65.62
$58.17
$71.53
$73.12
$106.52
5174 15% 51% 13% 56.00 56.31 79% 19% N
10%
18%
Third, while we don't run the company
worrying about the stock price in the
short run, in the long run we consider
our stock price a measure of our prog-
ress over time. This progress is a func-
tion of continual investments in our
people, systems and products, in good
and bad times, to build our capabilities.
These important investments will also
drive our company's future prospects
and position it to grow and prosper for
decades. Measured by stock perfor-
mance, our progress is exceptional.
For example, whether looking back
10 years or even farther to 2004, when
the JPMorgan Chase/Bank One merger
took place, we have significantly out-
performed the Standard & Poor's 500
Index and the Standard & Poor's Finan-
cials Index.
Fifth, we strive to build enduring busi-
nesses, which rely on and benefit from
one another, but we are not a conglomer-
ate. This structure helps generate our
superior returns. Nonetheless, despite
our best efforts, the walls that protect
this company are not particularly high -
and we face extraordinary competition.
I have written about this reality exten-
sively in the past and cover it again in
this letter. We recognize our strengths and
vulnerabilities, and we play our hand as
best we can.
Sixth, we operate with a very important
silent partner - the U.S. government -
noting as my friend Warren Buffett points
out that his company's success is predi-
cated upon the extraordinary conditions
our country creates. He is right to say to
his shareholders that when they see the
American flag, they all should say thank
you. We should, too. JPMorgan Chase is a
healthy and thriving company, and we
always want to give back and pay our fair
share. We do pay our fair share - and we
want it to be spent well and have the
greatest impact. To give you an idea of
where our taxes and fees go: In the last
10 years, we paid more than $43 billion in
federal, state and local taxes in the United
States and almost $19 billion in taxes out-
side of the United States. We also paid the
Federal Deposit Insurance Corporation
over $10 billion so that it has the resources
to cover failure in the American banking
sector. Our partner - the federal govern-
ment - also imposes significant regula-
tions upon us, and it is imperative that we
meet all legal and regulatory requirements
imposed on our company.
Seventh and finally, we know the founda-
tion of our success rests with our people.
They are the frontline, both individually
and as teams, serving our customers and
communities, building the technology,
making the strategic decisions, managing
the risks, determining our investments
and driving innovation. However you view
the world - its complexity, risks and
opportunities - a company's prosperity
requires a great team of people with guts,
brains, integrity, enormous capabilities
and high standards of professional excel-
lence to ensure its ongoing success.
5
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004-2022
Looking back on the past two+ decades -
starting from my time as CEO of Bank One
in 2000 - there is one common theme:
our unwavering dedication to help clients,
communities and countries throughout
the world. It is clear that our financial dis-
cipline, constant investment in innovation
and ongoing development of our people
are what enabled us to achieve this con-
sistency and commitment. In addition,
across the firm, we uphold certain stead-
fast tenets that are worth repeating.
First, our work has very real human
impact. While JPMorgan Chase stock is
owned by large institutions, pension
plans, mutual funds and directly by single
investors, in almost all cases the ultimate
beneficiaries are individuals in our com-
munities. More than 100 million people in
the United States own stock; many, in one
way or another, own JPMorgan Chase
stock. Frequently, these shareholders are
veterans, teachers, police officers, fire-
fighters, healthcare workers, retirees or
those saving for a home, education or
retirement. Often, our employees also
bank these shareholders, as well as their
families and their companies. Your man-
agement team goes to work every day
recognizing the enormous responsibility
that we have to all of our shareholders.
Second, shareholder value can be built
only if you maintain a healthy and vibrant
company, which means doing a good job
of taking care of your customers, employ-
ees and communities. Conversely, how
can you have a healthy company if you
neglect any of these stakeholders? As
we have learned over the past few years,
there are myriad ways an institution
can demonstrate its compassion for its
employees and its communities while still
upholding shareholder value.
($in billions, except per share and ratio data)
$48.3
Reported
Excluding reserve release/build¹
2020
2021
2022
2020
Net income
excluding reserve
release/build
2021
STEADFAST PRINCIPLES WORTH REPEATING
I often remind our employees, the work we do matters and has impact. We help
people and institutions finance and achieve their aspirations, lifting up
1 million customers
Dear Fellow Shareholders,
Across the globe, 2022 was another year of significant challenges: from a terrible
war in Ukraine and growing geopolitical tensions - particularly with China - to a
politically divided America. Almost all nations felt the effects of global economic
uncertainty, including higher energy and food prices, mounting inflation rates
and volatile markets, and, of course, COVID-19's lingering impacts. While all these
experiences and associated turmoil have serious ramifications on our company,
colleagues, clients and the countries in which we do business, their consequences
on the world at large - with the extreme suffering of the Ukrainian people and
the potential restructuring of the global order - are far more important.
As these events unfold, America remains divided within its borders, and its
global leadership role is being challenged outside of its borders. Nevertheless,
this is the moment when we should put aside our differences and work with other
Western nations to come together in defense of democracy and essential
2
Jamie Dimon,
Chairman and
individuals, homeowners, small businesses, larger corporations, schools,
hospitals, cities and countries in all regions of the world.
Chief Executive
Officer
In spite of the unsettling landscape, 2022 was somewhat surprisingly another
strong year for JPMorgan Chase, with the firm generating record revenue for
the fifth year in a row, as well as setting numerous records in each of our lines
of business. We earned revenue in 2022 of $132.3 billion¹ and net income of
$37.7 billion, with return on tangible common equity (ROTCE) of 18%, reflecting
strong underlying performance across our businesses. We also maintained our
quarterly common dividend of $1.00 per share and continued to reinforce our
fortress balance sheet. We grew market share in several of our businesses and
continued to make significant investments in products, people and technology
while exercising strict credit discipline. In total, we extended credit and raised
capital of $2.4 trillion for our consumer and institutional clients around the world.
I remain proud of our company's resiliency and of what our hundreds of thousands
of employees around the world have achieved, collectively and individually.
Throughout these challenging past few years, we never stopped doing all the
things we should be doing to serve our clients and our communities.
Adhering to our basic principles and strategies (see sidebar on Steadfast
Principles on page 5) allows us to drive good organic growth and properly
manage our capital (including dividends and stock buybacks), as we have
1 Represents managed revenue.
3
consistently demonstrated for decades. Our performance results are shown in
the charts on pages 6-12, which illustrate how we have grown our franchises,
how we compare with our competitors and how we look at our fortress balance
sheet. I invite you to peruse them at your leisure. In addition, I urge you to read
the CEO letters in this Annual Report, which will give you more specific details
about our businesses and our plans for the future.
As you know, we are champions of banking's essential role in a community –
its potential for bringing people together, for enabling companies and individuals
to attain their goals, and for being a source of strength in difficult times. As
freedoms, including free enterprise. During other times of great crisis, we have
seen America, in partnership with other countries around the globe, unite for a
common cause. This is that moment again, when our country needs to work
across public and private sectors to lead while improving American competitiveness
– which also means re-establishing the American promise of providing equal
access to opportunity for all. JPMorgan Chase, a company that historically has
worked across borders and boundaries, will do its part to ensure the global
economy is safe and secure.
2022
Net income ($B)
$29.1
19.1%
Adjusted net income² $32.5
$36.4
$15.36
$12.09
$26.9
$10.72 $29.1
18.5%
$9.00
24%
22%
$21.7
$21.3
$19.0
$8.88
23%
$24.4 $24.7 $24.4
19.3%
17.7%
23.0%
$48.3
$37.7
$38.4
$39.1
$40.4
$38.4
$39.1
$37.7
Diluted EPS ($)
$8.88
$15.36
$12.09
$11.87
$12.35
$12.99
ROTCE
14.4%
NEW CUSTOMERS
88.07
Creating
Possibility
Annual
Report
2022
JPMORGAN CHASE & CO.
26,041
$
Net charge-offs/(recoveries)
Nonaccrual loans
Credit data and quality
statistics
Equity
Deposits
2,462
2,738
3,137
Number of Global Private Bank
client advisors
20,683
22,762
24,000
Headcount
10,500
14,000
17,000
161,955
230,296
261,489
166,311
198,487
215,582
Loans
$217,187 $181,432
$232,438
Total assets
(average)(c)
Selected balance sheet data
198,755
10,500
(7) $
26
$
(14)
Allowance for loan losses to
nonaccrual loans
0.32
0.17
0.23
period-end loans
Allowance for loan losses to
(0.01)%
0.01 %
%
Net charge-off/(recovery) rate
636
$
383
$
14,000
514
Total allowance for credit
losses
88
38
18
20
598
365
$
494
Allowance for loan losses
Allowance for lending-related
commitments
Allowance for credit losses:
964
708
459
$
17,000
Equity
186,608
"Primary share class" means the C share class for European funds and
Acc share class for Hong Kong SAR and Taiwan funds. If these share
classes are not available, the oldest share class is used as the primary
share class.
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years):All
quartile rankings, the assigned peer categories and the asset values
used to derive these rankings are sourced from the fund rating
providers. Quartile rankings are based on the net-of-fee absolute
return of each fund. Where applicable, the fund rating providers
redenominate asset values into U.S. dollars. The percentage of AUM is
based on fund performance and associated peer rankings at the share
class level for U.S.-domiciled funds, at a "primary share class" level to
represent the quartile ranking for U.K., Luxembourg and Hong Kong
SAR funds and at the fund level for all other funds. The performance
data may have been different if all share classes had been included.
Past performance is not indicative of future results.
⚫ Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industrywide ranked funds. An overall
Morningstar rating is derived from a weighted average of the
performance associated with a fund's three-, five and ten-year (if
applicable) Morningstar Rating metrics. For U.S.-domiciled funds,
separate star ratings are provided at the individual share
class level. The Nomura "star rating" is based on three-year risk-
adjusted performance only. Funds with fewer than three years of
history are not rated and hence excluded from these rankings. All
ratings, the assigned peer categories and the asset values used to
derive these rankings are sourced from the applicable fund rating
provider. Where applicable, the fund rating providers redenominate
asset values into U.S. dollars. The percentage of AUM is based on star
ratings at the share class level for U.S.-domiciled funds, and at a
"primary share class" level to represent the star rating of all other
funds, except for Japan, for which Nomura provides ratings at the
fund level. The performance data may have been different if all share
classes had been included. Past performance is not indicative of
future results.
Asset Management has two high-level measures of its
overall fund performance.
JPMorgan Chase & Co./2022 Form 10-K
10
76
28
37
33
Asset & Wealth Management
27
39
35
Global Private Bank
29
35
30
Asset Management
Pre-tax margin ratio:
70
28 %
33 %
25 %
64
30%
67
26
Overhead ratio
Selected metrics
As of or for the year ended
December 31,
(in millions, except ranking
data, ratios and headcount)
% of JPM mutual fund assets
rated as 4- or 5-star (a)
218,271
282,052
233,130
214,006
$234,425 $203,384
$232,037
Total assets
Selected balance sheet data
(period-end)(c)
72
69
63
N。æ
80
81
72
108
75
65
63 %
69 %
73 %
2020
2021
2022
Deposits
Loans
5 years
3 years
1 year
quartile:
% of JPM mutual fund assets
ranked in 1st or 2nd
(b)
53
52
62
Nonaccrual loans to period-end
loans
Total client assets (a)
1,905
2,219
1,992
North America
936
1,182
1,282
administration/deposits
Custody/brokerage/
811
894
774
Total international assets under
management
2,716
3,113
2,766
Total assets under management
153
201
201
Alternatives
70
79
69
Latin America/Caribbean
656
732
603
$
4,048 $ 4,295 $ 3,652
Total assets under management
$ 2,766 $
1,118
1,263
1,130
Total international client assets
166
195
189
Latin America/Caribbean
1,273
330
381
331
622
687 $
Multi-asset
610 $
Europe/Middle East/Africa
Asia-Pacific
689
805 $
1,430
878
754
3,113 $ 2,716
1,252
763
2,766 $
Total assets under management $
Global Funds
Global Institutional
751 $
$
Private Banking
Assets by client segment
Client assets
2,716
3,113 $
$
224
254
218
Total international net revenue
782
886
967
1,665
2,017
1,836
3,571 $2,956
$ 3,240 $
2020
2021
2022
Latin America/Caribbean
Total net revenue (in millions) (a)
Europe/Middle East/Africa
Asia-Pacific
6,043
(in billions, except where otherwise
noted)
International metrics
Client assets
Client assets were $4.0 trillion, a decrease of 6%. Assets
under management were $2.8 trillion, a decrease of 11%
driven by lower market levels and net outflows from
liquidity products, partially offset by continued net inflows
into long term products.
2022 compared with 2021
Client assets
Management's discussion and analysis
77
(c) Loans, deposits and related credit data and quality statistics relate to
the Global Private Bank business.
(b) Quartile ranking sourced from Morningstar, Lipper and Nomura based
on country of domicile. Includes only Asset Management retail open-
ended mutual funds that are ranked by the aforementioned sources.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds.
(a) Represents the Morningstar Rating for all domiciled funds except for
Japan domiciled funds which use Nomura. Includes only Asset
Management retail open-ended mutual funds that have a rating.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds.
JPMorgan Chase & Co./2022 Form 10-K
0.52
0.32
0.21
Year ended December 31,
Return on equity
6,474
December 31,
Asia-Pacific
595
779
670
Equity
517
487 $ 561 $
$
Europe/Middle East/Africa
671
693
638
Fixed income
Assets under management
5,403
641
654 $
$
Liquidity
$ 17,748 $ 16,957 $ 14,240
Total net revenue
Assets by asset class
8,837
10,483
11,705
North America
2020
2021
2022
(in billions)
708 $
Financial ratios
The provision for credit losses in the prior year was a net
benefit of $227 million driven by a net reduction in the
allowance for credit losses.
The provision for credit losses was $128 million, driven by a
net addition to the allowance for credit losses.
16%
41
Overhead ratio
Return on equity
Financial ratios
102,479
687
100,331
222
168
Other
105,459
67,830 $ 60,128 $ 61,558
50,281
44,361
54,172
Corporate Client Banking
Commercial Real Estate
Banking
9,313
$
$ 10,008
$ 11,533
Total net revenue
157
77
20
Other
2,313
2,419
2,461
Banking
$
Middle Market Banking
Average loans by client
segment
3,203
3,508
21 %
40
11 %
41
Total loans
$ 223,738 $ 205,042 $ 218,896
740
766
(c)
(c)
Nonaccrual loans retained (a)
Nonaccrual loans:
Nonperforming assets
$ 401
$ 71
84
$
Net charge-offs/(recoveries)
Credit data and quality statistics
2020
3,640
2021
ratios)
December 31, (in millions, except
As of or for the year ended
Selected metrics
JPMorgan Chase & Co./2022 Form 10-K
74
(a) At December 31, 2022, 2021 and 2020, total loans included $132
million, $1.2 billion and $6.6 billion of loans under the PPP, of which
$123 million, $1.1 billion and $6.4 billion were in Middle Market
Banking, respectively. Refer to Credit Portfolio on pages 108-109 for a
further discussion of the PPP.
(c) Includes gross revenues earned by the Firm for investment banking
and payments products sold to CB clients that are subject to a revenue
sharing arrangement with the CIB. Refer to Business Segment Results
on page 61 for a discussion of revenue sharing.
(b) Includes CB's share of revenue from investment banking products sold
to CB clients through the CIB.
(a) In the fourth quarter of 2022, certain revenue from CIB Markets
products was reclassified from investment banking to payments. Prior-
period amounts have been revised to conform with the current
presentation.
11,675
12,902
14,687
Headcount
2022
$
$ 5,134 $ 4,004
3,918
237,825
22,000
5,882
Payments (a)
$ 233,156
$ 243,108 $ 225,548
Total assets
4,396
$ 4,629 $
$ 4,524
Lending
Revenue by product
(in millions, except ratios)
Year ended December 31,
Other
Selected income statement data (continued)
3,791
210,125
Selected balance sheet
data (average)
2020
2021
2022
Total loans (a)
444
101,146
101,751
218
122
107,999
47,420
72,625 $ 61,159 $ 61,115
53,840
45,315
$
$ 234,586 $ 208,443 $
1,286
3,820
Investment banking a
301,502
24,000
294,261
25,000
Equity
Revenue by client segment
Middle Market Banking
Corporate Client Banking
Commercial Real Estate
Client deposits and other
third-party liabilities
$ 3,348
$ 5,092
$ 2,978
Investment banking revenue,
gross
1,129
$ 218,896
$ 223,738 $ 205,042
Total loans
3,122
1,350
Loans:
Loans held-for-sale and
loans at fair value
133
115
$ 10,008
$ 11,533
Total net revenue
254
Other
217,767
201,920
222,388
Loans retained
964
1,473
873
(a)(b)
$ 9,313
North America
Nonaccrual loans held-for-sale
120
5,791
expense
Income before income tax
9,957
10,919
11,829
Total noninterest expense
4,959
4,998
5.227
5,493
Noncompensation expense
5,692
6,336
Compensation expense
Noninterest expense
263
(227)
128
Provision for credit losses
3,418
14,240
$10,610
212
10,822
$12,333
738
13,071
3,886
16,957
17,748
Total net revenue
5,241
Net interest income
335
12,507
Noninterest revenue
All other income
6,265
4,020
Income tax expense
1,426
Noninterest expense was $11.8 billion, up 8%, driven by
higher structural expense and investments in the business,
largely compensation.
lower brokerage and placement fees on reduced volume,
and lower management fees.
partially offset by
margin expansion on higher rates and higher average
deposits; and to a lesser extent higher average loans and
wider spreads,
•
•
Revenue from Global Private Bank was $8.9 billion, up
16%, driven by:
⚫ lower asset management fees reflecting a decline in
market levels and the impact of net liquidity outflows,
predominantly offset by the removal of most money
market fund fee waivers.
net investment valuation losses compared to net gains in
the prior year and,
•
•
Revenue from Asset Management was $8.8 billion, down
5%, predominantly driven by:
Net revenue was $17.7 billion, up 5%. Net interest income
was $5.2 billion, up 35%. Noninterest revenue was $12.5
billion, down 4%.
Net income was $4.4 billion, down 8%.
$12,172
2022 compared with 2021
$ 7,654
$ 9,246
7,711
$16,957
8,930
$17,748
Total net revenue
Global Private Bank
$ 8,818
Asset Management
Revenue by line of business
$ 2,992
$ 4,737
$ 4,365
Net income
1,028
1,528
6,586
$14,240
and commissions
Asset management, administration
Revenue
0.18%
0.04%
0.04%
(b)
Net charge-off/(recovery) rate"
3,986
2,968
4,154
Total allowance for credit losses
651
749
830
Allowance for lending-related
commitments
3,335
Allowance for loan losses to
2,219
Allowance for loan losses
Allowance for credit losses:
1,430
757
766
Total nonperforming assets
24
17
satisfactions
Assets acquired in loan
1,406
740
766
Total nonaccrual loans
3,324
and loans at fair value
period-end loans retained
1.08
2020
2021
2022
(in millions, except ratios)
Year ended December 31,
Selected income statement data
The majority of AWM's client assets are in actively
managed portfolios.
Provides retirement products and services, brokerage,
custody, estate planning, lending, deposits and
investment management to high net worth clients.
Global Private Bank
Offers multi-asset investment management solutions
across equities, fixed income, alternatives and money
market funds to institutional and retail investors
providing for a broad range of clients' investment needs.
Asset Management
Asset & Wealth Management, with client assets of $4.0
trillion, is a global leader in investment and wealth
management.
ASSET & WEALTH MANAGEMENT
Management's discussion and analysis
1.42
75
(c) At December 31, 2022 and 2021, nonaccrual loans excluded $18
million and $114 million, respectively, of PPP loans 90 or more days
past due and guaranteed by the SBA.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(a) Allowance for loan losses of $153 million, $124 million and $273
million was held against nonaccrual loans retained at December 31,
2022, 2021 and 2020, respectively.
0.67
0.36
0.33
total loans
Nonaccrual loans to period-end
259
300
434
nonaccrual loans retained (a)
Allowance for loan losses to
1.60
JPMorgan Chase & Co./2022 Form 10-K
2,918
3,032
2,534
133,296
Client deposits and other third-party liabilities (average)(b)
Europe/Middle East/Africa
$
247,203 $
243,867 $
211,592
Asia-Pacific
129,134
132,241
124,145
Latin America/Caribbean
39,917
46,045
37,664
Total international
$
416,254 $
422,153 $
373,401
North America
271,137
Total client deposits and other third-party liabilities
$
687,391 $
292,757
714,910 $
237,154
610,555
AUC (period-end)(b)
159,786 $
187,642 $
$
Total loans retained
23,327
22,511
28,407
25,957
$
47,899 $
51,749
$
49,284
$
39,424
$
33,084 $
27,659
(in billions)
Asia-Pacific
14,471
12,802
Latin America/Caribbean
8,599
7,006
5,425
Total international loans
63,594
54,561
45,886
North America
124,048
105,225
87,410
15,571
23,342
North America
All other regions
6,246
Total net revenue (b)
11,533
10,008
9,313
Provision for credit losses
1,268
(947)
2,113
Noninterest expense
Compensation expense
2,296
1,973
(a) During 2022, 2021 and 2020, the Firm transferred $78.3 billion,
$104.5 billion and $164.2 billion of investment securities,
respectively, from AFS to HTM for capital management purposes.
(b) At December 31, 2022, 2021 and 2020, the allowance for credit
losses on investment securities was $67 million, $42 million and $78
million, respectively.
1,854
Noncompensation expense
2,423
2,068
1,944
Total noninterest expense
4,719
4,041
3,798
Income before income tax expense
5,546
6,914
3,402
Income tax expense
1,333
6,079
8,197
Net interest income
3,067
Total AUC
$
19,219 $
9,416
28,635
$
21,655 $
11,566
33,221 $
20,028
10,952
30,980
(a) Total net revenue and loans retained (excluding loans held-for-sale and loans at fair value) are based on the location of the trading desk, booking
location, or domicile of the client, as applicable.
(b) Client deposits and other third-party liabilities pertaining to the Payments and Securities Services businesses, and AUC, are based on the domicile of the
client.
72
JPMorgan Chase & Co./2022 Form 10-K
COMMERCIAL BANKING
Commercial Banking provides comprehensive financial
solutions, including lending, payments, investment
banking and asset management products across three
primary client segments: Middle Market Banking,
Corporate Client Banking and Commercial Real Estate
Banking. Other includes amounts not aligned with a
primary client segment.
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
$
Selected income statement data
2022
2021
2020
$ 1,392 $ 1,187
1,880
Year ended December 31,
(in millions)
Revenue
Lending- and deposit-related fees
$ 1,243
All other income (a)
2,093
2,537
3,336
3,929
Noninterest revenue
25,388
1,931
1,833
10
236
550
2,007
2,557
545
1,967
2,512
411
2,087
2,498
916
(131)
785
972
(101)
871
493
(62)
13,451
5,166
10,744
(377)
24,195
4,789
9,749
9,402
19,151
12,987
8,122
431
21,109
226
$ 11,857 $ 6,087 $ 17,944
$ 7,911 $ 7,519 $ 15,430
17
338
321
For the periods presented below, the predominant source of principal transactions revenue was the amount recognized upon
executing new transactions.
Year ended December 31,
(in millions, except where
otherwise noted)
Principal transactions
Lending- and deposit-related fees
Asset management,
administration and commissions
All other income
Noninterest revenue
Net interest income
Total net revenue
Loss days (a)
2022
2021
2020
7,116
Fixed
Income
Markets
Total
Markets
Fixed
Income
Fixed
Markets
Equity
Markets
Total
Markets
Income
Markets
Equity
Markets
Total
Markets
$ 11,682 $ 8,846 $ 20,528
303
22
325
JPMorgan Chase & Co./2022 Form 10-K
Equity
Markets
1,127
8,243
7,891
$ 687,391 $ 714,910 $ 610,555
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Represents total merchant processing volume across CIB, CCB and CB.
(c) Client deposits and other third-party liabilities pertain to the Payments and Securities Services businesses.
4
JPMorgan Chase & Co./2022 Form 10-K
71
Management's discussion and analysis
International metrics
As of or for the year ended December 31,
(in millions, except where otherwise noted)
Total net revenue
(a)
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
$ 2,158.4 $ 1,886.7 $ 1,597.3
Total international net revenue
Total net revenue
Loans retained (period-end)(a)
Europe/Middle East/Africa
2022
2021
2020
$
15,303 $
13,954 $
13,872
7,846
7,555
7,524
2,239
North America
1,668
30,980
$
483
8,374
$ 18,617 $ 10,367 $ 28,984 $
16,865 $ 10,529 $ 27,394 $ 20,878 $ 8,605 $ 29,483
7
4
(a) Loss days represent the number of days for which CIB Markets, which consists of Fixed Income Markets and Equity Markets, posted losses to total net
revenue. The loss days determined under this measure differ from the measure used to determine backtesting gains and losses. Daily backtesting gains
and losses include positions in the Firm's Risk Management value-at-risk ("VaR") measure and exclude certain components of total net revenue, which
may more than offset backtesting gains or losses on a particular day. For more information on daily backtesting gains and losses, refer to the VaR
discussion on pages 133-135.
Selected metrics
As of or for the year ended December 31,
(in millions, except where otherwise noted)
Assets under custody ("AUC") by asset class (period-end) (in billions):
Fixed Income
Equity
Other (a)
28,635 $ 33,221 $
Total AUC
Client deposits and other third party liabilities (average) (c)
2022
2021
2020
$
14,361 $
10,748
16,098
$
15,840
12,962
11,489
3,526
4,161
3,651
Merchant processing volume (in billions)(b)
824
Net income
2022 compared with 2021
(3,551)
1,878
Net interest income
1,199
68
(1,798)
159
795
(345)
226
809
All other income
(2,380)
gains/(losses)
Investment securities
245
187 $
$
(227)
$
Principal transactions
Revenue
2022
headcount)
(in millions, except
Year ended December 31,
2020
2021
Noninterest revenue
Selected income statement and balance sheet data
(2,375)
(a)
Total net revenue
80
519
Other Corporate
(3,464)
(439)
Treasury and CIO
Total net revenue
(865)
(1,750)
(1,653)
(3,713) $
$
(743)
$
Net income/(loss)
(233)
(benefit)
Other Corporate includes staff functions and expense
that is centrally managed as well as certain Firm
initiatives and activities not aligned to a specific LOB.
The major Other Corporate functions include Real
Estate, Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
Income tax expense/
(5,366)
(976)
(benefit)
income tax expense/
Income/(loss) before
66
1,373
1,802
1,034
Noninterest expense
81
22
Provision for credit losses
(1,176)
(3,483)
(2,615)
The Corporate segment consists of Treasury and Chief
Investment Office ("CIO") and Other Corporate.
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the
Firm's liquidity, funding, capital, structural interest
rate and foreign exchange risks.
CORPORATE
JPMorgan Chase & Co./2022 Form 10-K
104
68
(55)
$ 3,113 $ 2,716 $2,328
2020
2021
2022
Multi-asset
Equity
Fixed income
Liquidity
Net asset flows:
Beginning balance
Assets under management
rollforward
13
Year ended December 31,
(in billions)
(a) Includes CCB client investment assets invested in managed accounts
and J.P. Morgan mutual funds where AWM is the investment manager.
1,931 $ 1,581
1,479
1,311
885
760
4,048 $ 4,295 $ 3,652
$
Total client assets (a)
(a) Regional revenue is based on the domicile of the client.
1,314
770
Global Funds
Global Institutional
3,652
4,048 $ 4,295 $
$
Total client assets
$ 1,964 $
Private Banking
Client assets (continued)
(19)
36
35
78
$ 4,048 $ 4,295 $ 3,652
287
254
(296)
276
389
49
$ 4,295 $ 3,652 $ 3,089
$ 2,766 $ 3,113 $ 2,716
192
165
(339)
Ending balance, December 31
48
impacts
Net asset flows
Client assets rollforward
Beginning balance
Ending balance, December 31
impacts
Market/performance/other
Alternatives
6
26
8
5
17
(9)
33
85
Market/performance/other
Middle Market Banking (a)
Corporate Client Banking
Commercial Real Estate
Banking
Total net revenue
80
207,880
2,245
$ 234,586 $ 208,443 $ 210,125
25,000
$670,059 $ 587,886
$629,286
Investment securities portfolio,
net of allowance for credit
losses (period-end)(b)
(period-end)(a)
201,821
363,707
425,305
Held-to-maturity securities
$ 386,065
$306,352
$ 203,981
(period-end)
Available-for-sale securities
$ 507,936
$ 591,913
$652,104
Investment securities portfolio
(average)
94,569
285,086
412,180
(a)
(average)
Held-to-maturity securities
$306,827 $ 413,367
$239,924
Available-for-sale securities
(average)
2,223
206,220
707
233,879
Net income was $4.2 billion, down 20%, reflecting a net
increase in the provision for credit losses compared with a
net benefit in the prior year.
Net revenue was $11.5 billion, up 15%. Net interest
income was $8.2 billion, up 35%, driven by deposit margin
expansion on higher rates and growth in loans,
predominantly offset by the impact of higher funding costs
and lower deposits.
Noninterest revenue was $3.3 billion, down 15%, driven by
lower investment banking revenue and net markdowns on
held-for-sale positions, primarily unfunded commitments, in
the bridge financing portfolio. The decreases were partially
offset by a gain on an equity method investment received in
partial satisfaction of a loan.
Noninterest expense was $4.7 billion, up 17%, largely
driven by higher volume-and revenue-related expense, as
well as structural expense, including higher compensation
expense, and expense associated with growth in payments.
The provision for credit losses was $1.3 billion,
predominantly driven by a net addition to the allowance for
credit losses, reflecting deterioration in the Firm's
macroeconomic outlook and loan growth.
The provision for credit losses in the prior year was a net
benefit of $947 million, driven by a net reduction in the
allowance for credit losses.
$ 4,213 $ 5,246 $ 2,578
(a) Includes card income of $685 million, $624 million and $525 million
for the years ended December 31, 2022, 2021 and 2020,
respectively.
(b) Total net revenue included tax-equivalent adjustments from income
tax credits related to equity investments in designated community
development entities and in entities established for rehabilitation of
historic properties, as well as tax-exempt income related to municipal
financing activities of $322 million, $330 million and $350 million for
the years ended December 31, 2022, 2021 and 2020, respectively.
JPMorgan Chase & Co./2022 Form 10-K
73
Management's discussion and analysis
CB product revenue consists of the following:
Lending includes a variety of financing alternatives,
which are primarily provided on a secured basis;
collateral includes receivables, inventory, equipment,
real estate or other assets. Products include term loans,
revolving lines of credit, bridge financing, asset-based
structures, leases, and standby letters of credit.
Payments includes revenue from a broad range of
products and services that CB clients use to manage
payments and receipts globally, as well as invest and
manage funds.
Investment banking includes investment banking fees
and markets revenue from a full range of products and
services providing CB clients with advisory, loan
syndications, capital-raising in equity and debt markets,
and risk management solutions.
795
Other revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking and activity derived from principal transactions.
As of or for the year
ended December 31, (in
millions, except
headcount)
Selected balance sheet
data (period-end)
Total assets
Loans:
Loans retained
Loans held-for-sale and
loans at fair value
Total loans
Equity
Period-end loans by
client segment
2022
2021
2020
$ 257,106 $ 230,776 $ 228,911
Selected metrics
$ (2,380) $ (345) $
2021
80
•
Net revenue was $80 million, compared with a loss of $3.5
billion driven by higher net interest income due to higher
rates, partially offset by lower noninterest revenue.
Noninterest revenue was a loss of $1.8 billion, compared
with a gain of $68 million driven by:
Net loss was $743 million, compared with a net loss of $3.7
billion in the prior year.
2022 compared with 2021
(b) Predominantly relates to the Firm's international consumer growth
initiatives.
(a) Included tax-equivalent adjustments, driven by tax-exempt income
from municipal bonds, of $235 million, $257 million and $241 million
for the years ended December 31, 2022, 2021 and 2020,
respectively.
(3,713) $ (1,750)
$1,518,100 $1,359,831
1,770
1,657
396
318
38,952
38,366
(b)
2,181
14,203
44,196
Headcount
Deposits
Loans (period-end)
$1,328,219
higher net investment securities losses on sales of U.S.
GSE and government agency MBS, and U.S. Treasuries
associated with repositioning the investment securities
portfolio,
Total assets (period-end)
(743)
$
Total net income/(loss)
(1,403)
(347)
(656)
(546)
Other Corporate
(3,057)
(197)
Treasury and CIO
Net income/(loss)
(1,368)
192
(1,176)
(3,483) $
$
$
$
the impact of movements in foreign exchange on certain
revenues, primarily as result of the U.S. dollar
strengthening,
⚫ net losses, including hedging costs on an equity method
investment related to the Firm's international consumer
growth initiatives, and
2020
2022
Investment securities gains/
(losses)
As of or for the year ended
December 31, (in millions)
Selected income statement and balance sheet data
Treasury and CIO seeks to achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also uses derivatives to meet the Firm's asset-
liability management objectives. Refer to Note 5 for further
information on derivatives. In addition, Treasury and CIO
manages the Firm's cash position primarily through
deposits at central banks and investments in short-term
instruments. Refer to Liquidity Risk Management on pages
97-104 for further information on liquidity and funding
risk. Refer to Market Risk Management on pages 131-138
for information on interest rate and foreign exchange risks.
The investment securities portfolio predominantly consists
of U.S. and non-U.S. government securities, U.S. GSE and
government agency and nonagency mortgage-backed
securities, collateralized loan obligations, obligations of U.S.
states and municipalities and other ABS. At December 31,
2022, the Treasury and CIO investment securities portfolio,
net of the allowance for credit losses, was $629.3 billion,
and the average credit rating of the securities comprising
the portfolio was AA+ (based upon external ratings where
available and, where not available, based primarily upon
internal risk ratings). Refer to Note 10 for further
information on the Firm's investment securities portfolio
and internal risk ratings.
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm's four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
Treasury and CIO overview
Other Corporate also reflects the Firm's international
consumer growth initiatives, which include Chase U.K., the
Firm's digital retail bank in the U.K.; Nutmeg, a digital
wealth manager in the U.K.; and a 40% ownership stake in
C6 Bank, a digital bank in Brazil, which closed in the first
quarter of 2022.
The current period income tax benefit was driven by
benefits related to tax audit settlements as well as other tax
adjustments, partially offset by a change in the level and
mix of income and expenses subject to U.S. federal and
state and local taxes that also impacted the Firm's tax
reserves.
Refer to Note 10 and Note 13 for additional information on
the investment securities portfolio and the allowance for
credit losses.
Management's discussion and analysis
64
79
⚫ net losses related to cash deployment transactions, which
were more than offset by the related net interest income
earned on those transactions,
JPMorgan Chase & Co./2022 Form 10-K
•
• a lower contribution to the Firm's Foundation.
partially offset by
primarily as a result of the U.S. dollar strengthening, and
lower retained technology expense, and
lower structural expense reflecting the impact of
movements in foreign exchange on certain expenses
•
Noninterest expense was $1.0 billion, down $768 million,
predominantly driven by:
proceeds from an insurance settlement in the first
quarter of 2022.
higher net gains related to certain Other Corporate
investments, and
a gain on the sale of Visa B shares. In connection with the
sale, the Firm entered into a derivative instrument with
the purchaser of the shares under which the Firm retains
the risk associated with changes in the rate at which the
shares are convertible into Visa Class A common shares
("Visa A shares"). Refer to Note 2 for additional
information,
•
•
partially offset by
•
⚫ net losses on certain legacy private equity investments
compared with net gains in prior year.
higher investments, including the costs associated with
the Firm's international consumer growth initiatives.
The net impact of movements in foreign exchange rates
associated with the foreign exchange risk that is transferred
to Treasury and CIO on certain revenues and expenses was
not material to net income. Refer to Foreign Exchange Risk
on page 62 for additional information.
22,000
Chief Risk
Officer (a)
FIRMWIDE RISK MANAGEMENT
Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
IDI subsidiaries, including JPMorgan Chase Bank, N.A. The
U.S. capital requirements generally follow the Capital
Accord of the Basel Committee, as amended from time to
time.
Basel III Overview
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. BHCs and banks, including the
Firm and its IDI subsidiaries, including JPMorgan Chase
Bank, N.A. The minimum amount of regulatory capital that
must be held by BHCs and banks is determined by
calculating RWA, which are on-balance sheet assets and off-
balance sheet exposures, weighted according to risk. Two
comprehensive approaches are prescribed for calculating
RWA: a standardized approach (“"Basel III Standardized”),
and an advanced approach ("Basel III Advanced"). For each
of the risk-based capital ratios, the capital adequacy of the
Firm is evaluated against the lower of the Standardized or
Advanced approaches compared to their respective
regulatory capital ratio requirements. The Firm's Basel III
Standardized risk-based ratios are currently more binding
than the Basel III Advanced risk-based ratios.
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III Advanced.
In addition to the RWA calculated under these approaches,
the Firm may supplement such amounts to incorporate
management judgment and feedback from its regulators.
Basel III also includes a requirement for Advanced
Approaches banking organizations, including the Firm, to
calculate the SLR. Refer to SLR on page 93 for additional
information.
Key Regulatory Developments
Until December 31, 2021, the Firm's capital reflected a two
year delay of the effects of CECL provided by the Federal
Reserve Board in response to the COVID-19 pandemic.
Beginning January 1, 2022, the $2.9 billion CECL capital
benefit is being phased out at 25% per year over a three-
year period. As of December 31, 2022, the Firm's CET1
capital reflected the remaining $2.2 billion benefit
associated with the CECL capital transition provisions.
Additionally, effective January 1, 2022, the Firm phased
out 25% of the other CECL capital transition provisions
which impacted Tier 2 capital, adjusted average assets,
total leverage exposure and RWA, as applicable.
Refer to Note 1 for further information on the CECL
accounting guidance.
JPMorgan Chase & Co./2022 Form 10-K
87
2
Management's discussion and analysis
Standardized Approach for Counterparty Credit Risk. On
January 1, 2022, the Firm adopted “Standardized Approach
for Counterparty Credit Risk" ("SA-CCR"), which replaced
the Current Exposure Method used to measure derivatives
counterparty exposure under the Standardized and
Advanced approach RWA where internal models are not
used, as well as leverage exposure used to calculate the SLR
in the regulatory capital framework. The rule issued by the
U.S. banking regulators in November 2019 applies to Basel
III Advanced Approaches banking organizations, such as the
Firm and JPMorgan Chase Bank, N.A.
The adoption of SA-CCR on January 1, 2022 increased the
Firm's Standardized RWA by approximately $40 billion
based on the Firm's derivatives exposure as of December
31, 2021, which resulted in a decrease of approximately 30
bps to the Firm's CET1 capital ratio and a modest decrease
in its total leverage exposure. In addition, the adoption of
SA-CCR increased the Firm's Advanced RWA, but to a lesser
extent than Standardized RWA.
The Firm's Contingency Capital Plan establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm's approach towards capital
management in normal economic conditions and in stressed
environments. The Contingency Capital Plan defines how
the Firm calibrates its targeted capital levels and meets
minimum capital requirements, monitors the ongoing
appropriateness of planned capital distributions, and sets
out the capital contingency actions that are expected to be
taken or considered at various levels of capital depletion
during a period of stress.
88
Risk-based Capital Regulatory Requirements
The following chart presents the Firm's Basel III CET1 capital ratio requirements under the Basel III rules currently in effect.
14
The Firm's Basel III Standardized
CET1 capital ratio as of
December 31, 2022: 13.2%
12.50%
12.00%
12-
11.20%
11.00%
10.50%
10.50%
10
JPMorgan Chase & Co./2022 Form 10-K
Contingency Capital Plan
Stress testing assesses the potential impact of alternative
economic and business scenarios on the Firm's earnings
and capital. Economic scenarios, and the parameters
underlying those scenarios, are defined centrally and
applied uniformly across the businesses. These scenarios
are articulated in terms of macroeconomic factors, which
are key drivers of business results; global market shocks,
which generate short-term but severe trading losses; and
idiosyncratic operational risk events. The scenarios are
intended to capture and stress key vulnerabilities and
idiosyncratic risks facing the Firm. In addition to CCAR and
other periodic stress testing, management also considers
tailored stress scenarios and sensitivity analyses, as
necessary.
Internal Capital Adequacy Assessment Process
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm's
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm's ICAAP integrates
stress testing protocols with capital planning. The Firm's
Audit Committee is responsible for reviewing and approving
the capital planning framework.
•
•
•
Defining, monitoring and reporting capital risk metrics;
Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite;
Developing a process to classify, monitor and report
capital limit breaches;
Performing an assessment of the Firm's capital
management activities, including changes made to the
Contingency Capital Plan described below; and
Conducting assessments of the Firm's regulatory capital
framework intended to ensure compliance with
applicable regulatory capital rules.
Capital management
Treasury and CIO is responsible for capital management.
The primary objectives of the Firm's capital management
are to:
•
•
•
Maintain sufficient capital in order to continue to build
and invest in the Firm's businesses through the cycle
and in stressed environments;
Retain flexibility to take advantage of future investment
opportunities;
Promote the Firm's ability to serve as a source of
strength to its subsidiaries;
Ensure the Firm operates above the minimum regulatory
capital ratios as well as maintain "well-capitalized"
status for the Firm and its insured depository institution
("IDI") subsidiaries at all times under applicable
regulatory capital requirements;
•
•
Refer to Capital actions on page 94 for information on
actions taken by the Firm's Board of Directors.
JPMorgan Chase & Co./2022 Form 10-K
86
Committees responsible for overseeing the Firm's capital
management include the Capital Governance Committee,
the Firmwide ALCO and LOB and regional ALCOS, and the
CIO, Treasury and Corporate ("CTC") Risk Committee. In
addition, the Board Risk Committee periodically reviews the
Firm's capital risk tolerance. Refer to Firmwide Risk
Management on pages 81-84 for additional discussion of
the Firmwide ALCO and other risk-related committees.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large Bank Holding
Companies ("BHCS"), including the Firm, to submit at least
annually a capital plan that has been reviewed and
approved by the Board of Directors. The Federal Reserve
uses Comprehensive Capital Analysis and Review ("CCAR")
and other stress testing processes to ensure that large BHCS
have sufficient capital during periods of economic and
financial stress, and have robust, forward-looking capital
assessment and planning processes in place that address
each BHC's unique risks to enable it to absorb losses under
certain stress scenarios. Through CCAR, the Federal Reserve
evaluates each BHC's capital adequacy and internal capital
adequacy assessment processes (“ICAAP"), as well as its
plans to make capital distributions, such as dividend
payments or stock repurchases. The Federal Reserve uses
results under the severely adverse scenario from its
supervisory stress test to determine each firm's Stress
Capital Buffer ("SCB") requirement for the coming year.
On June 27, 2022, the Firm announced that it had
completed the Federal Reserve's 2022 CCAR stress test
process. On August 4, 2022, the Federal Reserve affirmed
the Firm's 2022 SCB requirement of 4.0% (up from 3.2%),
and the Firm's Standardized CET1 capital ratio requirement,
including regulatory buffers, of 12.0% (up from 11.2%).
The 2022 SCB requirement became effective on October 1,
2022, and will remain in effect until September 30, 2023.
Governance
Regular monitoring of the Firm's capital position and
following prescribed escalation protocols, both at the
Firm and material legal entity levels.
4.00%
Retaining flexibility in order to react to a range of
potential events; and
•
•
The Firm addresses these objectives through:
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
Maintain sufficient capital resources to operate
Meet capital distribution objectives; and
Establishing internal minimum capital requirements and
maintaining a strong capital governance framework. The
internal minimum capital levels consider the Firm's
regulatory capital requirements as well as an internal
assessment of capital adequacy, in normal economic
cycles and in stress events;
•
10
3.20%
Under the Federal Reserve's GSIB rule, the Firm is required
to assess its GSIB surcharge on an annual basis under two
separately prescribed methods based on data for the
previous fiscal year-end, and is subject to the higher of the
two. "Method 1" reflects the GSIB surcharge as prescribed
by the Basel Committee's assessment methodology, and is
calculated by the Financial Stability Board (“FSB") across
five criteria: size, cross-jurisdictional activity,
interconnectedness, complexity and substitutability.
"Method 2", calculated by the Firm, modifies the Method 1
requirements to include a measure of short-term wholesale
funding in place of substitutability, and introduces a GSIB
score "multiplication factor".
JPMorgan Chase & Co./2022 Form 10-K
89
Management's discussion and analysis
The following table presents the Firm's effective GSIB
surcharge for the years ended December 31, 2023, 2022
and 2021. For 2023, the Firm's effective GSIB surcharge
under Method 1 and Method 2 has increased to 2.5% and
4.0%, respectively.
Method 1
Method 2
2023
2022
2.5 %
2.0 %
4.0 %
3.5 %
2021
2.0 %
3.5 %
Certain banking organizations, including the Firm, are
required to hold additional levels of capital to serve as a
"capital conservation buffer". The capital conservation
buffer incorporates a GSIB surcharge, a discretionary
countercyclical capital buffer and a fixed capital
conservation buffer of 2.5% for Advanced regulatory
capital requirements and a variable SCB requirement,
floored at 2.5%, for Standardized regulatory capital
requirements.
On November 21, 2022, the FSB released its annual GSIB
list based upon data as of December 31, 2021, which
affirmed the Firm's Method 1 GSIB surcharge of 2.5% (up
from 2.0%), effective January 1, 2023.
The U.S. federal regulatory capital standards include a
framework for setting a discretionary countercyclical capital
buffer taking into account the macro financial environment
in which large, internationally active banks function. As of
December 31, 2022, the U.S. countercyclical capital buffer
remained at 0%. The Federal Reserve will continue to
review the buffer at least annually. The buffer can be
increased if the Federal Reserve, FDIC and OCC determine
that systemic risks are meaningfully above normal and can
be calibrated up to an additional 2.5% of RWA subject to a
12-month implementation period.
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer will result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common share repurchases, as well
as certain executive discretionary bonus payments.
Risk-based Capital Targets
The Firm's current target for its Basel III Standardized CET1
capital ratio is 13.0% for the first quarter of 2023,
increasing to 13.5% for the first quarter of 2024 with
consideration for an increase in the GSIB surcharge in
2024, and assuming no change in the Stress Capital Buffer.
The Firm's quarterly capital ratios may vary from these
targets dependent on market conditions. These targets are
based on the Basel III capital rules currently in effect.
Total Loss-Absorbing Capacity
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt ("eligible LTD"). Refer to TLAC on page 95 for
additional information.
Leverage-based Capital Regulatory Requirements
Supplementary leverage ratio
Banking organizations subject to the Basel III Advanced
approach are currently required to have a minimum SLR of
3.0%. Certain banking organizations, including the Firm,
are also required to hold an additional 2.0% leverage
buffer.
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average
on-balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Failure to maintain an SLR equal to or greater than the
regulatory requirement will result in limitations on the
amount of capital that the Firm may distribute such as
through dividends and common share repurchases, as well
as on certain executive discretionary bonus payments.
Other regulatory capital
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its IDI subsidiaries must also
maintain minimum capital and leverage ratios in order to be
"well-capitalized" under the regulations issued by the
Federal Reserve and the Prompt Corrective Action ("PCA")
requirements of the FDIC Improvement Act ("FDICIA”),
respectively. Refer to Note 27 for additional information.
Additional information regarding the Firm's capital ratios,
as well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 27. Refer to
the Firm's Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website, for further
information on the Firm's Basel III measures.
90
JPMorgan Chase & Co./2022 Form 10-K
The Firm's Method 2 surcharge calculated using data as of
December 31, 2021 is 4.5%, which will be effective
January 1, 2024. The Firm's estimated Method 2 surcharge
calculated using data as of December 31, 2022 is 4.5%.
Accordingly, based on the GSIB rule currently in effect, the
Firm's effective GSIB surcharge is expected to increase to
4.5% on January 1, 2024.
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk-weighted
assets.
1Q23
4Q22
2.50%
2.50%
2.50%
8
Capital conservation
buffer incl. GSIB & SCB
9
4.00%
3.50%
4.00%
3.50%
3.50%
3.50%
Fixed capital
conservation buffer
Stress capital buffer
GSIB surcharge
4.50%
4Q21-3Q22
Advanced
Standardized
Standardized Advanced
Standardized Advanced
0
4.00%
4
2
4.50%
4.50%
4.50%
4.50%
4.50%
Minimum requirement
•
CECL regulatory capital transition.
The Firm has a Capital Risk Management function whose
primary objective is to provide independent oversight of
capital risk across the Firm.
Responsibilities also include adherence to applicable laws,
rules and regulations and implementation of the risk
governance framework established by IRM, which may
include policies, standards, limits, thresholds and controls.
The second line of defense is the IRM function, which is
separate from, and independently assesses and challenges,
the first line of defense risk management practices. IRM is
also responsible for the identification of risks within its
respective organization, adherence to applicable laws, rules
and regulations and for the development and
implementation of policies and standards with respect to its
own processes.
The third line of defense is Internal Audit, an independent
function that provides objective assessment of the
adequacy and effectiveness of Firmwide processes,
controls, governance and risk management. The Internal
Audit function is headed by the General Auditor, who
reports to the Audit Committee and administratively to the
CEO.
In addition, there are other functions that contribute to the
Firmwide control environment but are not considered part
of a particular line of defense, including Finance, Human
Resources and Legal. These other functions are responsible
for the identification of risks within their respective
organizations, adherence to applicable laws, rules and
regulations and implementation of the risk governance
framework established by IRM.
Risk identification and ownership
The LOBS and Corporate own the identification of risks
within their respective organizations, as well as the design
and execution of controls, including IRM-specified controls,
to manage those risks. To support this activity, the Firm has
a risk identification framework designed to facilitate each
LOB and Corporate's responsibility to identify material risks
inherent to the Firm's business and operational activities,
catalog them in a central repository and review material
risks on a regular basis. The IRM function reviews and
challenges the LOB and Corporate's identified risks,
maintains the central repository and provides the
consolidated Firmwide results to the Firmwide Risk
Committee ("FRC") and the Board Risk Committee.
Risk appetite
The Firm's overall appetite for risk is governed by "Risk
Appetite" frameworks for quantitative and qualitative risks.
Periodically the Firm's risk appetite is set and approved by
senior management (including the CEO and CRO) and
approved by the Board Risk Committee. Quantitative and
qualitative risks are assessed to monitor and measure the
Firm's capacity to take risk consistent with its stated risk
appetite. Risk appetite results are reported to the Board
Risk Committee.
82
32
JPMorgan Chase & Co./2022 Form 10-K
Risk governance and oversight structure
The independent status of the IRM function is supported by a risk governance and oversight structure that provides channels
for the escalation of risks and issues to senior management, the FRC, and the Board of Directors, as appropriate.
The chart below illustrates the committees of the Board of Directors and key senior management-level committees in the
Firm's risk governance and oversight structure. In addition, there are other committees, forums and channels of escalation
that support the oversight of risk that are not shown in the chart below or described in this Form 10-K.
Board of Directors
Board Risk Committee
Public Responsibility Committee
Head of
Human
Resources
Vice
Chairman
Global
Chief
Information
Officer
Heads
Officer (b)
General
Counsel
Management's discussion and analysis
President and
Chief Operating
Chief
Financial
Officer
Chief Executive Officer
Operating Committee
Audit Committee
Corporate Governance and
Nominating Committee
Compensation and Management
Development Committee
Line of Business
CEOs (b) and
Select Business
Firmwide Risk
Committee (a)
81
The first line of defense consists of each LOB, Treasury and
CIO, and certain Other Corporate initiatives, including their
aligned Operations, Technology and Control Management.
The first line of defense own the identification of risks
within their respective organizations and the design and
execution of controls to manage those risks.
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers and clients on their investment
decisions, makes markets in securities, or offers other
products or services, the Firm takes on some degree of risk.
The Firm's overall objective is to manage its business, and
the associated risks, in a manner that balances serving the
interests of its clients, customers and investors, and
protecting the safety and soundness of the Firm.
The Firm believes that effective risk management requires,
among other things:
•
•
•
Acceptance of responsibility, including identification and
escalation of risks by all individuals within the Firm;
Ownership of risk identification, assessment, data and
management within each of the LOBS and Corporate;
and
A Firmwide risk governance and oversight structure.
The Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent oversight by the Board of Directors (the
"Board"). The impact of risk and control issues is carefully
considered in the Firm's performance evaluation and
incentive compensation processes.
Risk governance framework
The Firm's risk governance framework involves
understanding drivers of risks, types of risks, and impacts of
risks.
The Firm's risk governance and oversight functions align to:
Drivers of Risks
Factors that
cause a risk
to exist
Types of Risks
Categories
The Firm's "three lines of defense" are as follows:
Three lines of defense
The Firm's risk governance framework is managed on a
Firmwide basis. The Firm has an Independent Risk
Management ("IRM") function, which is comprised of Risk
Management and Compliance. The Firm's Chief Executive
Officer ("CEO") appoints, subject to approval by the Risk
Committee of the Board of Directors (the "Board Risk
Committee"), the Firm's Chief Risk Officer ("CRO") to lead
the IRM function and maintain the risk governance
framework of the Firm. The framework is subject to
approval by the Board Risk Committee through its review
and approval of the Risk Governance and Oversight Policy.
The Firm's CRO oversees and delegates authority to the
Firmwide Risk Executives ("FRES"), the Chief Risk Officers of
the LOBS and Corporate ("LOB CROS"), and the Firm's Chief
Compliance Officer ("CCO"), who, in turn, establish Risk
Management and Compliance organizations, develop the
Firm's risk governance policies and standards, and define
and oversee the implementation of the Firm's risk
governance framework. The LOB CROS oversee risks that
arise in their LOBS and Corporate, while FRES oversee risks
that span across the LOBS and Corporate, functions and
regions. Each area of the Firm giving rise to risk is expected
to operate within the parameters identified by the IRM
function, and within its own management-identified risk and
control standards.
Impacts of risks are consequences of risks, both quantitative
and qualitative. There may be many consequences of risks
manifesting, including quantitative impacts such as a
reduction in earnings and capital, liquidity outflows, and
fines or penalties, or qualitative impacts such as damage to
the Firm's reputation, loss of clients and customers, and
regulatory and enforcement actions.
Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
Operational risk is the risk of an adverse outcome
resulting from inadequate or failed internal processes or
systems; human factors; or external events impacting
the Firm's processes or systems. Operational risk
includes compliance, conduct, legal, and estimations and
model risk.
consumer credit risk, wholesale credit risk, and
investment portfolio risk.
JPMorgan Chase & Co./2022 Form 10-K
Capital Risk Management's responsibilities include:
•
•
Types of risks are categories by which risks manifest
themselves. The Firm's risks are generally categorized in
the following four risk types:
Drivers of risks are factors that cause a risk to exist. Drivers
of risks include, but are not limited to, the economic
environment, regulatory or government policy, competitor
or market evolution, business decisions, process or
judgment error, deliberate wrongdoing, dysfunctional
markets, and natural disasters.
Impacts of Risks
Consequences of
risks, both
quantitative and
qualitative
by which risks
manifest themselves
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate responses to changes in
the operating environment.
Asset and Liability
Committee (d) and
Firmwide Valuation
Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
Line of Business,
Regional Risk
Committees and
116-126
130
131-138
139-140
141
142-148
145
146
147
Estimations and Model Risk
148
Capital Risk
Liquidity Risk
Reputation Risk
Consumer Credit Risk
Wholesale Credit Risk
Investment Portfolio Risk
Market Risk
Country Risk
Climate Risk
Operational Risk
Compliance Risk
Conduct Risk
Legal Risk
84
==
JPMorgan Chase & Co./2022 Form 10-K
STRATEGIC RISK MANAGEMENT
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate responses to changes in the
operating environment.
Governance Forum
Capital risk management
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm's Board of
Directors, CEO and Operating Committee. The Firm's
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm's
capital risk management strategy focuses on maintaining
long-term stability to enable the Firm to build and invest in
market-leading businesses, including in highly stressed
environments. Senior management considers the
implications on the Firm's capital prior to making significant
decisions that could impact future business activities. In
addition to considering the Firm's earnings outlook, senior
management evaluates all sources and uses of capital with
a view to ensuring the Firm's capital strength.
Capital risk is the risk the Firm has an insufficient level or
composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and under stressed conditions.
CAPITAL RISK MANAGEMENT
Management's discussion and analysis
110-115
85
The Firm's balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is also
a component in the management of strategic risk. Refer to
Capital Risk Management on pages 86-96 for further
information on capital risk. Refer to Liquidity Risk
Management on pages 97-104 for further information on
liquidity risk. Refer to Reputation Risk Management on page
105 for further information on reputation risk.
The Firm's strategic plan, together with IRM's assessment,
are provided to the Board as part of its review and approval
of the Firm's strategic plan, and the plan is also reflected in
the Firm's budget.
The Firm's strategic planning process, which includes the
development of the Firm's strategic plan and other strategic
initiatives, is one component of managing the Firm's
strategic risk. The strategic plan outlines the Firm's
strategic framework and initiatives, and includes
components such as budget, risk appetite, capital, earnings
and asset-liability management objectives. Guided by the
Firm's How We Do Business Principles, the Operating
Committee and senior management teams in each LOB and
Corporate review and update the strategic plan periodically,
including evaluating the strategic framework and
performance against prior-year initiatives, assessing the
operating environment, refining existing strategies and
developing new strategies.
In addition, IRM conducts a qualitative assessment of the
LOB and Corporate strategic initiatives to assess their
impact on the risk profile of the Firm.
In the process of developing business plans and strategic
initiatives, LOB and Corporate senior management identify
the associated risks that are incorporated into the Firmwide
Risk Identification framework and their impact on risk
appetite.
Management and oversight
JPMorgan Chase & Co./2022 Form 10-K
105
The Operating Committee, together with the senior
leadership of each LOB and Corporate, is responsible for
managing the Firm's most significant strategic risks. IRM
engages regularly in strategic business discussions and
decision-making, including participation in relevant
business reviews and senior management meetings, risk
and control committees and other relevant governance
forums, and acquisition and new business initiative reviews.
The Board of Directors oversees management's strategic
decisions, and the Board Risk Committee oversees IRM and
the Firm's risk governance framework.
Page
85
Firmwide Control
86-96
97-104
Committee
General
Auditor (c)
(ex-officio member)
Internal
Audit
(a) The Firm's CRO may escalate directly to the Board Risk Committee. The Firmwide Risk Committee escalates to the Board Risk Committee, as appropriate.
(b) The CEO of the Corporate & Investment Bank is also the Firm's President and Chief Operating Officer.
(c) The General Auditor reports to the Audit Committee and administratively to the Firm's CEO.
The Firm's Operating Committee, which consists of the
Firm's CEO, CRO, Chief Financial Officer ("CFO"), General
Counsel, CEOs of the LOBS and other senior executives,
accountable to and may refer matters to the Firm's Board of
Directors. The Operating Committee is responsible for
escalating to the Board the information necessary to
facilitate the Board's exercise of its duties.
Board oversight
The Firm's Board of Directors actively oversees the business
and affairs of the Firm. This includes monitoring the Firm's
financial performance and condition and reviewing the
strategic objectives and plans of the Firm. The Board carries
out a significant portion of its oversight responsibilities
through its principal standing committees, each of which
consists solely of independent members of the Board. The
Board Risk Committee is the principal committee that
oversees risk matters. The Audit Committee oversees the
control environment, and the Compensation & Management
Development Committee oversees compensation and other
management-related matters. Each committee of the Board
oversees reputational risks, conduct risks, and ESG matters
within its scope of responsibility.
The JPMorgan Chase Bank, N.A. Board of Directors is
responsible for the oversight of management of the bank,
which it discharges both acting directly and through the
principal standing committees of the Firm's Board of
Directors. Risk and control oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the Board
Risk Committee and the Audit Committee, respectively, and,
with respect to compensation and other management-
related matters, the Compensation & Management
Development Committee.
The Board Risk Committee assists the Board in its oversight
of management's responsibility to implement a global risk
management framework reasonably designed to identify,
assess and manage the Firm's risks. The Board Risk
Committee's responsibilities include approval of applicable
primary risk policies and review of certain associated
frameworks, analysis and reporting established by
management. Breaches in risk appetite and parameters,
issues that may have a material adverse impact on the Firm,
including capital and liquidity issues, and other significant
risk-related matters are escalated to the Board Risk
Committee, as appropriate.
The Audit Committee assists the Board in its oversight of
management's responsibility to ensure that there is an
effective system of controls reasonably designed to
safeguard the Firm's assets and income, ensure the
integrity of the Firm's financial statements, and maintain
compliance with the Firm's ethical standards, policies, plans
and procedures, and with laws and regulations. It also
assists the Board in its oversight of the qualifications,
independence and performance of the Firm's independent
registered public accounting firm, and of the performance
of the Firm's Internal Audit function.
(d) The Asset and Liability Committee escalates to the Firm's CEO or the Board of Directors (including its committees).
83
Risk governance and oversight functions
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function or
business activity may include one or more drivers, types
and/or impacts of risk. For example, Country Risk
Management oversees country risk which may be a driver of
risk or an aggregation of exposures that could give rise to
multiple risk types such as credit or market risk.
The following sections discuss the risk governance and
oversight functions that have been established to manage
the risks inherent in the Firm's business activities.
JPMorgan Chase & Co./2022 Form 10-K
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm.
The Asset and Liability Committee ("ALCO") is responsible for
overseeing the Firm's asset and liability management
("ALM"), including the activities and frameworks supporting
management of the balance sheet, liquidity risk, interest
rate risk, and capital risk.
Line of Business and Corporate Function Control Committees
oversee the operational risk and control environment of
their respective business or function, inclusive of
Operational Risk, Compliance and Conduct Risks. As part of
that mandate, they are responsible for reviewing indicators
of elevated or emerging risks and other data that may
impact the level of operational risk in a business or
function, addressing key operational risk issues, with an
emphasis on processes with control concerns and
overseeing control remediation.
Risk governance and oversight functions
Strategic Risk
The Firmwide Control Committee ("FCC") is an escalation
committee for senior management to review and discuss
the Firmwide operational risk environment including
identified issues, operational risk metrics and significant
events that have been escalated.
Line of Business and Regional Risk Committees are
responsible for overseeing the governance, limits, and
controls that have been established within the scope of
their respective activities. These committees review the
ways in which the particular LOB or the businesses
operating in a particular region could be exposed to
adverse outcomes, with a focus on identifying, accepting,
escalating and/or requiring remediation of matters brought
to these committees.
The Firm's senior management-level committees that are
primarily responsible for key risk-related functions include:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It oversees the risks
inherent in the Firm's business and provides a forum for
discussion of topics, and issues that are raised or escalated
by its members and other committees.
The Corporate Governance & Nominating Committee
exercises general oversight with respect to the governance
of the Board of Directors. It reviews the qualifications of
and recommends to the Board proposed nominees for
election to the Board. The Committee evaluates and
recommends to the Board corporate governance practices
applicable to the Firm. It also reviews the framework for
assessing the Board's performance and self-evaluation.
Management oversight
The Public Responsibility Committee oversees and reviews
the Firm's positions and practices on public responsibility
matters such as community investment, fair lending,
sustainability, consumer practices and other public policy
issues that reflect the Firm's values and character and could
impact the Firm's reputation among its stakeholders. The
Committee also provides guidance on these matters to
management and the Board, as appropriate.
The Compensation & Management Development Committee
("CMDC") assists the Board in its oversight of the Firm's
compensation principles and practices. The CMDC reviews
and approves the Firm's compensation and qualified
benefits programs. The Committee reviews the performance
of Operating Committee members against their goals, and
approves their compensation awards. In addition, the CEO's
award is subject to ratification by the independent directors
of the Board. The CMDC also reviews the development of
and succession for key executives. As part of the Board's
role of reinforcing, demonstrating and communicating the
"tone at the top," the CMDC oversees the Firm's culture,
including reviewing updates from management regarding
significant conduct issues and any related actions with
respect to employees, including compensation actions.
Management's discussion and analysis
83
JPMorgan Chase & Co./2022 Form 10-K
99
Management's discussion and analysis
The net stable funding ratio ("NSFR") is a liquidity
requirement for large banking organizations that is
intended to measure the adequacy of "available” stable
funding that is sufficient to meet their "required" amounts
of stable funding over a one-year horizon.
Funding
Sources of funds
As of December 31, 2022, the Firm and JPMorgan Chase
Bank, N.A. were compliant with the 100% minimum NSFR
requirement, based on the Firm's current interpretation of
the final rule. The Firm will be required to publicly disclose
its quarterly average NSFR semiannually beginning in the
second half of 2023.
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations, which includes both short-
and long-term cash requirements.
As of or for the year ended December 31,
Deposits
long-term debt, or from borrowings from the IHC. The
Firm's non-bank subsidiaries are primarily funded from
long-term unsecured borrowings and short-term secured
borrowings which are primarily securities loaned or sold
under repurchase agreements. Excess funding is invested
by Treasury and CIO in the Firm's investment securities
portfolio or deployed in cash or other short-term liquid
investments based on their interest rate and liquidity risk
characteristics.
Refer to Note 28 for additional information on off-balance
sheet obligations.
The table below summarizes, by LOB and Corporate, the period-end and average deposit balances as of and for the years
ended December 31, 2022 and 2021.
(in millions)
Consumer & Community Banking
Commercial Banking
NSFR
Corporate & Investment Bank
The Firm funds its global balance sheet through diverse
sources of funding including stable deposits, secured and
unsecured funding in the capital markets and stockholders'
equity. Deposits are the primary funding source for
JPMorgan Chase Bank, N.A. Additionally, JPMorgan Chase
Bank, N.A. may access funding through short- or long-term
secured borrowings, through the issuance of unsecured
JPMorgan Chase & Co./2022 Form 10-K
111 %
In addition to the assets reported in the Firm's eligible
HQLA discussed above, the Firm had unencumbered
marketable securities, such as equity and debt securities,
that the Firm believes would be available to raise liquidity.
This includes excess eligible HQLA securities at JPMorgan
Chase Bank, N.A. that are not transferable to non-bank
affiliates. The fair value of these securities was
approximately $694 billion and $914 billion as of
December 31, 2022 and 2021, respectively, although the
amount of liquidity that could be raised at any particular
time would be dependent on prevailing market conditions.
The fair value decreased compared to December 31, 2021,
primarily due to a decrease in excess eligible HQLA
securities at JPMorgan Chase Bank, N.A., as noted above.
The Firm also had available borrowing capacity at the
FHLBS and the discount window at the Federal Reserve
Banks as a result of collateral pledged by the Firm to such
banks of approximately $323 billion and $308 billion as of
December 31, 2022 and 2021, respectively. This borrowing
capacity excludes the benefit of cash and securities
reported in the Firm's eligible HQLA or other unencumbered
securities that are currently pledged at the Federal Reserve
Banks discount window and other central banks. Available
borrowing capacity increased from December 31, 2021
primarily due to increased credit card receivables pledged
at the Federal Reserve Banks. Although available, the Firm
does not view this borrowing capacity at the Federal
Reserve Banks discount window and the other central banks
as a primary source of liquidity.
$
Asset & Wealth Management
80,468
$ 80,999
JPMorgan Chase Bank, N.A.:
LCR
Net excess eligible
HQLA
73,321
151 %
165 %
178 %
$ 450,260 $ 555,300
$ 356,733
(a) Represents cash on deposit at central banks, primarily the Federal
Reserve Banks.
(b) Predominantly U.S. Treasuries, U.S. GSE and government agency MBS,
and sovereign bonds net of applicable haircuts under the LCR rule.
(c) Eligible HQLA securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm's Consolidated balance sheets.
(d) Excludes average excess eligible HQLA at JPMorgan Chase Bank, N.A.
that are not transferable to non-bank affiliates.
JPMorgan Chase Bank, N.A.'s average LCR decreased during
the three months ended December 31, 2022, compared
with the three months ended September 30, 2022
reflecting a decrease in JPMorgan Chase Bank, N.A.'s HQLA,
primarily due to a reduction in cash associated with a
decline in deposits, and loan growth.
JPMorgan Chase Bank, N.A.'s average LCR for the three
months ended December 31, 2022 decreased when
compared with the same period in the prior year, reflecting
a decrease in JPMorgan Chase Bank, N.A.'s HQLA as a result
of a reduction in cash from loan growth and a decline in
deposits as well as lower market values of HQLA-eligible
investment securities. Refer to Note 10 for additional
information on the Firm's investment securities portfolio.
The Firm and JPMorgan Chase Bank, N.A.'s average LCR
fluctuates from period to period due to changes in its
eligible HQLA and estimated net cash outflows as a result of
ongoing business activity. Refer to the Firm's U.S. LCR
Disclosure reports, which are available on the Firm's
website, for a further discussion of the Firm's LCR.
Other liquidity sources
98
Corporate
233,130
Deposits provide a stable source of funding and reduce the
Firm's reliance on the wholesale funding markets. A
significant portion of the Firm's deposits are consumer
deposits and wholesale operating deposits, which are both
considered to be stable sources of liquidity. Wholesale
operating deposits are considered to be stable sources of
liquidity because they are generated from customers that
maintain operating service relationships with the Firm.
The Firm believes that average deposit balances are
generally more representative of deposit trends than
period-end deposit balances. However, during periods of
market disruption those trends could be affected.
$ 2,340,179 $ 2,462,303
511
9,866
396
14,203
230,296
261,489
282,052
301,343
294,180
760,048
739,700
707,791
323,954
271,342
$ 1,162,680 $ 1,054,956
$ 1,131,611 $ 1,148,110
689,893
2021
2022
Net excess eligible
HOLA (d)
$ 2,467,915 $ 2,347,154
Total Firm
Period-end deposits decreased reflecting:
net outflows into investments in AWM amid the rising
interest rate environment, and
Average deposits were higher for the year ended December
31, 2022 compared to the year ended December 31, 2021,
reflecting:
.
.
growth in CCB from existing and new accounts across
both consumer and small business customers, partially
offset by a decline in deposits starting in the second half
of 2022, impacted by growth in customer spending, and
net inflows in AWM resulting from the residual effects of
certain government actions, partially offset by migration
into investments starting in the second quarter of 2022
as a result of the rising interest rate environment
partially offset by
•
lower average deposits in CIB and CB due to attrition, also
as a result of the rising interest rate environment.
•
•
Average
2022
2021
JPMorgan Chase & Co./2022 Form 10-K
100
Certain deposits are covered by insurance protection that
provides additional funding stability and results in a benefit
to the LCR. Deposit insurance protection may be available
to depositors in the countries in which the deposits are
placed. For example, the Federal Deposit Insurance
Corporation ("FDIC") provides deposit insurance protection
for deposits placed in a U.S. depository institution. At
December 31, 2022 and 2021, the Firmwide estimated
uninsured deposits were $1,383.7 billion and $1,489.6
billion, respectively, primarily reflecting wholesale
operating deposits.
Refer to the discussion of the Firm's Consolidated Balance
Sheets Analysis and the Business Segment Results on pages
55-56 and pages 61-80, respectively, for further
information on deposit and liability balance trends.
The increase in deposits for both spot and averages in
Corporate was driven by the Firm's international consumer
growth initiatives.
• a decline in balances in existing accounts in CCB due to
higher customer spending, predominantly offset by net
inflows into new accounts.
attrition in CB and CIB, particularly non-operating
deposits in CB, partially offset by net issuances of
structured notes in Markets,
112 %
Risk-weighted assets
$ 652,580
(9,104)
19,634
$ 265,796
$
18,952
264,583
$
Advanced Total capital
$
(a) Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,
which are netted against goodwill and other intangibles when
calculating CET1 capital.
Advanced Tier 2 capital
(e)
2 capital
for credit losses for Advanced Tier
$ 245,631
2022
Adjustment in qualifying allowance
(13,186)
(531)
(b) As of December 31, 2022 and 2021, includes a net benefit associated
with cash flow hedges and debit valuation adjustments ("DVA") related
to structured notes recorded in AOCI of $5.2 billion and $1.4 billion
and the benefit from the CECL capital transition provisions of $2.2
billion and $2.9 billion, respectively.
(d) Represents the allowance for credit losses eligible for inclusion in Tier
2 capital up to 1.25% of credit risk RWA, including the impact of the
CECL capital transition provision with any excess deducted from RWA.
(e) Represents an adjustment to qualifying allowance for credit losses for
the excess of eligible credit reserves over expected credit losses up to
0.6% of credit risk RWA, including the impact of the CECL capital
transition provision with any excess deducted from RWA.
$ 19,634
$ 277,769
Advanced Total capital at December 31, 2022
Advanced Tier 2 capital at December 31, 2022
Change in Advanced Tier 2 capital
Other
(c) As of December 31, 2021, Other Tier 1 adjustments included $2.0
billion of Series Z preferred stock called for redemption on December
31, 2021 and subsequently redeemed on February 1, 2022.
Change in qualifying allowance for credit losses (b)
Standardized Tier 2 capital at December 31, 2022
Standardized Total capital at December 31, 2022
Change in Standardized Tier 2 capital
Other
Change in qualifying allowance for credit losses (b)
Standardized Tier 2 capital at December 31, 2021
Change in long-term debt and other instruments qualifying
as Tier 2
(f) Goodwill deducted from capital includes goodwill associated with
equity method investments in nonconsolidated financial institutions
based on regulatory requirements. Refer to Principal investment risk
on page 130 for additional information.
Advanced Tier 2 capital at December 31, 2021
Change in long-term debt and other instruments qualifying
as Tier 2
Change in Standardized/Advanced Tier 1 capital
Standardized/Advanced Tier 1 capital at December 31,
274,900
$
Qualifying allowance for credit
losses (d
$ 246,162
2021
14,106
$
13,569
Change in CET1 capital (b)
$
Standardized/Advanced Tier 1 capital at December 31,
instruments qualifying as Tier 2
Long-term debt and other
$ 218,934
December 31, 2022
246,162
capital
4,992
19,353
15,012
277,769
$
Standardized Total capital
28,738
$
32,138
$
Standardized Tier 2 capital
(89)
Other
(380)
(784)
Other
(5,434)
Redemptions of noncumulative perpetual preferred stock
(537)
259
$
(404)
$ 18,952
December 31, 2022
(10,446)
25,084
Changes in RWA
64,695
40,893
$ 1,568,536 $
(6,266)
25,759
(6,638)
32,397
Movement in portfolio levels (b)
(2,842)
(3,808)
30,068
966
85,002 $
31,034
Three months ended
The following table presents the components of the Firm's
SLR.
Supplementary leverage ratio
Refer to the Firm's Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm's website, for further
information on Credit risk RWA, Market risk RWA and Operational risk RWA.
(c) As of December 31, 2022 and 2021, the Basel III Standardized Credit risk RWA included wholesale and retail off balance-sheet RWA of $210.1 billion and
$218.5 billion, respectively; and the Basel III Advanced Credit risk RWA included wholesale and retail off balance-sheet RWA of $180.8 billion and $188.5
billion, respectively.
(b) Movement in portfolio levels (inclusive of rule changes) refers to: for Credit risk RWA, impact of SA-CCR adoption on January 1, 2022, changes in book size
including position rolloffs in legacy portfolios in Home Lending, changes in composition and credit quality, market movements, and deductions for excess
eligible credit reserves not eligible for inclusion in Tier 2 capital; for Market risk RWA, changes in position, market movements, and changes in the Firm's
regulatory multiplier from Regulatory VaR backtesting exceptions; and for Operational risk RWA, updates to cumulative losses and macroeconomic model
inputs.
14,638
1,653,538
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance
(exclusive of rule changes).
446,265 $
85,432 $
$ 1,078,076 $
61,853
40,893
(10,074)
1,609,773
(11,121)
(3,808)
(7,313)
The following table presents changes in the components of RWA under Basel III Standardized and Advanced approaches for the
year ended December 31, 2022. The amounts in the rollforward categories are estimates, based on the predominant driver of
the change.
RWA rollforward
JPMorgan Chase & Co./2022 Form 10-K
22
92
$ 32,138
Year ended December 31, 2022
(in millions)
3,400
4,341
(537)
$ 28,738
(b) Includes the impact of the CECL capital transition provisions.
(a) Includes foreign currency translation adjustments and the impact of
related derivatives.
$ 264,583
(404)
Credit risk
RWA (c)
Standardized
Market risk
RWA
Advanced
Model & data changes (a)
1,547,920
405,372 $
95,506 $
1,047,042 $
$
1,638,900
95,448 $
$ 1,543,452 $
December 31, 2021
Total RWA
Operational risk
RWA
Market risk
RWA
Credit risk
(c)
RWA
Total RWA
(682)
245,631
$
capital
14.0
17.2
16.4
15.5
16.8
16.8
(a) The capital metrics reflect the CECL capital transition provisions.
Total capital ratio
15.9
13.8 %
13.6 %
15.3
12.0%
13.5
15.0
14.9
10.5 %
12.0
13.1 %
(b) Represents minimum requirements and regulatory buffers applicable to the Firm for the period ended December 31, 2022. For the period ended
December 31, 2021, the Basel III Standardized CET1, Tier 1, and Total capital ratio requirements applicable to the Firm were 11.2%, 12.7%, and 14.7%,
respectively. Refer to Note 27 for additional information.
(in millions, except ratios)
6.5 %
3,782,035
$
6.6 %
3,703,873
Capital ratio
requirements(C)
December 31, 2021
Three months ended
December 31, 2022
(a) The capital metrics reflect the CECL capital transition provisions.
SLR
Total leverage exposure
Tier 1 leverage ratio
Adjusted average assets (b)
Leverage-based capital metrics: (a)
$
13.2 %
1,547,920
1,609,773
$
213,942
Tier 1 capital
Total capital
CET1 capital ratio
Tier 1 capital ratio
218,934
245,631
245,631
246,162
277,769
274,900
264,583
265,796
246,162
$
213,942
$
LCR
1,638,900
The following tables present the Firm's risk-based capital metrics under both the Basel III Standardized and Advanced
approaches and leverage-based capital metrics. Refer to Note 27 for JPMorgan Chase Bank, N.A.'s risk-based and leverage-
based capital metrics.
December 31,
2022
Standardized
December 31,
2021
Capital ratio
requirements (b)
December 31,
2022
Advanced
December 31,
2021
Capital ratio
requirements (b)
(in millions, except ratios)
Risk-based capital metrics: (a)
CET1 capital
$
218,934
4.0 %
$
4,367,092
$
98
(611)
(11,764)
Fair value hedges
882
1,224
Standardized/Advanced CET1
Other intangible assets
53,501
Goodwill
Unrealized gains/(losses) on investment securities
Translation adjustments, net of hedges (a)
(f)
Less:
3,351
50,315
Defined benefit pension and other postretirement
capital
218,934
Standardized/Advanced CET1 capital at
Standardized/Advanced Tier 1
4,992
Change in Standardized/Advanced CET1 capital
(4,386)
Changes related to other CET1 capital adjustments (b)
34,838
2,618
707
(c)
Less: Other Tier 1 adjustments
27,404
Add: Preferred stock
(1,241)
employee benefit ("OPEB") plans
213,942
6,221
(in millions, except ratio)
Changes related to AOCI applicable to capital:
2,499
Total stockholders' equity
Less: Preferred stock
(in millions)
The following table presents the changes in Basel III CET1
capital, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2022.
Capital rollforward
The following table presents reconciliations of total
stockholders' equity to Basel III CET1 capital, Tier 1 capital
and Total capital as of December 31, 2022 and 2021.
Capital components
$
Management's discussion and analysis
JPMorgan Chase & Co./2022 Form 10-K
(b) Adjusted average assets, for purposes of calculating the leverage ratios, includes quarterly average assets adjusted for on-balance sheet assets that are
subject to deduction from Tier 1 capital, predominantly goodwill, inclusive of estimated equity method goodwill, and other intangible assets.
(c) Represents minimum requirements and regulatory buffers applicable to the Firm. Refer to Note 27 for additional information.
5.0 %
5.4 %
5.6 %
4,571,789
91
December 31,
2022
292,332
27,404
December 31,
2021
$
2,510
629
Changes in additional paid-in capital
Certain deferred tax liabilities (a)
Add:
(1,921)
Net purchase of treasury stock
(11,893)
36,081
2022
Year Ended December 31, (in millions)
Standardized/Advanced CET1 capital at December 31, 2021 $213,942
Net income applicable to common equity
Dividends declared on common stock
34,838
259,289
264,928
Common stockholders' equity
294,127
Other CET1 capital adjustments (b)
Tier 1 capital
4.6
Less: Regulatory capital
38,879
$
Regulatory
Actual Minimum ratios (a)
December 31, 2022
(in millions, except ratios)
Total capital
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
The following table presents JPMSE's capital metrics:
JPMSE is a wholly-owned subsidiary of JPMorgan Chase
Bank, N.A. and has authority to engage in banking,
investment banking and markets activities. JPMSE is
regulated by the European Central Bank as well as the local
regulators in each of the countries in which it operates, and
it is subject to EU capital requirements under Basel III.
JPMSE is required by the EU Single Resolution Board to
maintain MREL. As of December 31, 2022, JPMSE was
compliant with its MREL requirements.
19.7 %
J.P. Morgan SE
8.0 %
6.0 %
4.5 %
32.6 %
25.4 %
22.4 %
(a) Represents minimum Pillar 1 requirements specified by the PRA. J.P.
Morgan Securities plc's capital ratios as of December 31, 2022
exceeded the minimum requirements, including the additional capital
requirements specified by the PRA.
54,218
4.5 %
6.0 %
•
•
oversight of liquidity risk across the Firm. Liquidity Risk
Management's responsibilities include:
The Firm has a Liquidity Risk Management ("LRM") function
whose primary objective is to provide independent
Liquidity risk management
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.
19.7 %
LIQUIDITY RISK MANAGEMENT
96
(a) Represents minimum Pillar 1 requirements specified by the EU CRR.
J.P. Morgan SE's capital and leverage ratios as of December 31, 2022
exceeded the minimum requirements, including the additional capital
requirements specified by the European Banking Authority.
3.0 %
6.0 %
8.0 %
33.8 %
JPMorgan Chase & Co./2022 Form 10-K
$
Regulatory
Minimum ratios
Actual
U.S. broker-dealer regulatory capital
Management's discussion and analysis
95
JPMorgan Chase & Co./2022 Form 10-K
Refer to Part I, Item 1A: Risk Factors on pages 9-32 of the
2022 Form 10-K for information on the financial
consequences to holders of the Firm's debt and equity
securities in a resolution scenario.
Refer to Liquidity Risk Management on pages 97-104 for
further information on long-term debt issued by the Parent
Company.
J.P. Morgan Securities
As of January 1, 2023, the regulatory requirement for TLAC
to RWA and LTD to RWA ratios has increased by 50 bps to
23.0% and 10.0%, respectively, due to the increase in the
Firm's GSIB requirements. Refer to Risk-based Capital
Regulatory Requirements on pages 89-90 for further
information on the GSIB surcharge.
$ 71.2 $ 32.0 $ 30.3 $
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers will result in
limitations on the amount of capital that the Firm may
distribute, such as through dividends and common share
repurchases, as well as on certain executive discretionary
bonus payments.
(a) RWA is the greater of Standardized and Advanced compared to their
respective regulatory capital ratio requirements.
of total
leverage
exposure
4.5%
Greater
of
1,653,538
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
the regulatory capital requirements of Rule 15c3-1 under
the Securities Exchange Act of 1934 (the "Net Capital
Rule"). J.P. Morgan Securities is also registered as a futures
commission merchant and is subject to regulatory capital
requirements, including those imposed by the SEC, the
Commodity Futures Trading Commission ("CFTC"), the
Financial Industry Regulatory Authority ("FINRA") and the
National Futures Association ("NFA").
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the
"Alternative Net Capital Requirements" of the Net Capital
Rule.
The following table presents J.P. Morgan Securities' net
capital:
Tier 1 capital ratio
Total capital ratio
CET1 capital ratio
(in millions, except ratios)
Total capital
December 31, 2022
Effective January 1, 2023, J.P. Morgan Securities plc was
required to meet the minimum leverage capital
requirement established by the PRA of 3.25%, plus
regulatory buffers. As of December 31, 2022, J.P. Morgan
Securities plc was compliant with its leverage requirements.
The following table presents J.P. Morgan Securities plc's
capital metrics:
The Bank of England requires that U.K. banks, including U.K.
regulated subsidiaries of overseas groups, maintain
minimum requirements for own funds and eligible liabilities
("MREL"). As of December 31, 2022, J.P. Morgan Securities
plc was compliant with its MREL requirements, which
became fully phased-in on January 1, 2022.
J.P. Morgan Securities plc is a wholly-owned subsidiary of
JPMorgan Chase Bank, N.A. and has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated in the U.K. by
the Prudential Regulation Authority ("PRA") and the
Financial Conduct Authority ("FCA"). J.P. Morgan Securities
plc is subject to the European Union ("EU") Capital
Requirements Regulation ("CRR"), as adopted in the U.K.,
and the PRA capital rules, each of which have implemented
Basel III and thereby subject J.P. Morgan Securities plc to its
requirements.
J.P. Morgan Securities plc
J.P. Morgan Securities is registered with the SEC as a
security-based swap dealer and with the CFTC as a swap
dealer. As a result of additional SEC and CFTC capital and
financial reporting requirements for security-based swap
dealers and swap dealers, J.P. Morgan Securities is subject
to alternative minimum net capital requirements and
required to hold "tentative net capital" in excess of $5.0
billion. J.P. Morgan Securities is also required to notify the
SEC and CFTC in the event that its tentative net capital is
less than $6.0 billion. Tentative net capital is net capital
before deducting market and credit risk charges as defined
by the Net Capital Rule. As of December 31, 2022, J.P.
Morgan Securities maintained tentative net capital in excess
of the minimum and notification requirements.
Non-U.S. subsidiary regulatory capital
Minimum
5,628
$ 24,989 $
Actual
Net Capital
(in millions)
December 31, 2022
•
long-term debt
•
•
Under the LCR rule, the amount of eligible HQLA held by
JPMorgan Chase Bank, N.A. that is in excess of its stand-
alone 100% minimum LCR requirement, and that is not
transferable to non-bank affiliates, must be excluded from
the Firm's reported eligible HQLA.
Estimated net cash outflows are based on standardized
stress outflow and inflow rates prescribed in the LCR rule,
which are applied to the balances of the Firm's assets,
sources of funds, and obligations. The LCR for both the Firm
and JPMorgan Chase Bank, N.A. is required to be a
minimum of 100%.
The following table summarizes the Firm and JPMorgan
Chase Bank, N.A.'s average LCR for the three months ended
December 31, 2022, September 30, 2022 and
December 31, 2021 based on the Firm's interpretation of
the LCR framework.
Average amount
(in millions)
JPMorgan Chase & Co.:
HQLA
The LCR rule requires that the Firm and JPMorgan Chase
Bank, N.A. maintain an amount of eligible HQLA that is
sufficient to meet their respective estimated total net cash
outflows over a prospective 30 calendar-day period of
significant stress. Eligible HQLA, for purposes of calculating
the LCR, is the amount of unencumbered HQLA that satisfy
certain operational considerations as defined in the LCR
rule. HQLA primarily consist of cash and certain high-quality
liquid securities as defined in the LCR rule.
Three months ended
$ 589,158 $ 703,384
126,913
34,738
$ 716,071 $ 738,122
$ 635,072 $ 664,801
113 %
Eligible cash (a)
Eligible securities (b)(c)
$ 542,847
190,201
Total HQLA (d)
$ 733,048
December 31, September 30, December 31,
2022
2022
2021
Net cash outflows
LCR and HQLA
Contingency funding plan
Total average assets
•
Varying levels of access to unsecured and secured
funding markets;
Estimated non-contractual and contingent cash
outflows;
Considerations of credit rating downgrades;
•
The Firm's Contingency Funding Plan ("CFP") sets out the
strategies for addressing and managing liquidity resource
needs during a liquidity stress event and incorporates
liquidity risk limits, indicators and risk appetite tolerances.
The CFP also identifies the alternative contingent funding
and liquidity resources available to the Firm and its legal
entities in a period of stress.
Collateral haircuts; and
Liquidity outflows are modeled across a range of time
horizons and currency dimensions and contemplate both
market and idiosyncratic stresses.
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and its intermediate holding company, JPMorgan Chase
Holdings LLC (the "IHC"), provides funding support to the
ongoing operations of the Parent Company and its
subsidiaries. The Firm maintains liquidity at the Parent
Company, the IHC, and operating subsidiaries at levels
sufficient to comply with liquidity risk tolerances and
JPMorgan Chase & Co./2022 Form 10-K
97
Management's discussion and analysis
minimum liquidity requirements, and to manage through
periods of stress when access to normal funding sources
may be disrupted.
Potential impediments to the availability and
transferability of liquidity between jurisdictions and
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm's resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. ("Parent Company") and the Firm's
material legal entities on a regular basis, and other stress
tests are performed in response to specific market events
or concerns. Liquidity stress tests assume all of the Firm's
contractual financial obligations are met and take into
consideration:
Internal stress testing
Committees responsible for liquidity governance include the
Firmwide ALCO as well as LOB and regional ALCOs, the
Treasurer Committee, and the CTC Risk Committee. In
addition, the Board Risk Committee reviews and
recommends to the Board of Directors, for formal approval,
the Firm's liquidity risk tolerances, liquidity strategy, and
liquidity policy. Refer to Firmwide Risk Management on
pages 81-84 for further discussion of ALCO and other risk-
related committees.
The Firm addresses these objectives through:
Manage an optimal funding mix and availability of
liquidity sources.
Ensure that the Firm's core businesses and material
legal entities are able to operate in support of client
needs and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and
•
•
•
Analyzing and understanding the liquidity characteristics
•
Liquidity management
Approving or escalating for review new or updated
liquidity stress assumptions.
Monitoring and reporting internal Firmwide and legal
entity liquidity stress tests, regulatory defined metrics,
as well as liquidity positions, balance sheet variances
and funding activities; and
Performing an independent review of liquidity risk
management processes to evaluate their adequacy and
effectiveness based on LRM's Independent Review
Framework;
Developing a process to classify, monitor and report
limit breaches;
Defining, monitoring and reporting liquidity risk metrics;
Independently establishing and monitoring limits and
indicators, including liquidity risk appetite;
Treasury and CIO is responsible for liquidity management.
The primary objectives of the Firm's liquidity management
are to:
of the assets and liabilities of the Firm, LOBS and legal
entities, taking into account legal, regulatory, and
operational restrictions;
Developing internal liquidity stress testing assumptions;
•
Maintain the appropriate amount of surplus liquidity at
a Firmwide and legal entity level, where relevant.
Governance
Identify constraints on the transfer of liquidity between
the Firm's legal entities; and
Monitor exposures;
Optimize liquidity sources and uses;
•
•
•
As part of the Firm's overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach designed to:
Setting FTP in accordance with underlying liquidity
characteristics of balance sheet assets and liabilities as
well as certain off-balance sheet items.
Managing compliance with regulatory requirements
related to funding and liquidity risk; and
Managing liquidity within the Firm's approved liquidity
risk appetite tolerances and limits;
•
.
•
Defining and monitoring Firmwide and legal entity-
specific liquidity strategies, policies, reporting and
contingency funding plans;
•
Greater of Method 1
and Method 2 GSIB
surcharge
material legal entities such as regulatory, legal or other
restrictions.
+
Common stock dividends
Capital actions
Management's discussion and analysis
93
JPMorgan Chase & Co./2022 Form 10-K
$264.9 $ 259.3
The Firm's common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm's capital management objectives.
264.9
88.3
69.9
60.4
Corporate
14.0
17.0
Total common stockholders' equity $
16.0
The Firm's quarterly common stock dividend is currently
$1.00 per share. The Firm's dividends are subject to
approval by the Board of Directors on a quarterly basis.
Refer to Note 21 and Note 26 for information regarding
dividend restrictions.
Year ended December 31,
Common dividend payout ratio
Common stock
50.0
119.7
23.1
2020(b)
2022 2021(a)
Aggregate purchase price of common
stock repurchases
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31, (in millions)
Total number of shares of common
stock repurchased
On July 14, 2022, the Firm announced that it had
temporarily suspended share repurchases in anticipation of
the increase in the Firm's regulatory capital requirements.
The Firm had set a target for achieving CET1 capital of
13.0% by the first quarter of 2023. The Firm met and
exceeded that target in the fourth quarter of 2022, and
resumed repurchasing shares under its common share
repurchase program in the first quarter of 2023.
Effective May 1, 2022, the Firm is authorized to purchase
up to $30 billion of common shares under its common
share repurchase program, which superseded the
previously approved repurchase program under which the
Firm was authorized to purchase up to $30 billion of
common shares.
2020
40 %
2021
25 %
33 %
2022
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2022,
2021 and 2020.
Asset & Wealth Management
24.0
25.0
5.4 %
5.6 %
49,620
3,782,035
789,754
$4,571,789
663,219
$4,367,092
3,703,873
51,398
(a) For purposes of calculating the SLR, includes quarterly average assets
adjusted for on-balance sheet assets that are subject to deduction
from Tier 1 capital, predominantly goodwill, inclusive of estimated
equity method goodwill, other intangible assets and adjustments for
the CECL capital transition provisions.
3,831,655
December 31, December 31,
2022
2021
Add: Off-balance sheet exposures (c)
(b)
Total adjusted average assets"
Minimum level of eligible
adjustments
$ 245,631 $ 246,162
3,755,271
(b) Adjusted average assets used for the calculation of Tier 1 leverage
ratio.
(c) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances on applicable regulatory exposures during
the reporting quarter. Effective January 1, 2022, includes the impact
of the SA-CCR adoption. Refer to the Firm's Pillar 3 Regulatory Capital
Disclosures reports for additional information.
Line of business equity
28.5
Commercial Banking
83.0
103.0
108.0
2022
2021
50.0 $ 50.0
$ 52.0 $
January 1,
2023
December 31,
Consumer & Community Banking
Corporate & Investment Bank
(in billions)
Line of business equity (Allocated capital)
The following table presents the capital allocated to each
business segment.
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. At least annually, the assumptions, judgments
and methodologies used to allocate capital are reassessed
and, as a result, the capital allocated to the LOBS may
change. As of January 1, 2023, the Firm has changed its
line of business capital allocations primarily as a result of
updates to the Firm's capital requirements and changes in
RWA for each LOB.
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
$ 3,122 $ 18,448 $ 6,397
(a) As directed by the Federal Reserve, total net repurchases and common
stock dividends in the first and second quarter of 2021 were restricted
and could not exceed the average of the Firm's net income for the four
preceding calendar quarters. Effective July 1, 2021, the Firm became
subject to the normal capital distribution restrictions provided under
the regulatory capital framework.
Total leverage exposure
SLR
The Board of Directors' authorization to repurchase
7.5%
of total
leverage
Greater
of
buffers, including
applicable
+
18% of RWA (a)
exposure
% of RWA
22.5
9.5
54.7
$
95.9
$
9.5
Method 1 GSIB
surcharge
(shortfall)
% of total
leverage
(b) On March 15, 2020, in response to the economic disruptions caused
by the COVID-19 pandemic, the Firm temporarily suspended
repurchases of its common stock. Subsequently, the Federal Reserve
directed all large banks, including the Firm, to discontinue net share
repurchases through the end of 2020.
6% of RWA (a)
9.5
4.5
4.5
4.6 %
10.2 %
5.2 %
11.1 %
Surplus/
(shortfall)
requirements
2.0% buffer
Regulatory
+
exposure
71.4
$ 114.0 $
9.5
22.5
Total Loss-Absorbing Capacity
Other capital requirements
JPMorgan Chase & Co./2022 Form 10-K
4
94
Refer to Long-term funding and issuance on page 103 and
Note 20 for additional information on the Firm's
subordinated debt.
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt.
Subordinated Debt
Preferred stock dividends declared were $1.6 billion for
each of the years ended December 31, 2022, 2021 and
2020.
Preferred stock
Refer to capital planning and stress testing on pages 86-87
for additional information.
Refer to Part II, Item 5: Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities on page 34 of the 2022 Form 10-K for
additional information regarding repurchases of the Firm's
equity securities.
-
Surplus/
During the year ended December 31, 2022, the Firm
redeemed several series of non-cumulative preferred stock.
Refer to Note 21 for additional information on the Firm's
preferred stock, including the issuance and redemption of
preferred stock.
The external TLAC requirements and the minimum level of
eligible long-term debt requirements are shown below:
common shares is utilized at management's discretion, and
the timing of purchases and the exact amount of common
shares that may be repurchased is subject to various
factors, including market conditions; legal and regulatory
considerations affecting the amount and timing of
repurchase activity; the Firm's capital position (taking into
account goodwill and intangibles); internal capital
generation; and alternative investment opportunities. The
$30 billion common share repurchase program approved
by the Board does not establish specific price targets or
timetables. The repurchase program may be suspended by
management at any time; and may be executed through
open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans, which are
written trading plans that the Firm may enter into from
time to time under Rule 10b5-1 of the Securities Exchange
Act of 1934 and which allow the Firm to repurchase its
common shares during periods when it may otherwise not
be repurchasing common shares – for example, during
internal trading blackout periods.
The following table presents the eligible external TLAC and
eligible LTD amounts, as well as a representation of these
amounts as a percentage of the Firm's total RWA and total
leverage exposure applying the impact of the CECL capital
transition provisions as of December 31, 2022 and 2021.
External TLAC requirement
Regulatory
12.8 %
28.4 %
13.8 %
29.4 %
$ 210.4
$ 464.6
requirements
$ 228.5
$ 486.0
December 31, 2021
External
TLAC
LTD
LTD
(in billions,
except ratio)
Total eligible
amount
December 31, 2022
External
TLAC
On September 29, 2022, Moody's upgraded the Parent
Company's long-term issuer rating to A1 (previously A2)
and changed the long-term outlook to stable (previously
positive). All other ratings and outlooks of the Parent
Company and those of the Firm's principal bank and non-
bank subsidiaries were affirmed by Moody's.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm's credit
ratings.
104
JPMorgan Chase & Co./2022 Form 10-K
REPUTATION RISK MANAGEMENT
Organization and management
processes and infrastructure that support consistent
identification, escalation, management and monitoring
of reputation risk issues Firmwide
Reputation Risk Management establishes the governance
framework for managing reputation risk across the Firm's
LOBS and Corporate. Reputation risk is inherently
challenging to identify, manage, and quantify.
The Firm's reputation risk management function includes
the following activities:
•
(a) In January 2022, the three rating agencies affirmed the credit ratings of J.P. Morgan SE, which are equivalent to the ratings previously assigned to J.P.
Morgan SE's predecessors, J.P. Morgan Bank Luxembourg S.A. and J.P. Morgan AG.
Overseeing the governance execution through
Reputation risk is the risk that an action or inaction may
negatively impact perception of the Firm's integrity and
reduce confidence in the Firm's competence by various
constituents, including clients, counterparties, customers,
investors, regulators, employees, communities or the
broader public.
Maintaining a Firmwide Reputation Risk Governance
policy and a standard consistent with the reputation
risk framework
A-1
F1+
Outlook
P-1
The types of events that result in reputation risk are wide-
ranging and may be introduced by the Firm's employees
and the clients, customers and counterparties with which
the Firm does business. These events could result in
financial losses, litigation, regulatory enforcement actions,
fines, penalties or other sanctions, as well as other harm to
the Firm.
A-1
Stable
Positive
Aa3
Stable
P-1
A+
Positive
AA
F1+
Stable
AA
Stable
A+
•
The Reputation Risk Governance policy establishes the
principles for managing reputation risk for the Firm. It is
the responsibility of employees in each LOB and Corporate
to consider the reputation of the Firm when deciding
whether to offer a new product, engage in a transaction or
client relationship, enter a new jurisdiction, initiate a
business process or consider any other activity.
Environmental impacts and social concerns are increasingly
important considerations in assessing the Firm's reputation
risk, and are a component of the Firm's reputation risk
governance.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are
reviewed and revised periodically as deemed appropriate
by management. Industry and counterparty limits, as
measured in terms of exposure and economic risk appetite,
are subject to stress-based loss constraints. Wrong-way risk
is the risk that exposure to a counterparty is positively
correlated with the impact of a default by the same
counterparty, which could cause exposure to increase at the
same time as the counterparty's capacity to meet its
obligations is decreasing.
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process for extending credit
so that credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the LOBS.
Consumer credit risk is monitored for delinquency and
other trends, including any concentrations at the portfolio
level, as certain of these trends can be addressed through
changes in underwriting policies and portfolio guidelines.
Consumer Risk Management evaluates delinquency and
other trends against business expectations, current and
forecasted economic conditions, and industry benchmarks.
Historical and forecasted economic performance and trends
are incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
Risk monitoring and management
JPMorgan Chase & Co./2022 Form 10-K
106
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The stress testing
process assesses the potential impact of alternative
economic and business scenarios on estimated credit losses
for the Firm. Economic scenarios and the underlying
parameters are defined centrally, articulated in terms of
macroeconomic factors and applied across the businesses.
The stress test results may indicate credit migration,
changes in delinquency trends and potential losses in the
credit portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
Stress testing
In addition, potential and unexpected credit losses are
reflected in the allocation of credit risk capital and
represent the potential volatility of actual losses relative to
the established allowances for loan losses and lending-
related commitments. The analyses for these losses include
stress testing that considers alternative economic scenarios
as described below.
Based on these factors and the methodology and estimates
described in Note 13 and Note 10, the Firm estimates credit
losses for its exposures. The allowance for loan losses
reflects estimated credit losses related to the consumer and
wholesale held-for-investment loan portfolios, the
allowance for lending-related commitments reflects
estimated credit losses related to the Firm's lending-related
commitments and the allowance for investment securities
reflects estimated credit losses related to the investment
securities portfolio. Refer to Note 13, Note 10 and Critical
Accounting Estimates used by the Firm on pages 149-152
for further information.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower's credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center
versus centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
Risk identification and measurement
• Estimating credit losses and supporting appropriate
credit risk-based capital management
Managing criticized exposures and delinquent loans, and
Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
Assigning and managing credit authorities in connection
with the approval of credit exposure
Governance and oversight
Monitoring, measuring and managing credit risk across
all portfolio segments, including transaction and
exposure approval
•
•
•
•
•
Credit Risk Management monitors, measures and manages
credit risk throughout the Firm and defines credit risk
policies and procedures. The Firm's credit risk management
governance includes the following activities:
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of clients and customers,
ranging from large corporate and institutional clients to
individual consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), and securities financing activities. The Firm is
also exposed to credit risk through its investment securities
portfolio and cash placed with banks.
Credit risk management
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
CREDIT AND INVESTMENT RISK MANAGEMENT
Management's discussion and analysis
105
JPMorgan Chase & Co./2022 Form 10-K
Reputation risk issues that are deemed to be material are
escalated as appropriate.
Maintaining a credit risk policy framework
issuer
1,475 $
Outlook
2,550
1,400 $
14
268
525
476
$
999 $
$
2021
2022
2021
2022
Maturities/Redemptions
Issuance
(a) Includes long-term structured notes that are secured.
Total long-term secured funding
Other long-term secured funding (a)
FHLB advances
9
4,694
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
Total long-term unsecured funding - maturities/redemptions
$
18,294 $ 15,543 $
25,481
25,546 $
3,011
33,023
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
The Firm can also raise secured long-term funding through securitization of consumer credit card loans and FHLB advances.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions
for the years ended December 31, 2022 and 2021.
Long-term secured funding
Year ended December 31,
(in millions)
Credit card securitization
33,088
issuer
741
525 $
Short-term
Long-term
Short-term
issuer
Long-term
issuer
Aa2
Outlook
Stable
Positive
Stable
F1+
AA-
Fitch Ratings
A-2
A-
P-1
A1
Moody's Investors Service
Standard & Poor's
issuer
issuer
December 31, 2022
Long-term Short-term
1,682 $
6,302
The Firm's wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. Refer to Note 14 for a further
description of client-driven loan securitizations.
JPMorgan Chase & Co./2022 Form 10-K
103
Management's discussion and analysis
$
Credit ratings
maintains sufficient liquidity to withstand a potential
decrease in funding capacity due to ratings downgrades.
Additionally, the Firm's funding requirements for VIES and
other third-party commitments may be adversely affected
by a decline in credit ratings. Refer to liquidity risk and
credit-related contingent features in Note 5 for additional
information on the impact of a credit ratings downgrade on
the funding requirements for VIES, and on derivatives and
collateral agreements.
The credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries as of December 31, 2022,
were as follows:
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
J.P. Morgan SE
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. The nature
and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors,
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it
⚫ Loan underwriting and credit approval processes
Total credit portfolio
Credit derivatives and
credit-related notes
used in credit portfolio
management
(b)
activities
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
2021
2022
Firmwide nonaccrual loans to total loans
outstanding
Total loans
Total nonaccrual loans
(in millions, except ratios)
December 31,
The following table provides information on Firmwide
nonaccrual loans to total loans.
(e) At December 31, 2022, and 2021 nonaccrual loans excluded $119
million and $633 million, respectively, of PPP loans 90 or more days
past due and guaranteed by the SBA.
(d) At December 31, 2022 and 2021, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $302 million and $623 million, respectively.
These amounts have been excluded based upon the government
guarantee. In addition, the Firm's policy is generally to exempt credit
card loans from being placed on nonaccrual status as permitted by
regulatory guidance.
(c) Prior-period amount has been revised to conform with the current
presentation.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives and credit-related notes used to manage
credit exposures.
(a) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
ΝΑ
$
NA
(23,014)
derivatives
held against
other cash collateral
Liquid securities and
- $
$
$ (19,330) $ (20,739)
(c)
108
9,110
$ 7,702 $
764
455
(10,102)
6,720
1,135,647
$
7,795
1,077,714
1,594
JPMorgan Chase & Co./2022 Form 10-K
110
The Firm's retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, scored auto
and business banking loans, as well as associated lending-
related commitments. The Firm's focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the residential
real estate portfolio, securitized or sold to U.S. government
agencies and U.S. government-sponsored enterprises; other
types of consumer loans are typically retained on the
balance sheet. Refer to Note 12 for further information on
the consumer loan portfolio. Refer to Note 28 for further
information on lending-related commitments.
CONSUMER CREDIT PORTFOLIO
Management's discussion and analysis
109
JPMorgan Chase & Co./2022 Form 10-K
At December 31, 2022 and 2021, $119 million and $633
million, respectively, of PPP loans 90 or more days past due
have been excluded from the Firm's nonaccrual loans as
they are guaranteed by the SBA. Refer to Note 12 for
additional information.
At December 31, 2022 and 2021, the Firm had $490
million and $6.7 billion, respectively, of PPP loans,
including $350 million and $5.4 billion, respectively, in
consumer, and $140 million and $1.3 billion, respectively,
in wholesale.
The PPP, implemented by the Small Business
Administration ("SBA"), provided the Firm with delegated
authority to process and originate PPP loans. When certain
criteria are met, PPP loans are subject to forgiveness and
the Firm will receive payment of the forgiveness amount
from the SBA. The PPP ended for new applications on May
31, 2021.
Paycheck Protection Program ("PPP")
The Firm provided various forms of assistance to customers
and clients impacted by the COVID-19 pandemic, including
payment deferrals and covenant modifications. Assistance
provided in response to the COVID-19 pandemic could delay
the recognition of delinquencies, nonaccrual status, and net
charge-offs for those customers and clients who would have
otherwise moved into past due or nonaccrual status. Refer
to Notes 12 and 13 for further information on the Firm's
accounting policies for loan modifications and the
allowance for credit losses.
Customer and client assistance
JPMorgan Chase & Co./2022 Form 10-K
2,865
965,271
0.30 %
0.27 %
0.59 %
0.72 %
The following table provides information about the Firm's
net charge-offs and recoveries.
Year ended December 31,
(in millions, except ratios)
1,326,782 1,262,313
$2,582,566 $2,456,753
Net charge-offs
Net charge-off rates
2022
2021
$
2,853
1,044,765
$
Average retained loans
Lending-related
commitments
235
231
8,688
58,820
42,079
3,970
5,837 $ 6,932
$
2021
2022
Nonperforming (d)(e)
$1,089,598 $1,010,206
2021
2022
Credit exposure
Loans held-for-sale
Loans at fair value
Total loans
December 31,
(in millions)
Loans retained
Total credit portfolio
Refer to Note 10 for information regarding the credit risk
inherent in the Firm's investment securities portfolio; and
refer to Note 11 for information regarding credit risk
inherent in the securities financing portfolio. Refer to
Consumer Credit Portfolio on pages 110-115 and Note 12
for further discussions of the consumer credit environment
and consumer loans. Refer to Wholesale Credit Portfolio on
pages 116-126 and Note 12 for further discussions of the
wholesale credit environment and wholesale loans.
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
In the following tables, total loans include loans retained
(i.e., held-for-investment); loans held-for-sale; and certain
loans accounted for at fair value. The following tables do
not include loans which the Firm accounts for at fair value
and classifies as trading assets; refer to Notes 2 and 3 for
further information regarding these loans. Refer to Notes
12, 28, and 5 for additional information on the Firm's
loans, lending-related commitments and derivative
receivables, including the Firm's related accounting
policies.
• Independently validating or changing the risk grades
assigned to exposures in the Firm's wholesale credit
portfolio, and assessing the timeliness of risk grade
changes initiated by responsible business units; and
Evaluating the effectiveness of the credit management
processes of the LOBS and Corporate, including the
adequacy of credit analyses and risk grading/loss given
default ("LGD") rationales, proper monitoring and
management of credit exposures, and compliance with
applicable grading policies and underwriting guidelines.
Refer to Note 12 for further discussion of consumer and
wholesale loans.
Risk reporting
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry, clients,
counterparties and customers, product and geography are
prepared, and the appropriateness of the allowance for
credit losses is reviewed by senior management at least on
a quarterly basis. Through the risk reporting and
governance structure, credit risk trends and limit
exceptions are provided regularly to, and discussed with,
risk committees, senior management and the Board of
Directors.
•
Loan sales and securitizations
•
54
Credit derivatives
•
• Collateral and other risk-reduction techniques
JPMorgan Chase & Co./2022 Form 10-K
107
Management's discussion and analysis
CREDIT PORTFOLIO
• Master netting agreements, and
• Loan syndications and participations
48
815
ΝΑ
NA
Total assets acquired in
loan satisfactions
22
28
ΝΑ
ΝΑ
213
203
ΝΑ
ΝΑ
Real estate owned
Other
Assets acquired in loan
satisfactions
8,111
7,016
1,194,440
1,255,784
1,135,647
1,077,714
6,720
7,795
Derivative receivables
70,880
829
57,081
316
Receivables from
customers(a)
49,257
59,645
Total credit-related
assets
296
Structured notes
$
Subordinated debt
0.52
0.07
0.21
1,564,579
0.34
0.05
0.15
Non-U.S. offices
28,043
26,315
21,805
ΝΑ
NA
ΝΑ
Noninterest-bearing
1,068,857
Interest-bearing
1.10
2.07
Savings (b)
971,788
(c)
Time
62,022
Total interest-bearing deposits
1,358,322
Total deposits in U.S. offices
2,049,528
930,866
48,628
1,301,616
1,949,786
739,916
0.28
0.06
0.13
59,053
0.26
Demand
Time
Total interest-bearing deposits
397,368
342,172
0.73
(0.09)
0.02
$ 2,467,915
$ 2,347,154
$ 1,906,751
0.41 %
0.02 %
0.12 %
(a) Includes Negotiable Order of Withdrawal ("NOW") accounts, and certain trust accounts.
(b) Includes Money Market Deposit Accounts ("MMDAS").
(c) Prior-period amounts have been revised to conform with the current presentation.
Refer to Note 17 for additional information on deposits.
JPMorgan Chase & Co./2022 Form 10-K
418,387
0.02
(0.10)
0.78
Total deposits in non-U.S. offices
Total deposits
324,740
313,304
267,545
0.57
(0.10)
0.25 %
65,604
52,822
1.85
(0.09)
0.13
390,344
371,053
320,367
57,749
0.06 %
0.92 %
269,888
44 %
(in millions)
Three months or
less
U.S.
Non-U.S.
U.S.
Non-U.S.
$ 43,513 $ 68,765
$ 29,359 $ 49,342
Over three months
but within 6
months
8,670
3,658
6,235
Over six months but
49 %
Loans-to-deposits ratio
1,077.7
$
Total uninsured deposits include time deposits. The table
below presents an estimate of uninsured U.S. and non-U.S.
time deposits, and their remaining maturities. The Firm's
estimates of its uninsured U.S. time deposits are based on
data that the Firm calculates periodically under applicable
FDIC regulations. For purposes of this presentation, all non-
U.S. time deposits are deemed to be uninsured.
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2022 and 2021.
As of December 31,
(in billions except ratios)
Deposits
2022
2021
$
2,340.2
within 12 months
$
December 31,
2022
December 31,
2021
Deposits as a % of total liabilities
Loans
69 %
71 %
$
1,135.6
2,462.3
101
7,035
2,850
2,634
$
691,206
$
648,170
(c)
$
495,722
ΝΑ
ΝΑ
ΝΑ
Interest-bearing
Demand (a)
(c)
324,512
322,122
Noninterest-bearing
U.S. offices
2020
2021
913
459
2,562
Over 12 months
Total
$ 60,005 $ 77,907 $ 37,033 $ 54,535
The following table provides a summary of the average balances and average interest rates of JPMorgan Chase's deposits for
the years ended December 31, 2022, 2021, and 2020.
787
(Unaudited)
Average balances
Average interest rates
(in millions, except interest rates)
2022
2021
2020
2022
Year ended December 31,
-
Management's discussion and analysis
Sources of funds (excluding deposits)
17,197 $ 17,427
27,404 $ 34,838
264,928 $ 259,289
11,103
3,837
$ 16,890 $ 19,714
$ 31,893 $ 33,027
12,174
4,384
$
253,068 $
250,968
(a) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(b) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(c) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(d) Includes long-term structured notes which are secured.
(e) Refer to Capital Risk Management on pages 86-96, Consolidated statements of changes in stockholders' equity on page 162, Note 21 and Note 22 for
additional information on preferred stock and common stockholders' equity.
Short-term funding
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and U.S. GSE and government agency MBS.
Securities sold under agreements to repurchase increased
at December 31, 2022, compared with December 31,
2021, due to higher secured financing of trading assets in
Markets, partially offset by lower secured financing of AFS
investment securities in Treasury and CIO.
The balances associated with securities loaned or sold
under agreements to repurchase fluctuate over time due to
investment and financing activities of clients, the Firm's
demand for financing, the ongoing management of the mix
of the Firm's liabilities, including its secured and unsecured
financing (for both the investment securities and market-
making portfolios), and other market and portfolio factors.
The Firm's sources of short-term unsecured funding
primarily consist of issuances of wholesale commercial
paper and other borrowed funds.
The decrease in period-end commercial paper and the
increase in average balances for the year ended
December 31, 2022 compared to the respective prior year
periods, was due to changes in net issuance levels primarily
for short-term liquidity management.
102
$
JPMorgan Chase & Co./2022 Form 10-K
Common stockholders' equity(e)
Preferred stock (e)
$
277,319
(b)
$
1,999 $
2,397
$
1,950
$
3,156
11,093
11,110
4,105
3,920
$
$
Long-term funding and issuance
Long-term funding provides an additional source of stable funding and liquidity for the Firm. The Firm's long-term funding plan
is driven primarily by expected client activity, liquidity considerations, and regulatory requirements, including TLAC. Long-term
funding objectives include maintaining diversification, maximizing market access and optimizing funding costs. The Firm
evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The significant majority of the Firm's long-term unsecured funding is issued by the Parent Company to provide flexibility in
support of the funding needs of both bank and non-bank subsidiaries. The Parent Company advances substantially all net
funding proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following table
summarizes long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2022 and 2021.
Refer to Note 20 for additional information on the IHC and long-term debt.
2,752
5,581
35,352
45,081
3,500
2,535
$ 41,387 $
4,113
49,194 $
35,577
35,577 $
32,714
32,714
$
16,700 $
10,840 $
65 $
65
32,600 $ 39,500 $ - $ -
$
Subsidiaries
Parent Company
Long-term unsecured funding
Year ended December 31,
(Notional in millions)
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
$ 277,828
Subordinated debt
Total long-term unsecured funding - issuance
Maturities/redemptions
Senior notes
2022
2021
2022
2021
Structured notes (a)
285,975
280,667 $
$
1,769
1,567
2,197
Total short-term unsecured funding
22,659 $ 26,876
$
Securities sold under agreements to repurchase (a)
$
198,382 $ 189,806
$
Securities loaned (a)
2,547
2,765
29,968
236,192
5,003
$
1,684
12,903
12,250
9,999
As of or for the year ended December 31,
(in millions)
Commercial paper
Other borrowed funds
Federal funds purchased
Average
2022
27,385
$
2021
15,108
2022
2021
$
16,151 $
12,285
8,418
12,557 $
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2022 and 2021,
and average balances for the years ended December 31, 2022 and 2021. Refer to the Consolidated Balance Sheets Analysis
on pages 55-56 and Note 11 for additional information.
$
6,876
$ 189,047
$
181,290
20,125
20,877
FHLB advances
Structured notes (c)
Total long-term unsecured funding
Credit card securitization
Other long-term secured funding (d)
Total long-term secured funding
70,839
73,956
68,656
75,152
294,526
$ 273,793 $
233,217 $ 227,256
191,488
20,531
21,803
Other borrowed funds
23,052
28,487
25,211
28,138
Obligations of Firm-administered multi-seller conduits (b)
9,236
250,229
6,198
9,283
Total short-term secured funding
$
Senior notes
$
188,025 $
Subordinated debt
7,387
2,172
526
155,069
$
170,608
$
37
6
3,385
38
3,347
68
75
10,200
8
10,192
62
70
12,851
150
15,929
72
71
14,917
25
14,942
249
74
13,968
10
13,978
65
48
12,701
73
1
$
76%
586
101
7
74
(14)
Automotive
34,573
24,606
16,409
64
75
11,612
66
11,546
89 %
84 %
89,154
77 %
December 31, 2021
Loans and
Lending-related
Commitments
Derivative
Receivables
170,857
Credit
exposure
% Drawn (d)
$
89,032
$
122
$
% Investment-
grade
234
15,928
% Drawnd
87 %
119
JPMorgan Chase & Co./2022 Form 10-K
(i) Prior-period amounts have been revised to conform with the current presentation.
(h) Represents the net notional amounts of protection purchased and sold through credit derivatives and credit-related notes used to manage the credit
exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain
credit indices.
(g) Credit exposure includes held-for-sale and fair value option elected lending-related commitments.
7,096
302
Healthcare
62,613
43,839
17,117
1,479
178
Banks & Finance Cos
51,816
27,811
22,994
136
807
9,294
25,981
36,218
Utilities
Management's discussion and analysis
31
17,616
20,547
38,668
Oil & Gas
50
961
474
(d)
Presented below is additional detail on certain of the Firm's industry exposures.
Real Estate exposure was $170.9 billion as of December 31, 2022. Criticized exposure decreased by $1.2 billion from
$5.3 billion at December 31, 2021 to $4.0 billion at December 31, 2022, driven by client-specific upgrades and net portfolio
activity largely offset by client-specific downgrades.
82%
99,572
$
17
$
99,555
$
% Investment-
grade
Credit
exposure
Derivative
Receivables
Loans and
Lending-related
Commitments
9,446
December 31, 2022
(a) Multifamily exposure is largely in California.
Total Real Estate Exposure
Lodging
Retail
(in millions, except ratios)
Multifamily(a)
Industrial
Office
Services and Non Income Producing
Other Income Producing Properties (b)
Retail
Real Estate
Lodging
(in millions, except ratios)
Multifamily (a)
Industrial
Office
Services and Non Income Producing
Other Income Producing Properties(b)
Total Real Estate Exposure(c)
16,643
75
71
5
15
(1)
(8,278)
Industrials
72,483
39,052
30,500
2,809
122
282
44
(1,258)
Technology, Media &
Telecommunications
72,286
39,199
15,136
42,133
59,014
Healthcare
(12)
(i)
61
(900)
58
325
8,595
25,540
49,610
25,689
(1)
1,686
16,665
95,656
related
notes (h)
Net charge-
offs/
(recoveries)
Credit
derivative
hedges and
Liquid securities
and other cash
collateral held
against
derivative
receivables
$ 170,857 $ 129,866 $
36,945 $
3,609 $
437 $
543 $
19 $
(113) $
Individuals and Individual Entities (b)
130,815
112,006
18,104
Asset Managers
(1,157)
49
321
608
7,295
78,925
51,871
120,555
Consumer & Retail
1
1,038
345
360
60,781
59
204
(4)
32,522
JPMorgan Chase & Co./2022 Form 10-K
120
(b) Other Income Producing Properties consists of clients with diversified property types or other property types outside of categories listed in the table above
(c) Real Estate exposure is approximately 79% secured; unsecured exposure is approximately 77% investment-grade.
(d) Represents drawn exposure as a percentage of credit exposure.
77 %
77 %
95
$
1,113
$
33
5
2,922
63
2,859
153,956
$
69
11,512
24
11,536
63
50
13,018
33,216
498
77
55
9,580
106
9,686
61
13,516
State & Municipal Govt(c)
(4)
(i)
Oil & Gas
(810)
(503)
9
9
5
42,606
1,138
23,809
29,732
54,684
Banks & Finance Cos
(174)
(490)
(i)
State & Municipal Govt (c)
20,698
20,222
(367)
6
11
209
914
7,011
(i)
25,069
Utilities
(564)
60
4
128
1,558
33,203
33,847
33,191
529
8
(3,900)
Industrials
(i)
66,974
36,953
26,957
2,895
169
428
13
(586)
(1)
Technology, Media &
Telecommunications
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives and credit-related notes used in credit portfolio management
activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(e) Excludes cash placed with banks of $556.6 billion and $729.6 billion, at December 31, 2022 and 2021, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(5)
$ 35,049 $
3,134 $ 3,320 $
(7,064)
142 $ (18,711)
(2,503)
$ (10,102)
5
Loans held-for-sale and loans
at fair value
39,758
59,645
Total(e)
$ 1,203,283
(a) The industry rankings presented in the table as of December 31, 2021, are based on the industry rankings of the corresponding exposures at
December 31, 2022, not actual rankings of such exposures at December 31, 2021.
(b) Individuals and Individual Entities predominantly consists of Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB, and
includes exposure to personal investment companies and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2022 and 2021, noted above, the
Firm held: $6.6 billion and $7.1 billion, respectively, of trading assets; $6.8 billion and $15.9 billion, respectively, of AFS securities; and $19.7 billion and
$14.0 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPEs and Private education and civic organizations, representing approximately 95% and 5%, respectively, at December 31, 2022 and
94% and 6%, respectively, at December 31, 2021.
Receivables from customers
242
12,630
81,228
$
4.636
$
617 $
394 $
6 $
(i)
(185)
$
Individuals and Individual
Entities (b)
141,973
122,606
18,797
99
471
1,450
Asset Managers
།
(i)
(352)
2
288
68,593
405
53,317
59.622
122,789
Consumer & Retail
(1)
32
9,445
368
205
13,580
283,069
Transportation
63
294
8,491
7,848
16,696
Metals & Mining
(72)
(6,961)
250
11,067
11,317
Central Govt
(89)
7
6
518
(3)
(463)
Insurance
13,926
9,943
3,887
14,635
96
(i)
(2,366)
Chemicals & Plastics
17,660
11,319
5,817
(25)
6,010
5,983
2,470
(217)
Financial Markets
Infrastructure
4,377
399
3,987
(47)
390
111,690
97,537
(i)
Subtotal
$ 1,103,880
$ 782,628 $
All other(d)
29,642
3
2,599
172
22
27
7
(15)
(i)
1,578
(4)
21
20
(100)
(24)
Securities Firms
4,180
(i)
accruing
loans
$ 120,174 $
Real Estate
5,396
181
1
(273)
(7,296)
Chemicals & Plastics
20,030
12,134
7,103
744
49
10
3
(298)
Central Govt
19,095
18,698
(27)
(1)
7
5
222
6,863
15,468
8,825
Metals & Mining
(677)
(4,591)
10
35
362
15,915
(4)
21,045
(513)
126
1
Automotive (c)
33,287
23,908
8,839
416
124
198
ལྕ ཝཿ ཞ â ཀླུ ཞ ༷
62
39
(1,766)
43
27
(1,055)
-
(2)
(5)
(9)
|
36
(1)
Insurance
(607)
21
(414)
(6)
57
(994)
(262)
15
Transportation
Securities Firms
Financial Markets Infrastructure
2,698 $
181 $ (18,143) $
(23,014)
35,427
49,257
$ 1,231,214
118
JPMorgan Chase & Co./2022 Form 10-K
Noninvestment-grade
Selected metrics
Liquid
securities
As of or for the year ended
December 31, 2021
(in millions)
Credit
exposure
(f)(g)
Investment-
grade
Noncriticized
derivative
receivables
notes
(h)
related
cash
collateral
held against
and other
2,714 $
Credit
derivative
hedges
and credit-
loans
accruing
more past
due and
30 days or
Criticized
nonperforming
Criticized
performing
Net charge-
offs/
(recoveries)
28,587 $
304,457 $
$ 1,146,530 $ 810,772 $
8,066
(339)
2
24
76
1,574
4,235
6,862
15,009
Total(e)
Receivables from customers
Loans held-for-sale and loans at fair
value
Subtotal
All other(d)
6,497
$ 155,069
3,716
(13)
(2,948)
(5,435)
(5)
4
245
223
115
17,555
123,307
437
4,525
4,962
(2,811)
(26)
105,284
Criticized Criticized
performing nonperforming
122
Investment-
grade
113
JPMorgan Chase & Co./2022 Form 10-K
(a) At both December 31, 2022 and 2021, nonaccrual loans included
$2.7 billion of TDRS for which the borrowers were less than 90 days
past due. Refer to Note 12 for additional information about loans
modified in a TDR that are on nonaccrual status.
December 31,
2021
13,251
3,938
December 31,
2022
11,579 $
3,300
Nonaccrual retained loans
(a)
$
Retained loans
(in millions)
The following table presents information relating to
modified retained residential real estate loans for which
concessions have been granted to borrowers experiencing
financial difficulty, which include both TDRS and modified
PCD loans not accounted for as TDRs. The following table
does not include loans with short-term or other insignificant
modifications that are not considered concessions and,
therefore, are not TDRs. Refer to Note 12 for further
information on modifications for the years ended
December 31, 2022 and 2021.
Modified residential real estate loans
Refer to Note 12 for information on the geographic
composition and current estimated LTVS of the Firm's
residential real estate loans.
Average current estimated loan-to-value ("LTV") ratios
were relatively flat.
At December 31, 2022, $152.7 billion, or 64% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies, were
concentrated in California, New York, Florida, Texas and
Illinois, compared with $145.5 billion, or 65% at
December 31, 2021.
Geographic composition and current estimated loan-to-
value ratio of residential real estate loans
1,447
Total government guaranteed loans
December 31,
December 31,
2022
2021
$
Management's discussion and analysis
659 $
136
135
302
623
$
1,097 $
689
90 or more days past due
Auto and other: The auto and other loan portfolio,
including loans at fair value consists of prime-quality scored
auto and business banking loans, as well as overdrafts. The
portfolio decreased when compared with December 31,
2021 due to paydowns of scored Auto loans and PPP loan
forgiveness in Business Banking predominantly offset by
originations of scored Auto loans. Net charge-offs for the
year ended December 31, 2022 increased compared to the
prior year due to higher scored Auto and overdraft charge-
offs, as the prior year benefited from government stimulus
and payment assistance programs. The scored Auto net
charge-off rates were 0.24% and 0.04% for the years
ended December 31, 2022 and 2021, respectively.
The following table presents information as of
168
Foreclosures and other liquidations
1,716
1,405
Returned to performing status
229
255
Charge-offs
2,018
1,393
Principal payments and other (a)
Reductions:
2,956
2,196
6,467
5,350 $
$
December 31, 2022 and 2021, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets (a)
December 31, (in millions)
2022
2021
Nonaccrual loans
Nonperforming assets
The following table presents changes in consumer,
excluding credit card, nonaccrual loans for the years ended
December 31, 2022 and 2021.
(in millions)
Beginning balance
Additions:
Year ended December 31,
2022
2021
Nonaccrual loan activity
110
30-89 days past due
The following table provides a summary of the Firm's
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, predominantly loans held-for-
sale and loans at fair value. The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government-insured loans and considers this exposure in
estimating the allowance for loan losses.
Residential real estate
Loans due after one year at variable interest rates (a)
Credit card
Auto and other
Residential real estate
$ 496,550
85,288 $ 127,287
$
66,205
$
$ 217,770
$ 185,175
$
$
494
$
$ 184,681
$ 22,984
42,727
$
81,946
3,342
$ 127,282
5
$ 247,921
63,454
Auto and other
$
$ 65,711
$
85,288
$ 127,287
$ 311,375
(a)
33,089
(in millions)
Current
Total consumer loans
17,266
42,652
At December 31, 2022 and 2021, the carrying value of
interest-only residential mortgage loans were $36.3 billion
and $30.0 billion, respectively. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers, predominantly
in AWM. The interest-only residential mortgage loan
portfolio reflected net recoveries for the year ended
December 31, 2022. The credit performance of this
portfolio is comparable with the performance of the
broader prime mortgage portfolio.
The carrying value of home equity lines of credit
outstanding was $15.7 billion at December 31, 2022. This
amount included $5.1 billion of HELOCS that have recast
from interest-only to fully amortizing payments or have
been modified and $5.0 billion of interest-only balloon
HELOCS, which primarily mature after 2030. The Firm
manages the risk of HELOCS during their revolving period by
closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile.
Loans at fair value decreased from December 31, 2021, as
warehouse loan sales in Home Lending outpaced
originations due to higher interest rates and loan sales in
CIB outpaced loan purchase activity. Nonaccrual loans at
fair value decreased from December 31, 2021 driven by
net portfolio activity in CIB.
Retained loans increased compared to December 31, 2021
reflecting originations, net of paydowns. Retained
nonaccrual loans decreased from December 31, 2021
reflecting improved credit performance and loan sales. Net
recoveries were lower for the year ended December 31,
2022 compared to the prior year driven by lower
prepayments due to higher interest rates, partially offset by
lower gross charge-offs.
Residential real estate: The residential real estate
portfolio, including loans held-for-sale and loans at fair
value, predominantly consists of prime mortgage loans and
home equity lines of credit.
The following discussions provide information concerning
individual loan products. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies, loan modifications and other credit
quality indicators.
residential real estate loans at fair value and auto and other
loans, largely offset by higher retained residential real
estate loans.
Loans decreased from December 31, 2021 driven by
Portfolio analysis
Consumer, excluding credit card
JPMorgan Chase & Co./2022 Form 10-K
112
(c) Includes overdrafts.
(b) Includes loans held-for-sale and loans at fair value.
(a) Credit card loans with maturities greater than one year represent TDRs and are at fixed interest rates. There are no credit card loans due after one year at
variable interest rates.
$ 127,287
85,288
$
50,589 $ 77,189
2,716
5
494
$
5,718
$
$
$ 50,093
75
626
$
66,205
$
31,357
Total reductions
3,221
4,073
716,838
2,691 2,761
Total assets acquired
in loan satisfactions
Lending-related
commitments
Total wholesale
credit portfolio
Credit derivatives and
credit-related notes
used in credit
portfolio
management
activities(b)
Liquid securities and
other cash collateral
held against
derivatives
NA
NA
74
101
ΝΑ
ΝΑ
455
764
ΝΑ
ΝΑ
JPMorgan Chase & Co./2022 Form 10-K
Credit card
ΝΑ
NA
(10,102)
(23,014)
759,234
$
(c)
$ 3,220 $3,626
$1,231,214 $1,203,283
471,980 486,445
101
74
$ (18,143) $ (18,711)
114
Total wholesale
credit-related
assets
Assets acquired in
loan satisfactions
Real estate owned
Other
49,257
Geographic and FICO composition of credit card loans
At December 31, 2022, $85.4 billion, or 46% of the total
retained credit card loan portfolio, was concentrated in
California, Texas, New York, Florida and Illinois, compared
with $70.5 billion, or 46%, at December 31, 2021.
Modifications of credit card loans
At December 31, 2022, the Firm had $796 million of credit
card loans outstanding that have been modified in TDRS,
compared to $1.0 billion at December 31, 2021. These
TDRS do not include loans with short-term or other
insignificant modifications that are not considered TDRs.
Refer to Note 12 for further information about this
portfolio, including information about delinquencies,
geographic and FICO composition, and modifications.
JPMorgan Chase & Co./2022 Form 10-K
115
Management's discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm's
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk. The wholesale portfolio is
actively managed, in part by conducting ongoing, in-depth
reviews of client credit quality and transaction structure,
inclusive of collateral where applicable, and of industry,
product and client concentrations. Refer to the industry
discussion on pages 118-121 for further information.
The Firm's wholesale credit portfolio includes exposure held
in CIB, CB, AWM, and Corporate, as well as the risk-rated
BWM and auto dealer exposure held in CCB, for which the
wholesale methodology is applied when determining the
allowance for loan losses.
In 2022, wholesale credit continued to perform well with
charge-offs remaining low.
As of December 31, 2022, retained loans increased by
$43.3 billion driven by CIB and CB, including higher
revolver utilization, partially offset by a decline in AWM.
Lending-related commitments decreased $14.5 billion,
driven by net portfolio activity in CIB, including a decrease
in held-for-sale positions in the bridge financing portfolio,
largely offset by net portfolio activity in AWM and CB.
As of December 31, 2022, the investment-grade
percentage of the portfolio remained relatively flat at 70%,
while criticized exposure decreased by $6.9 billion from
$38.2 billion to $31.3 billion. As of December 31, 2022,
nonperforming exposure decreased by $406.0 million
driven by a decline in lending-related commitments in CIB
and loans in AWM as a result of client-specific upgrades,
paydowns and cancelled commitments, largely offset by
client-specific downgrades in CIB including downgrades to
certain Russia and Russia-associated clients in the first
quarter of 2022. Refer to Business Developments on page
50 and Country Risk on pages 139-140 for additional
information. Refer to Wholesale credit exposure - industry
exposures on pages 118-121 for additional information.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Loans
Credit exposure
Nonperforming
2022
2021
2022
Receivables from
customers (a)
2,445
316
2,395
296
343
406
32,075 32,357
639,097 600,112
70,880 57,081
59,645
Derivative receivables
26
7,401
3,352
$ 1,963 $2,054
$ 603,670 $ 560,354
2021
48
(a) At December 31, 2022 and 2021, loans under payment deferral
programs offered in response to the COVID-19 pandemic which are
still within their deferral period and performing according to their
modified terms are generally not considered delinquent.
15
0.10 %
2021
5,484
4,482 $
$
Total nonperforming assets
134
22
28
157
Total assets acquired in loan satisfactions
Other
112
129
Real estate owned
Assets acquired in loan satisfactions
5,350
4,325
Total nonaccrual loans
119
(1,025)
(1,117)
Ending balance
$
4,325 $
5,350
(in millions, except ratios)
(a) Other reductions include loan sales.
Nonaccrual loans
Residential real estate (b)
$
4,196 $ 5,231
Auto and other(c)
129
Net changes
Refer to Note 12 for further information about the
consumer credit portfolio, including information about
delinquencies, other credit quality indicators, loan
modifications and loans that were in the process of active or
suspended foreclosure.
Purchased credit deteriorated ("PCD") loans
The following tables provide credit-related information for
PCD loans which are reported in residential real estate.
December 31, December 31,
2022
2021
% of 30+ days past due to total
retained PCD loans
5.41 %
7.24 %
Nonaccrual loans
$
1,200
13,741
$
Year ended December 31,
(in millions, except ratios)
Net charge-offs/(recoveries)
Net charge-off/(recovery) rate
$
2022
(11) $
(0.09)%
1,616
17,380
11,534 $
Total PCD loans
Noncriticized
Loan delinquency(a)
(a) At December 31, 2022 and 2021, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $302 million and $623 million, respectively.
These amounts have been excluded based upon the government
guarantee.
(b) Generally excludes loans under payment deferral programs offered in
response to the COVID-19 pandemic.
(c) At December 31, 2022 and 2021, nonaccrual loans excluded $101
million and $506 million, respectively, of PPP loans 90 or more days
past due and guaranteed by the SBA.
Current
$
$
30-149 days past due
347
331
150 or more days past due
277
664
10,910 $ 12,746
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm's allowance for loan losses includes the
estimated uncollectible portion of accrued and billed
interest and fee income.
(c)
$
471,980
1,123,516
36,231
327,168
788,811
11,635
144,812
334,705
Loans held-for-sale and loans at fair value (a)
35,427
47,866
471,980
1,123,516
35,427
76
69
70
10
Receivables from customers
49,257
49,257
Total exposure - net of liquid securities and other
cash collateral held against derivatives
$ 1,208,200
$1,208,200
Credit derivatives and credit-related notes used in
(b)(c)(d)
credit portfolio management activities
through
1 year or
less
After 1 year
Maturity profile (e)
Loans retained
(in millions, except ratios)
47,866
December 31, 2021
$ (18,143)
(3,028)
$
(13,530) $ (1,796) $ (18,143) $ (15,115)
(2,817) $
$
83 %
5 years
19,478
23,441
187,932
319,352
Net charge-offs/(recoveries)
Total consumer- retained
Credit card - retained
Total consumer, excluding credit card - retained
Auto and other
Residential real estate
Consumer, excluding credit card
(in millions, except ratios)
Credit-related notes used in credit portfolio management activities()
Total consumer credit portfolio (h)
Total credit card exposure (h)
Lending-related commitments (f)(h)
Total credit card loans
Loans retained(g)
Credit card
Total consumer exposure, excluding credit card
Lending-related commitments (f)
Subtotal
101,083
84,070
The following tables present consumer credit-related information with respect to the scored credit portfolio held in CCB, AWM,
CIB and Corporate.
Consumer credit portfolio
December 31,
14,880
347,456
616,232
(in millions)
Residential real estate (a)
Auto and other (b)(c) (d)
Total loans - retained
Loans held-for-sale
Loans at fair value (e)
Total consumer, excluding credit card loans
Consumer, excluding credit card
2022
After 5
years
Investment-
grade
Credit derivatives and credit-related notes used in
credit portfolio management activities(b)(c)(d)
$ (7,472) $
(9,750) $
(1,489) $ (18,711)
$
(15,012) $
(3,699)
$ (18,711)
80 %
(a) Loans held-for-sale are primarily related to syndicated loans and loans transferred from the retained portfolio.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used
in credit portfolio management activities are executed with investment-grade counterparties. In addition, the Firm obtains credit protection against
certain loans in the retained loan portfolio through the issuance of credit-related notes.
(d) Prior-period amounts have been revised to conform with the current presentation.
(e) The maturity profile of retained loans, lending-related commitments and derivative receivables is generally based on remaining contractual
maturity. Derivative contracts that are in a receivable position at December 31, 2022, may become payable prior to maturity based on their cash flow
profile or changes in market conditions.
JPMorgan Chase & Co./2022 Form 10-K
117
Management's discussion and analysis
Credit
exposure(f)(g)
credit-
30 days or
more past
due and
Real Estate
(in millions)
December 31, 2022
$1,193,181
As of or for the year ended
Noninvestment-grade
Wholesale credit exposure - industries(a)
The table below summarizes by industry the Firm's exposures as of December 31, 2022 and 2021. The industry of risk
category is generally based on the client or counterparty's primary business activity. Refer to Note 4 for additional information
on industry concentrations.
Exposures that are deemed to be criticized align with the U.S. banking regulators' definition of criticized exposures, which
consist of the special mention, substandard and doubtful categories. Total criticized exposure, excluding loans held-for-sale
and loans at fair value, was $31.3 billion at December 31, 2022 and $38.2 billion at December 31, 2021, representing
approximately 2.7% and 3.5% of total wholesale credit exposure, respectively. Criticized exposure decreased driven by net
portfolio activity and client-specific upgrades concentrated in Consumer & Retail, Technology, Media & Telecommunications
and Real Estate, largely offset by client-specific downgrades. Of the $31.3 billion of criticized exposure at December 31, 2022,
approximately half was undrawn and $28.6 billion was performing.
The Firm focuses on the management and diversification of its industry exposures, and pays particular attention to industries
with actual or potential credit concerns.
Wholesale credit exposure - industry exposures
Selected metrics
Total
$1,193,181
Total exposure - net of liquid securities and
Ratings profile
Noninvestment-
grade
150,343
Total
$ 560,354
Total %
of IG
73 %
57,081
$ 214,064 $ 218,176 $ 128,114 $ 560,354
$ 410,011 $
Derivative receivables
Less: Liquid securities and other cash collateral
held against derivatives
57,081
(10,102)
(10,102)
Total derivative receivables, net of collateral
Lending-related commitments
13,648
120,929
71
68
68
46,979
486,445
1,093,778
39,758
59,645
15,045
155,329
320,717
31,934
331,116
773,061
other cash collateral held against derivatives
486,445
1,093,778
39,758
59,645
Loans held-for-sale and loans at fair value (a)
46,979
20,517
25,208
173,839
12,814
340,308
571,298
348,641
Subtotal
Receivables from customers
2021
Credit exposure
2022
462,744 $
2,723 $
1.94
1.47
139,900
163,335
2,712
2,403
2,672 $
$
0.09
298,814
299,409
(0.12)%
0.37
0.75
77,900
(0.10)%
220,914
4,325 $
5,350
$
(1,187) $
(2,028)
Year ended December 31,
Average loans - retained
2022
2021
438,714
Net charge-off/(recovery) rate (m)
2021
$
(226) $
495
269
(275) $
286
11
233,454 $
65,955
2022
884,830
1,351,352 $ 1,253,470 $
0.58 %
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in Corporate.
(b) At December 31, 2022 and 2021, excluded operating lease assets of $12.0 billion and $17.1 billion, respectively. These operating lease assets are included
in other assets on the Firm's Consolidated balance sheets. Refer to Note 18 for further information.
Total
After 15
years
5-15
years
1-5
years
Within
1 year (b)
Loans due after one year at fixed interest rates
Total consumer loans
Total credit card loans
card loans
Total consumer, excluding credit
Auto and other
Residential real estate
Consumer, excluding credit card
(in millions)
December 31, 2022
The table below sets forth loan maturities by scheduled repayments, by class of loan and the distribution between fixed and
floating interest rates based on the stated terms of the loan agreements. Effective December 31, 2022, the Firm revised its
methodology from contractual maturities to scheduled repayments. The Firm estimated the principal repayment amounts for
both the residential real estate and auto and other loan classes by calculating the weighted-average loan balance and interest
rates for loan pools based on remaining loan term.
Maturities and sensitivity to changes in interest rates
(c) Includes scored auto and business banking loans and overdrafts.
(d) At December 31, 2022 and 2021, included $350 million and $5.4 billion of loans, respectively, in Business Banking under the PPP. The Firm does not expect
to realize material credit losses on PPP loans because the loans are guaranteed by the SBA. Refer to Credit Portfolio on pages 108-109 for a further
discussion of the PPP.
(e) Includes scored mortgage loans held in CCB and CIB.
(f) Credit card, home equity and certain business banking lending-related commitments represent the total available lines of credit for these products. The Firm
has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain
conditions are met, home equity commitments and certain business banking commitments, the Firm can reduce or cancel these lines of credit by providing
the borrower notice or, in some cases as permitted by law, without notice. Refer to Note 28 for further information.
(g) Includes billed interest and fees.
(h) Also includes commercial card lending-related commitments primarily in CB and CIB.
0.62 %
(i) Represents the notional amount of protection obtained through the issuance of credit-related notes that reference certain pools of residential real estate and
auto loans in the retained consumer portfolio.
(k) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic.
(I) At December 31, 2022 and 2021, nonaccrual loans excluded $101 million and $506 million, respectively, of PPP loans 90 or more days past due and
guaranteed by the SBA.
(m) Average consumer loans held-for-sale and loans at fair value were $17.4 billion and $29.1 billion for the years ended December 31, 2022 and 2021,
respectively. These amounts were excluded when calculating net charge-off/(recovery) rates.
JPMorgan Chase & Co./2022 Form 10-K
111
Management's discussion and analysis
At December 31, 2022 and 2021, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $302
million and $623 million, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the
Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance.
$
1,006,459
730,534
Total derivative receivables, net of collateral
Lending-related commitments
13,508
NA
154,296
185,175
368,640
344,893
45,334
33,518
472
5,350
4,325
323,306
311,375
423
26,463
10,004
28
2021
2022
Nonaccrual loans (i)(k) (I)
2021
$
237,561 $
63,192
300,753
(23,014)
224,795
70,761
295,556
3,745 $
129
4,759
3,874
119
4,878
618
1,287
$
(23,014)
$ 204,761 $ 253,896 $ 145,013 $ 603,670
70,880
Loans retained
(in millions, except ratios)
December 31, 2022
The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of
December 31, 2022 and 2021. The Firm generally considers internal ratings with qualitative characteristics equivalent to
BBB-/Baa3 or higher as investment grade, and takes into consideration collateral and structural support when determining
the internal risk rating for each credit facility. Refer to Note 12 for further information on internal risk ratings.
Wholesale credit exposure - maturity and ratings profile
JPMorgan Chase & Co./2022 Form 10-K
Derivative receivables
116
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives and credit-related notes used to manage
both performing and nonperforming wholesale credit exposures; these
derivatives do not qualify for hedge accounting under U.S. GAAP. Refer
to Credit derivatives on page 126 and Note 5 for additional
information.
(a) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
NA
185,175
154,296
821,284
(c) Prior-period amounts have been revised to conform with the current
presentation.
15,709
Less: Liquid securities and other cash collateral
held against derivatives
1 year or
less
$
$ 425,412
Investment-
grade
Total
70,880
70%
Maturity profile (e)
$ 603,670
Total %
of IG
Total
Noninvestment-
grade
Ratings profile
After 5
years
After 1 year
through
5 years
178,258
Total credit card loans increased from December 31, 2021
driven by growth in balances on higher consumer spending
and net new originations. The December 31, 2022 30+ and
90+ day delinquency rates of 1.45% and 0.68%,
respectively, increased compared to the December 31,
2021 30+ and 90+ day delinquency rates of 1.04% and
0.50%, but remain below pre-pandemic levels. Net charge-
offs decreased for the year ended December 31, 2022
compared to the prior year. Delinquency and net charge-off
rates continue to benefit from the ongoing financial
strength of U.S. consumers. However, median deposit
balances declined in the second half of 2022, impacted by
the growth in consumer spending.
ΝΑ
36
⚫ the allowance for lending-related commitments, which is
reflected in accounts payable and other liabilities on the
Consolidated balance sheets, and
•
the allowance for credit losses on investment securities,
which is reflected in investment securities on the
Consolidated balance sheets.
Discussion of changes in the allowance
The allowance for credit losses as of December 31, 2022
was $22.2 billion, reflecting a net addition of $3.5 billion
from December 31, 2021, consisting of:
•
•
$2.3 billion in wholesale, driven by deterioration in the
Firm's macroeconomic outlook and loan growth,
predominantly in CB and CIB, and
⚫ the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
$1.2 billion in consumer, predominantly driven by Card
Services, reflecting higher outstanding balances and
deterioration in the Firm's macroeconomic outlook,
partially offset by a reduction in the allowance related to
a decrease in uncertainty associated with borrower
behavior as the effects of the pandemic gradually recede.
Deterioration in the Firm's macroeconomic outlook included
both updates to the central scenario in the fourth quarter of
2022, which now reflects a mild recession, as well as the
impact of the increased weight placed on the adverse
scenarios beginning in the first quarter of 2022 due to the
effects associated with higher inflation, changes in
monetary policy, and geopolitical risks, including the war in
Ukraine.
The Firm's central case assumptions reflected U.S.
unemployment rates and U.S. real GDP as follows:
Assumptions at December 31, 2022
2Q23
4Q23
2Q24
(a)
3.8 %
4.3 %
The Firm's allowance for credit losses is estimated using a
weighted average of five internally developed
macroeconomic scenarios. The adverse scenarios
incorporate more punitive macroeconomic factors than the
central case assumptions provided in the table below,
resulting in a weighted average U.S. unemployment rate
peaking at 5.6% in the second quarter of 2024, and a
1.2% lower U.S. real GDP exiting the second quarter of
2024.
5.0 %
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The Firm's allowance for
credit losses comprises:
JPMorgan Chase & Co./2022 Form 10-K
Credit derivatives and credit-related notes used in credit
portfolio management activities
Notional amount of
protection
purchased and sold (a)
2021
December 31, (in millions)
2022
Credit derivatives and credit-related notes
used to manage:
Loans and lending-related commitments
Derivative receivables
ALLOWANCE FOR CREDIT LOSSES
$
Credit derivatives and credit-related notes
used in credit portfolio management
activities
$
18,143 $ 18,711
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
(b) Prior-period amount has been revised to conform with the current
presentation
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm. Refer to Credit derivatives in
Note 5 for further information on credit derivatives and
derivatives used in credit portfolio management activities.
126
6,422 $ 4,138
11,721
14,573 (b)
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities.
1.5 %
- %
2021
Consumer,
excluding
credit card
Credit card
Wholesale
Total
Consumer,
excluding
credit card
Credit card
Wholesale
2022
Total
Beginning balance at January 1,
$
Gross charge-offs
1,765
812
$ 10,250
3,192
$ 4,371
322
$
Allowance for loan losses
0.4 %
(in millions, except ratios)
Allowance for credit losses and related information
U.S. unemployment rate
YoY growth in U.S. real GDP(b)
Assumptions at December 31, 2021
2Q22
4Q22
2Q23
(a)
4.2 %
4.0 %
Year ended December 31,
3.9 %
2.8 %
2.1 %
U.S. unemployment rate
YoY growth in U.S. real GDP (b)
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) The year over year growth in U.S. real GDP in the forecast horizon of
the central scenario is calculated as the percentage change in U.S. real
GDP levels from the prior year.
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
Refer to Critical Accounting Estimates Used by the Firm on
pages 149-152 for further information on the allowance for
credit losses and related management judgments.
Refer to Consumer Credit Portfolio on pages 110-115,
Wholesale Credit Portfolio on pages 116-126 for additional
information on the consumer and wholesale credit
portfolios.
JPMorgan Chase & Co./2022 Form 10-K
127
Management's discussion and analysis
3.1 %
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and lending-related
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, “credit portfolio
management activities”). Information on credit portfolio
management activities is provided in the table below.
Credit portfolio management activities
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm's own credit risk associated
with various exposures.
(1,544)
$
46,605 $
45,435
124
JPMorgan Chase & Co./2022 Form 10-K
Ratings profile of derivative receivables
December 31,
(1,261)
(in millions, except ratios)
Noninvestment-grade
Total
$
2022
Exposure net of
collateral
35,097
11,508
46,605
Investment-grade
% of exposure net
of collateral
47,866 $ 46,979
(10,102)
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients. The
contractual amounts of these financial instruments
represent the maximum possible credit risk should the
clients draw down on these commitments or when the Firm
fulfills its obligations under these guarantees, and the
clients subsequently fail to perform according to the terms
of these contracts. Most of these commitments and
guarantees have historically been refinanced, extended,
cancelled, or expired without being drawn upon or a default
occurring. As a result, the Firm does not believe that the
total contractual amount of these wholesale lending-related
commitments is representative of the Firm's expected
future credit exposure or funding requirements. Refer to
Note 28 for further information on wholesale lending-
related commitments.
Receivables from customers
Receivables from customers reflect held-for-investment
margin loans to brokerage clients in CIB, CCB and AWM that
are collateralized by assets maintained in the clients'
brokerage accounts (e.g., cash on deposit, and liquid and
readily marketable debt or equity securities). Because of
this collateralization, no allowance for credit losses is
generally held against these receivables. To manage its
credit risk, the Firm establishes margin requirements and
monitors the required margin levels on an ongoing basis,
and requires clients to deposit additional cash or other
collateral, or to reduce positions, when appropriate. These
receivables are reported within accrued interest and
accounts receivable on the Firm's Consolidated balance
sheets.
Derivative contracts
Derivatives enable clients and counterparties to manage
risk, including credit risk and risks arising from fluctuations
in interest rates, foreign exchange and equities and
commodities prices. The Firm makes markets in derivatives
in order to meet these needs and uses derivatives to
manage certain risks associated with net open risk positions
from its market-making activities, including the
counterparty credit risk arising from derivative receivables.
The Firm also uses derivative instruments to manage its own
credit risk and other market risk exposure. The nature of the
counterparty and the settlement mechanism of the
derivative affect the credit risk to which the Firm is exposed.
For OTC derivatives, the Firm is exposed to the credit risk of
the derivative counterparty. For exchange-traded
derivatives ("ETD"), such as futures and options, and
cleared over-the-counter ("OTC-cleared") derivatives, the
Firm can also be exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit
risk exposures arising from derivative contracts through the
use of legally enforceable master netting arrangements and
collateral agreements. The percentage of the Firm's OTC
derivative transactions subject to collateral agreements -
excluding foreign exchange spot trades, which are not
typically covered by collateral agreements due to their short
maturity and centrally cleared trades that are settled daily
was approximately 87% and 88% at December 31, 2022
and 2021, respectively. Refer to Note 5 for additional
information on the Firm's use of collateral agreements and
further discussion of derivative contracts, counterparties
and settlement types.
The fair value of derivative receivables reported on the
Consolidated balance sheets were $70.9 billion and $57.1
billion at December 31, 2022 and 2021, respectively. The
increase was primarily driven by higher foreign exchange as
a result of market movements. Derivative receivables
represent the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and the related cash collateral held by the
Firm.
In addition, the Firm held liquid securities and other cash
collateral that may be used as security when the fair value
of the client's exposure is in the Firm's favor. For these
purposes, the definition of liquid securities is consistent with
the definition of high quality liquid assets as defined in the
LCR rule.
$
In management's view, the appropriate measure of current
credit risk should also take into consideration other
collateral, which generally represents securities that do not
qualify as high quality liquid assets under the LCR rule. The
benefits of these additional collateral amounts for each
counterparty are subject to a legally enforceable master
netting agreement and limited to the net amount of the
derivative receivables for each counterparty.
The following tables summarize the net derivative
receivables and the internal ratings profile for the periods
presented.
Derivative receivables
December 31, (in millions)
Total, net of cash collateral
Liquid securities and other cash
collateral held against derivative
receivables
Total, net of liquid securities and
other cash collateral
Other collateral
held against derivative receivables
Total, net of collateral
2022
$
2021
70,880 $ 57,081
(23,014)
The Firm also holds additional collateral (primarily cash, G7
government securities, other liquid government agency and
guaranteed securities, and corporate debt and equity
securities) delivered by clients at the initiation of
transactions, as well as collateral related to contracts that
have a non-daily call frequency and collateral that the Firm
has agreed to return but has not yet settled as of the
reporting date. Although this collateral does not reduce the
balances and is not included in the tables below, it is
available as security against potential exposure that could
arise should the fair value of the client's derivative contracts
move in the Firm's favor. Refer to Note 5 for additional
information on the Firm's use of collateral agreements.
2021
Exposure net of
collateral
60
40
20
0
1
2
5
year years
80
years
DRE
Peak
10
years
JPMorgan Chase & Co./2022 Form 10-K
125
Management's discussion and analysis
Credit derivatives
AVG
100
120
140
% of exposure net
of collateral
75 % $
30,278
67 %
25
15,157
33
100 % $
45,435
100 %
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
Peak represents a conservative measure of potential
derivative exposure, including the benefit of collateral, to a
counterparty calculated in a manner that is broadly
equivalent to a 97.5% confidence level over the life of the
transaction. Peak is the primary measure used by the Firm
for setting credit limits for derivative contracts, senior
management reporting and derivatives exposure
management.
DRE exposure is a measure that expresses the risk of
derivative exposure, including the benefit of collateral, on a
basis intended to be equivalent to the risk of loan
exposures. DRE is a less extreme measure of potential
credit loss than Peak and is used as an input for
aggregating derivative credit risk exposures with loans and
other credit risk.
Finally, AVG is a measure of the expected fair value of the
Firm's derivative exposure, including the benefit of
collateral, at future time periods. AVG over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capital
and CVA, as further described below.
The fair value of the Firm's derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm's AVG to a
counterparty and the counterparty's credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process for derivatives exposures takes into
consideration the potential impact of wrong-way risk, which
is broadly defined as the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing. Many factors
may influence the nature and magnitude of these
correlations over time. To the extent that these correlations
are identified, the Firm may adjust the CVA associated with
a particular counterparty's AVG. The Firm risk manages
exposure to changes in CVA by entering into credit
derivative contracts, as well as interest rate, foreign
exchange, equity and commodity derivative contracts.
The below graph shows exposure profiles to the Firm's
current derivatives portfolio over the next 10 years as
calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year,
if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2022
(in billions)
Gross recoveries collected
NM
(543)
(141)
Asset-specific
$
$
$
90
$
Portfolio-based
76
Impairment methodology
2,216
$
113
Total allowance for lending-related
commitments
$
76 $
-
$
2,306 $
90
2,292
Total allowance for investment securities
16,475
16,386
$ 4,371
2,664
10,977
Total allowance for loan losses
$
2,040
$ 11,200 $
467
6,019
6,486 $
$
$
66
19,660
19,726
$
2,430
1,765
(665) $ 313
9,937
$ 10,250
$ 263
4,108
$
(89)
$
Portfolio-based
ΝΑ
NA $
$560,354 $1,010,206
526,557
965,271
Credit ratios
Allowance for loan losses to retained loans
0.68 %
6.05 %
1.07 %
1.81 %
$295,556 $154,296
298,814 139,900
0.60 %
0.78 %
1.62 %
Allowance for loan losses to retained
nonaccrual loans (c)
53
NM
330
338
6.64 %
NA
$1,089,598
1,044,765
$ 185,175
163,335
2,382
96
$ 113 $
ΝΑ
$ 167 $
1,981
167
2,094
$ 2,148 $
NA $
2,261
42
Total allowance for credit losses (b)
$603,670
582,021
$ 2,116
$
8,792 $ 22,204
$
1,878 $ 10,250 $ 6,519 $ 18,689
Memo:
Retained loans, end of period
Retained loans, average
$ 300,753
299,409
$ 11,200
$
223
$
Provision for loan losses
543
3,353
2,293
6,189
(1,858)
(4,838)
Other
142
1
4
(2)
(2,375)
(4)
2,865
(9,071)
(6)
Ending balance at December 31,
$
2,040
$ 11,200
3
$ 6,486
2,712
2,853
16,386
4,326
(1,473)
$ 3,636
$ 17,800
$ 6,892
$
28,328
630
3,651
11
283
(619)
(939)
(141)
(1,699)
Net charge-offs
269
2,403
181
4,564
$
19,726
$
1
1 ...
$ 2,222 $ 2,409
(74)
(149)
1
Ending balance at December 31,
$
76
$
$ 2,306
1
$
$
113
$
$ 2,148 $ 2,261
Impairment methodology
Asset-specific (a)
$
(624)
2,382
Other
$
187
(75)
1,765
$ 10,250
$ 4,371
$ 16,386
Allowance for lending-related
commitments
Beginning balance at January 1,
$
113
$
$
2,148
$
2,261
$
Provision for lending-related commitments
(37)
157
120
(789)
JPMorgan Chase & Co./2022 Form 10-K
2,169
Lending-related commitments
$
34,200
50 %
33 %
Food and Beverage
Business and Consumer Services
31,706
736
32,442
59
309
39
384
31,640
50
40
Consumer Hard Goods
13,879
172
14,051
51
39
31,256
Leisure (b)
$
$
36
146
0.27
0.03
1.47
330
NM
53
0.09
Net charge-off rates
nonaccrual loans excluding credit card
Allowance for loan losses to retained
33,891
236
Consumer & Retail
Consumer & Retail exposure was $120.6 billion as of December 31, 2022. Criticized exposure decreased by $1.9 billion from
$9.9 billion at December 31, 2021 to $7.9 billion at December 31, 2022, driven by net portfolio activity and client-specific
upgrades largely offset by client-specific downgrades.
December 31, 2022
Loans and
Lending-related
(in millions, except ratios)
Retail (a)
Commitments
Derivative
Receivables
Credit
exposure
% Investment-
grade
% Drawn (d)
213
8,173
49
8,222
31 %
30,434
957
31,391
59
33
Business and Consumer Services
32,159
347
32,506
% Drawn
46
Consumer Hard Goods
Leisure (b)
17,035
111
17,146
46
30
Total Consumer & Retail
$
7,620
120,120
33
(d)
% Investment-
grade
50 %
34,024
21
45
Total Consumer & Retail (c)
$
118,905
$
1,650
$
120,555
50 %
38 %
December 31, 2021
(in millions, except ratios)
Retail (a)
Food and Beverage
Loans and
Lending-related
Commitments
Derivative
Receivables
Credit
exposure
32,872
$
1,152
130
NM
102
213
1.94
Investment securities risks are governed by the Firm's Risk
Appetite framework, and reviewed at the CTC Risk
Committee with regular updates provided to the Board Risk
Committee.
Governance and oversight
Investment securities risk includes the exposure associated
with a default in the payment of principal and interest. This
risk is mitigated given that the investment securities
portfolio held by Treasury and CIO predominantly consists
of high-quality securities. At December 31, 2022, the
Treasury and CIO investment securities portfolio, net of the
allowance for credit losses, was $629.3 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available, and where not available, based primarily upon
internal risk ratings). Refer to Corporate segment results on
pages 79-80 and Note 10 for further information on the
investment securities portfolio and internal risk ratings.
Refer to Liquidity Risk Management on pages 97-104 for
further information on related liquidity risk. Refer to Market
Risk Management on pages 131-138 for further
information on the market risk inherent in the portfolio.
Investment securities risk
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
or from principal investments. The investment securities
portfolio is predominantly held by Treasury and CIO in
connection with the Firm's balance sheet and asset-liability
management objectives. Principal investments are
predominantly privately-held financial instruments and are
managed in the LOBS and Corporate. Investments are
typically intended to be held over extended periods and,
accordingly, the Firm has no expectation for short-term
realized gains with respect to these investments.
INVESTMENT PORTFOLIO RISK MANAGEMENT
Management's discussion and analysis
129
JPMorgan Chase & Co./2022 Form 10-K
100 %
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
16,386
19,726
$
55
4,371
55
6,486
29
995
28
1,197
100 % $
14
Principal investment risk
Principal investments are typically privately-held financial
instruments representing ownership interests or other
forms of junior capital. In general, principal investments
include tax-oriented investments and investments made to
enhance or accelerate the Firm's business strategies and
exclude those that are consolidated on the Firm's balance
sheets. These investments are made by dedicated investing
businesses or as part of a broader business strategy. The
Firm's principal investments are managed by the LOBS and
Corporate and are reflected within their respective financial
results. The Firm's investments will continue to evolve in
line with its strategies, including the Firm's commitment to
support underserved communities and minority-owned
businesses.
(in billions)
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the
overall size of the portfolios. The Firm also conducts stress
testing on these portfolios using specific scenarios that
estimate losses based on significant market moves and/or
other risk events.
The Firm's approach to managing principal risk is consistent
with the Firm's risk governance structure. The Firm has
established a Firmwide risk policy framework for all
principal investing activities that includes approval by
executives who are independent from the investing
businesses, as appropriate.
Governance and oversight
(a) Includes the Firm's 40% ownership in C6 Bank and 49% ownership in
Viva Wallet.
30.5
7.3
$
37.0
10.8
(a)
The table below presents the aggregate carrying values of
the principal investment portfolios as of December 31,
2022 and 2021.
$
Private equity, various debt and
equity instruments, and real
assets
23.2
$
26.2
$
primarily in alternative energy
and affordable housing
Tax-oriented investments,
2021
December 31,
December 31,
2022
Total carrying value
1,881
15
3,507
$
2021
2022
Total
Total wholesale
Other
Commercial and industrial
Secured by real estate
Total consumer
Credit card
Allowance for loan losses
1,070
Consumer, excluding credit card
Residential real estate
(in millions, except ratios)
December 31,
The table below presents a breakdown of the allowance for loan losses by loan class. Refer to Note 12 for further information
on loan classes.
Allocation of allowance for loan losses
JPMorgan Chase & Co./2022 Form 10-K
128
(a) Includes collateral dependent loans, including those considered TDRs and those for which foreclosure is deemed probable, modified PCD loans, and non-
collateral dependent loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that have been
placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loan losses modified or reasonably expected
to be modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(b) At December 31, 2022, excludes an allowance for credit losses associated with certain accounts receivable in CIB of $21 million.
(c) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
0.30
0.03
Auto and other
Percent of retained loans
to total retained loans
22 %
Allowance for loan losses
Percent of retained loans
to total retained loans
12
1,495
12
1,782
45
12,015
45
13,240
15
10,250
17
11,200
29
1,765
28
2,040
7
948
6
970
22 %
817
$
89
7,722
$
34
After 5
years
through
15 years
After 15
years
Total
$ 280,945
$ 41,234
8,493
32,291
$ 82,018
$ 41,277
193
4,014
$ 45,484
$ 134,846
178,917
325,334
$639,097
$ 6,087
17
Wholesale loans:
Commercial and industrial
Other
Total wholesale loans
Loans due after one year at fixed interest rates
Secured by real estate
Commercial and industrial
Other
Loans due after one year at variable interest rates
Secured by real estate
Commercial and industrial
Secured by real estate
Other
1 year or
less (a)
The table below sets forth wholesale loan maturities and the distribution between fixed and floating interest rates based on the
stated terms of the loan agreements by loan class. Effective December 31, 2022, the Firm revised its methodology from
contractual maturities to scheduled repayments. Refer to Note 12 for further information on loan classes.
1,329
2,676
Gross charge-offs
213
268
Returned to performing status
594
1,106
Sales
33
December 31, 2022
(in millions, except ratios)
520
4,570
Net changes
(50)
(1,661)
Ending balance
$
2,395 $ 2,445
122
JPMorgan Chase & Co./2022 Form 10-K
Maturities and sensitivity to changes in interest rates
Total reductions
Paydowns and other
9,275
54,408
166,967
$ 43,060
115,823
122,062
118,417
- %
0.01 %
$ 145
160,611
0.09 %
2021
$ 105
138,015
2022
2021
$ 30 $ 24
298,506
270,125
0.08 %
122,904
0.01 %
2022
Total
2021
$ 181 $ 142
582,021
526,557
0.03 %
0.03 %
JPMorgan Chase & Co./2022 Form 10-K
123
Management's discussion and analysis
0.01 %
$ 230,650
6 $ 13
2022
Total wholesale loans
(a) Includes loans held-for-sale, demand loans and overdrafts.
5,432
23,303
$ 36,972
110,391
98,760
$ 280,945
$ 6,387
1,107
14,792
$ 34,847
7,387
17,498
$ 82,018
$
724
4
2,786
$
$ 40,553
189
1,228
The following table presents net charge-offs/recoveries, average retained loans and net charge-off/recovery rate by loan class
for the year ended December 31, 2022 and 2021.
(in millions, except ratios)
Net charge-offs/(recoveries)
Average retained loans
Net charge-off/(recovery) rate
Secured by real estate
Year ended December 31,
Commercial
and industrial
Other
2022
2021
$ 45,484
Reductions:
After 1
year
through 5
years
2,909
22,395
16,273
38,668
% Investment-
grade
50 %
(၁)
% Drawn
25 %
57
25
53 %
Additions
December 31, 2021
Loans and
Lending-related
$
(in millions, except ratios)
Derivative
Receivables
Credit
exposure
Exploration & Production ("E&P") and Oil field Services
$
17,631
$
(a)
Other Oil & Gas
18,941
5,452
582
$
Commitments
$
4,666
455
5,121
$
$
2,669
$
122,789
49 %
32 %
(a) Retail consists of Home Improvement & Specialty Retailers, Restaurants, Supermarkets, Discount & Drug Stores, Specialty Apparel and Department Stores.
(b) Leisure consists of Gaming, Arts & Culture, Travel Services and Sports & Recreation. As of December 31, 2022, approximately 90% of the noninvestment-
grade Leisure portfolio is secured.
(c) Consumer & Retail exposure is approximately 58% secured; unsecured exposure is approximately 80% investment-grade.
(d) Represents drawn exposure as a percent of credit exposure.
Oil & Gas
Oil & Gas exposure was $38.7 billion as of December 31, 2022. Criticized exposure decreased by $1.2 billion from $1.7 billion
at December 31, 2021 to $505 million at December 31, 2022, driven by net portfolio activity and client-specific upgrades
partially offset by client-specific downgrades.
December 31, 2022
Loans and
Lending-related
(in millions, except ratios)
Commitments
Derivative
Receivables
Credit
exposure
Exploration & Production ("E&P") and Oil field Services
$
17,729
$
Other Oil & Gas (a)
15,818
Total Oil & Gas (b)
$
33,547
23,083
19,523
% Investment-
grade
39 %
25 %
181
Management's discussion and analysis
Loans
In its wholesale businesses, the Firm provides loans to a
variety of clients, ranging from large corporate and
institutional clients to high-net-worth individuals. Refer to
Note 12 for a further discussion on loans, including
information about delinquencies, loan modifications and
other credit quality indicators.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2022 and
2021. Since December 31, 2021, nonaccrual loan exposure
decreased by $50 million driven by Individuals and
Individual Entities and Transportation due to client-specific
upgrades and net portfolio activity, largely offset by
Consumer & Retail due to client-specific downgrades.
Wholesale nonaccrual loan activity
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2022 and 2021. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans recognized in noninterest
revenue.
Wholesale net charge-offs/(recoveries)
Year ended December 31,
(in millions, except ratios)
Loans
Average loans retained
Gross charge-offs
Gross recoveries collected
Net charge-offs/(recoveries)
2022
121
2021
$ 526,557
322
283
(141)
(141)
Net charge-off/(recovery) rate
0.03 %
142
0.03 %
2022
2021
$ 2,445 $ 4,106
2,119
$ 582,021
JPMorgan Chase & Co./2022 Form 10-K
Year ended December 31, (in millions)
Beginning balance
(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Oil & Gas exposure is approximately 41% secured, over half of which is reserve-based lending to the Exploration & Production sub-sector; unsecured
exposure is approximately 61% investment-grade.
(c) Represents drawn exposure as a percent of credit exposure.
(c)
26 %
60
26
Total Oil & Gas
$
% Drawn
$
6,034
$
42,606
49 %
36,572
26 %
JPMorgan Chase & Co./2022 Form 10-K
132
Foreign exchange exposure
related to Firm-issued non-
USD long-term debt ("LTD")
and related hedges
measured at fair value
other investments
vehicles managed by AWM
(i.e., co-investments)
distributed collective
typically in privately
Value-at-risk
third-party investors,
Privately held equity and
Management's discussion and analysis
testing, in addition to VaR, to capture and manage its
market risk positions.
133
JPMorgan Chase & Co./2022 Form 10-K
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III capital rules. This Regulatory
VaR model framework currently assumes a ten business-day
holding period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III capital
rules, which may be different than the positions included in
the Firm's Risk Management VaR. For example, credit
derivative hedges of accrual loans are included in the Firm's
Risk Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
Refer to JPMorgan Chase's Basel III Pillar 3 Regulatory
Capital Disclosures reports, which are available on the
Firm's website, for additional information on Regulatory
VaR and the other components of market risk regulatory
capital for the Firm (e.g., VaR-based measure, stressed
VaR-based measure and the respective backtesting).
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling
techniques and measurements, and other factors. Such
changes may affect historical comparisons of VaR results.
Refer to Estimations and Model Risk Management on page
148 for information regarding model reviews and
approvals.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ. Refer to Valuation process in Note 2 for
further information on the Firm's valuation process. As VaR
model calculations require daily data and a consistent
source for valuation, it may not be practical to use the data
collected in the VCG monthly valuation process for VaR
model calculations.
JPMorgan Chase utilizes value-at-risk ("VaR”), a statistical
risk measure, to estimate the potential loss from adverse
market moves in the current market environment. The Firm
has a single VaR framework used as a basis for calculating
Risk Management VaR and Regulatory VaR.
For certain products, specific risk parameters are not
captured in Var due to the lack of liquidity and availability
of appropriate historical data. The Firm uses proxies to
estimate the VaR for these and other products when daily
time series are not available. It is likely that using an actual
price-based time series for these products, if available,
would affect the VaR results presented. The Firm therefore
considers other nonstatistical measures such as stress
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors,
VaR measures are inherently limited in their ability to
measure certain risks and to predict losses, particularly
those associated with market illiquidity and sudden or
severe shifts in market conditions.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual risk factors and/or product types. To capture
material market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and
incorporate numerous risk factors and inputs to simulate
daily changes in market values over the historical period;
inputs are selected based on the risk profile of each
portfolio, as sensitivities and historical time series used to
generate daily market values may be different across
product types or risk management systems. The VaR model
results across all portfolios are aggregated at the Firm
level.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a daily
measure of risk that is closely aligned to risk management
decisions made by the LOBS and Corporate and, along with
other market risk measures, provides the appropriate
information needed to respond to risk events.
Capital invested alongside
134
hedges, classified as
Corporate
Certain deferred
derivatives
• Credit risk component of
CVA and associated hedges
for counterparties with
credit spreads that have
widened to elevated levels
Derivatives FVA and fair
value option elected
liabilities DVA(a)
Privately held equity and
other investments
measured at fair value; and
certain real estate-related
fair value option elected
loans
Manages the Firm's
.
liquidity, funding,
capital, structural
interest rate and
foreign exchange risks
Structural interest rate
risk from the Firm's
traditional banking
activities
Structural non-USD
foreign exchange risks
Derivative positions
measured through
noninterest revenue in
earnings
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level. VaR can vary
significantly as positions change, market volatility fluctuates, and diversification benefits change.
•
• Marketable equity
investments
Retained loan portfolio
Retained loan portfolio
Deposits
⚫ Deposits with banks
.
• Investment securities
portfolio and related
interest rate hedges
Long-term debt and
related interest rate
hedges
Deposits
•
.
•
(a) Reflects structured notes in Risk Management VaR and the DVA on structured notes in other sensitivity-based measures.
(b) The AWM and CB contributions to Firmwide average VaR were not material for the years ended December 31, 2022 and 2021.
Initial seed capital
investments and related
hedges, classified as
derivatives
compensation and related
Total VaR
0.5
(in millions)
96.4
Japan
48.2
3.1
4.2
0.3
55.8
As of or for the year ended December 31,
45.5
15.9
6.2
3.6
25.7
39.1
0.4
11.4
Australia
1.8
14.5
23.0
France
2022
-
2021 (f)
Deposits
with
banks(b)
Trading
and
Lending
investing (d) Other(e)
Total
exposure
Total
exposure
Germany
United
Kingdom
$ 79.5 $ 11.3
$
1.9 $ 0.5 $ 93.2
$ 61.7
30.8
2.6
3.7
18.1
14.0
2.5
5.7
5.5
13.7
18.6
South Korea
1.4
3.5
4.9
0.2
10.0
8.7
Singapore
1.2
4.6
3.7
0.4
China
December 31,
(in billions)
16.9
0.1
Brazil
4.2
4.9
8.7
17.8
12.0
Switzerland
8.8
3.3
1.6
1.6
15.3
20.9
Canada
2.6
10.2
1.5
14.4
Top 20 country exposures (excluding the U.S.)(a)
As of December 31, 2022, exposure to Russia was
approximately $500 million. This amount excludes certain
deposits placed on behalf of clients, largely at the Russian
National Settlement Depository. In accordance with
requirements of the Bank of Russia, these deposits were
transferred to the Depository Insurance Agency of Russia on
February 3, 2023.
The decrease in exposure to Australia was driven by
reductions in cash placed with the central bank of Australia
and government debt securities, due to client-driven
market-making activities and lower client cash deposits
resulting from higher interest rates.
3
15
currency
1 basis point parallel
(4)
(7)
increase in spread
10% credit spread
(1)
N/A
widening
1 basis point parallel
increase in spread
1 basis point parallel
increase in spread
1 basis point parallel
increase in spread
43
41
(3)
10% depreciation of
-3
currency basis
(12)
Impact of changes in the spread related to
derivatives FVA
Credit risk component of CVA and associated
hedges
Impact of changes in the spread related to fair
value option elected liabilities DVA (e)
Interest rate sensitivity on fair value option
elected liabilities resulting from a change in the
Firm's own credit spread
Interest rate sensitivity related to risk
management of changes in the Firm's own credit
spread on the fair value option elected liabilities
noted above (c)
December 31,
December 31,
Sensitivity measure
2022
2021
10% decline in
market value
(56) $
(69)
10% decline in
market value
(1,046)
(971)
1 basis point parallel
tightening of cross
(16)
9.9
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
(c) Impact recognized through net revenue.
Securities financing exposures are measured at their
receivable balance, net of eligible collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the eligible collateral received
Credit derivatives exposure is measured at the net
notional amount of protection purchased or sold for the
same underlying reference entity, inclusive of the fair
value of the derivative receivable or payable, reflecting
the manner in which the Firm manages these exposures
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements.
•
Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country.
Under the Firm's internal country risk management
approach, attribution of exposure to an individual country is
based on the country where the largest proportion of the
assets of the counterparty, issuer, obligor or guarantor are
located or where the largest proportion of its revenue is
derived, which may be different than the domicile (i.e. legal
residence) or country of incorporation.
Individual country exposures reflect an aggregation of the
Firm's risk to an immediate default, with zero recovery, of
the counterparties, issuers, obligors or guarantors
attributed to that country. Activities which result in
contingent or indirect exposure to a country are not
included in the country exposure measure (for example,
providing clearing services or secondary exposure to
collateral on securities financing receivables).
Assumptions are sometimes required in determining the
measurement and allocation of country exposure,
particularly in the case of certain non-linear or index
products, or where the nature of the counterparty, issuer,
obligor or guarantor is not suitable for attribution to an
JPMorgan Chase & Co./2022 Form 10-K
139
Management's discussion and analysis
Stress testing
Stress testing is an important component of the Firm's
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries or
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
Risk reporting
Country exposure and stress are measured and reported
regularly, and used by Country Risk Management to identify
trends and monitor high usages and breaches against limits.
For country risk management purposes, the Firm may
report exposure to jurisdictions that are not fully
autonomous, including Special Administrative Regions
("SAR") and dependent territories, separately from the
independent sovereign states with which they are
associated.
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2022, and
their comparative exposures as of December 31, 2021. The
selection of countries represents the Firm's largest total
exposures by individual country, based on the Firm's
internal country risk management approach, and does not
represent the Firm's view of any existing or potentially
adverse credit conditions. Country exposures may fluctuate
from period to period due to client activity and market
flows.
The increase in exposure to Germany and the decrease in
exposure to the U.K. were primarily due to changes in cash
placements with the central banks of those countries driven
by balance sheet and liquidity management activities.
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
(b) In the first quarter of 2022, in line with the Firm's internal model governance, the credit risk component of CVA related to certain counterparties was
removed from Credit Portfolio VaR due to the widening of the credit spreads for those counterparties to elevated levels. The related hedges were also
removed to maintain consistency. This exposure is now reflected in other sensitivity-based measures.
Deposits with banks are measured as the cash balances
placed with central banks, commercial banks, and other
financial institutions
Under the Firm's internal country risk measurement
framework:
(d) Impact recognized through noninterest expense.
(e) Impact recognized through OCI.
138
JPMorgan Chase & Co./2022 Form 10-K
COUNTRY RISK MANAGEMENT
The Firm, through its LOBS and Corporate, may be exposed
to country risk resulting from financial, economic, political
or other significant developments which adversely affect
the value of the Firm's exposures related to a particular
country or set of countries. The Country Risk Management
group actively monitors the various portfolios which may be
impacted by these developments and measures the extent
to which the Firm's exposures are diversified given the
Firm's strategy and risk tolerance relative to a country.
Organization and management
Country Risk Management is an independent risk
management function that assesses, manages and monitors
exposure to country risk across the Firm.
The Firm's country risk management function includes the
following activities:
•
•
•
•
•
Maintaining policies, procedures and standards
consistent with a comprehensive country risk framework
Assigning sovereign ratings, assessing country risks and
establishing risk tolerance relative to a country
Measuring and monitoring country risk exposure and
stress across the Firm
Managing and approving country limits and reporting
trends and limit breaches to senior management
Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
individual country. The use of different measurement
approaches or assumptions could affect the amount of
reported country exposure.
•
Primarily represents the foreign exchange
revaluation on the fair value of the derivative
hedges (e)
12.3
6.3
products such as
•
Provides initial capital
.
AWM
Originates loans and
.
investments in
.
.
Related market risks
takes deposits
services clients across
fixed income, foreign
exchange, equities and
commodities
Originates loans and
takes deposits
.
CB
Makes markets and
•
mutual funds and
capital invested
alongside third-party
investors
Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
Fair value option elected
liabilities (a)
Trading assets/liabilities -
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
Fair value option elected
liabilities (a)
Interest-only and mortgage-
backed securities, classified
as trading assets debt
instruments, and related
hedges, classified as
derivatives
Hedges of mortgage
commitments, warehouse
loans and MSRs, classified
as derivatives
MSRS
Mortgage commitments,
classified as derivatives
Warehouse loans that are
fair value option elected,
classified as loans - debt
instruments
Positions included in Risk
Management VaR
.
Interest rate risk and
prepayment risk
Risk from adverse
movements in market
factors (e.g., market
prices, rates and credit
spreads)
Interest rate risk and
prepayment risk
Interest rate risk and
prepayment risk
Basis and correlation risk
from changes in the way
asset values move
relative to one another
Risk of loss from adverse
movements in market
prices and implied
volatilities across interest
rate, foreign exchange,
credit, commodity and
equity instruments
Risk from changes in the
probability of newly
originated mortgage
commitments closing
Interest rate risk and
prepayment risk
Originates loans and
takes deposits
•
CIB
takes deposits
Originates loans and
Profit and loss drawdowns
•
Stress testing
•
There is no single measure to capture market risk and
therefore Market Risk Management uses various metrics,
both statistical and nonstatistical, to assess risk including:
• Value-at-risk (VaR)
Measures used to capture market risk
Risk measurement
•Performing stress testing and qualitative risk
assessments
• Defining, approving and monitoring of limits
Independently measuring, monitoring and controlling
LOB, Corporate, and Firmwide market risk
•
•
• Maintaining a market risk policy framework
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
Market Risk Management
Market risk is the risk associated with the effect of changes
in market factors such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
MARKET RISK MANAGEMENT
Market Risk Management sets limits and regularly reviews
and updates them as appropriate. Senior management is
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. Limits that have not been
reviewed within specified time periods by Market Risk
Management are reported to senior management. The LOBS
and Corporate are responsible for adhering to established
limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with senior
members of appropriate groups within the Firm to
determine the suitable course of action required to return
the applicable positions to compliance, which may include a
reduction in risk in order to remedy the breach or granting
a temporary increase in limits to accommodate an expected
increase in client activity and/or market volatility. Certain
Firm, Corporate or LOB-level limit breaches are escalated as
appropriate.
Certain fair value option
elected loans
Models used to measure market risk are inherently
imprecise and are limited in their ability to measure certain
risks or to predict losses. This imprecision may be
heightened when sudden or severe shifts in market
conditions occur. For additional discussion on model
uncertainty refer to Estimations and Model Risk
Management on page 148.
•
•
Originates and services
mortgage loans
•
Predominant business
activities
CCB
LOBS and
Corporate
In addition to the predominant business activities, each LOB and Corporate may engage in principal investing activities. To the
extent principal investments are deemed market risk sensitive, they are reflected in relevant risk measures and captured in the
table below. Refer to Investment Portfolio Risk Management on page 130 for additional discussion on principal investments.
The following table summarizes the predominant business activities and related market risks, as well as positions which give
rise to market risk and certain measures used to capture those risks, for each LOB and Corporate.
Management's discussion and analysis
131
JPMorgan Chase & Co./2022 Form 10-K
business strategy. In setting limits, Market Risk
Management takes into consideration factors such as
market volatility, product liquidity, accommodation of client
business, and management judgment. Market Risk
Management maintains different levels of limits. Firm level
limits include VaR and stress limits. Similarly, LOB and
Corporate limits include VaR and stress limits and may be
supplemented by certain nonstatistical risk measures such
as profit and loss drawdowns. Limits may also be set within
the LOBS and Corporate, as well as at the legal entity level.
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
Risk monitoring and control
Other sensitivity-based measures
Earnings-at-risk
•
Market Risk Management periodically reviews the Firm's
existing market risk measures to identify opportunities for
enhancement, and to the extent appropriate, will calibrate
those measures accordingly over time.
Derivative CVA and
associated hedges
• Marketable equity
investments
(0.8)
0.5
7.1
6.8
0.4
4.9
0.5
5.8
10.1
Mexico
0.5
4.4
5.4
4.9
Luxembourg
0.9
2.9
7.2
1.5
0.2
9.1
1.7
1.2
9.2
6.8
India
1.3
4.0
2.8
0.9
9.0
14.7
Saudi Arabia
0.7
5.6
1.6
-
7.9
Netherlands
Belgium
5.3
Hong Kong
•
Positions included in other
sensitivity-based measures
Deposits
.
•
Deposits
.
•
Retained loan portfolio
•
•
Retained loan portfolio
Deposits
•
Positions included in
earnings-at-risk
advance of distribution to
clients, classified as trading
assets debt instruments
Debt securities held in
Marketable equity
investments
Fair value option elected
(a)
liabilities DVA
11.5
JPMorgan Chase & Co./2022 Form 10-K
(f) The country rankings presented in the table as of December 31, 2021,
are based on the country rankings of the corresponding exposures at
December 31, 2022, not actual rankings of such exposures at
December 31, 2021.
SAR
2.8
0.9
0.7
0.1
4.5
5.9
Sweden
1.1
3.1
0.2
4.4
4.4
Spain
(a) Country exposures presented in the table reflect 87% and 88% of
total Firmwide non-U.S. exposure, where exposure is attributed to an
individual country, at December 31, 2022 and 2021, respectively.
(b) Predominantly represents cash placed with central banks.
(c) Includes loans and accrued interest receivable, lending-related
commitments (net of eligible collateral and the allowance for credit
losses). Excludes intra-day and operating exposures, such as those
from settlement and clearing activities.
(d) Includes market-making inventory, Investment securities, and
counterparty exposure on derivative and securities financings net of
eligible collateral and hedging. Includes exposure from single
reference entity ("single-name"), index and other multiple reference
entity transactions for which one or more of the underlying reference
entities is in a country listed in the above table.
(e) Includes physical commodities inventory and clearing house guarantee
funds.
140
Represents the basis risk on derivatives used to
hedge the foreign exchange risk on the non-USD
LTD
70.1
Consists of seed capital and related hedges; fund
co-investments(); and certain deferred
compensation and related hedges (d)
9
16
(d)
24
14
94
(4)
(d)
(a)
(e)
NM
NM
(4)
(a)
NM (e)
(e)
(e)
12
(d)
(d)
35
240
52
22
133
CCB VaR
6
2
20
5
3
11
Corporate and other LOB VAR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
NM
14
10
24
$
24
$ 153
(a) Diversification benefit represents the difference between the portfolio VaR and the sum of its individual components. This reflects the non-additive nature
of VaR due to imperfect correlation across LOBS, Corporate, and risk types.
(b) In the first quarter of 2022, in line with the Firm's internal model governance, the credit risk component of CVA related to certain counterparties was
removed from Credit Portfolio VaR due to the widening of the credit spreads for those counterparties to elevated levels. The related hedges were also
removed to maintain consistency. This exposure is now reflected in other sensitivity-based measures.
(c) In March 2022, the effects of nickel price increases and the associated volatility in the nickel market resulted in elevated average and maximum Credit
Portfolio VaR.
(d) The decrease in Corporate and other LOB VAR was driven by lower market values for a legacy private equity position in Corporate which is publicly traded.
(e) The maximum and minimum VaR for each portfolio may have occurred on different trading days than the components, and consequently, diversification
benefit is not meaningful.
Average Total VaR increased by $3 million for the year ended December 31, 2022 when compared with the prior year. The
increase was driven by the effects of nickel price increases and the associated volatility in the nickel market observed in March
2022 impacting Credit Portfolio VaR, predominantly offset by a decrease in Corporate and other LOB VaR.
The following graph presents daily Risk Management VaR for the four trailing quarters. The movement in VaR in March 2022
was driven by changes in nickel-related counterparty exposure in the Firm's Credit Portfolio.
Daily Risk Management VaR
$ millions
250
225
200
175
150
125
$ 55
57
$ 242
$
25
14
94
(13)
(a)
(e)
(e)
NM
NM
(22)
(a)
(e)
(e)
NM
NM
$
58
34
CIB VaR
NM
NM
3
15
6
2
27
Equities
12
7
20
16
8
38
Commodities and other
15
10
28
19
8
9
$ 153
$
CIB trading VaR by risk type
2022
2021
Avg.
Min
Max
Avg.
Min
Max
Fixed income
Foreign exchange
$
59
$ 33
$
82
$ 60
30
100
43
(a)
16
4
235 (b)(c)
6
4
12
Diversification benefit to CIB VaR
(10)
(a)
(e)
(e)
NM
NM
(6)
(a)
(e)
(e)
(b)
Diversification benefit to CIB trading VaR
(b)(c)
134
(43)
(e)
(e)
NM
NM
(49)
(a)
(e)
(e)
NM
NM
CIB trading VaR
51
34
69
52
Consists of certain real estate-related fair value
option elected loans, privately held equity and
other investments held at fair value (c)
Credit Portfolio VaR
75
22
25
0.8
1.8
-100 bps shift in short-term rates
3.2
NM (a)
Flatter yield curve:
+100 bps shift in short-term rates
-100 bps shift in long-term rates
(2.8)
3.2
(0.9)
(a)
NM
(a) Given the level of market interest rates, these scenarios were not
considered to be meaningful as of December 31, 2021.
The change in the Firm's U.S. dollar sensitivities as of
December 31, 2022 compared to December 31, 2021
reflected updates to the Firm's baseline for higher interest
rates and higher corresponding modeled deposit betas, as
well as the impact of changes in the Firm's balance sheet.
As of December 31, 2022, the Firm's sensitivity to the
+/-100 basis points parallel and short-term shift in rates is
primarily the result of a greater impact from liabilities
repricing compared to the impact of assets repricing, while
a +/-100 basis points shift in long-term rates is primarily
the result of a greater impact from assets repricing
compared to the impact of liabilities repricing.
The Firm's non-U.S. dollar sensitivities are presented in the
table below.
December 31,
+100 bps shift in long-term rates
(in billions)
NM
5.0
•
•
The impact on exposures as a result of instantaneous
changes in interest rates from baseline rates.
Forecasted balance sheet, as well as modeled
prepayment and reinvestment behavior, but excluding
assumptions about actions that could be taken by the
Firm or its clients and customers in response to
instantaneous rate changes. Mortgage prepayment
assumptions are based on the interest rates used in the
scenarios compared with underlying contractual rates,
the time since origination, and other factors which are
updated periodically based on historical experience.
Deposit forecasts are a key assumption in the Firm's
earnings-at-risk. The baseline reflects certain
assumptions relating to the reversal of Quantitative
Easing that are highly uncertain and require management
judgment. Therefore, the actual amount of deposits held
by the Firm, at any particular time, could be impacted by
actions the Federal Reserve may take as part of monetary
policy, including through the use of the Reverse
Repurchase Facility. In addition, there are other factors
that impact the amount of deposits held at the Firm such
as the level of loans across the industry and competition
for deposits.
The pricing sensitivity of deposits, known as deposit
betas, represent the amount by which deposit rates paid
could change upon a given change in market interest
rates. The deposit rates paid in these scenarios differ
from actual deposit rates paid, due to repricing lags and
other factors.
The Firm's earnings-at-risk scenarios are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's balance sheet, changes in market
conditions, improvements in the Firm's simulation and
other factors. The Firm is currently evaluating the modeling
of repricing lags for deposits in its earnings-at-risk
scenarios. Incorporating repricing lags, in the current
environment, would significantly affect the U.S. dollar
interest rate scenarios, with higher interest rate scenarios
expected to result in a positive impact, and lower interest
rate scenarios expected to result in a negative impact, on
the Firm's earnings-at-risk. While a relevant measure of the
JPMorgan Chase & Co./2022 Form 10-K
Firm's interest rate exposure, the earnings-at-risk analysis
does not represent a forecast of the Firm's net interest
income (Refer to Outlook on page 49 for additional
information).
The Firm's U.S. dollar sensitivities are presented in the table
below.
December 31,
(in billions)
Parallel shift:
Steeper yield curve:
2022
2021
+100 bps shift in rates
-100 bps shift in rates
$
(2.0) $
2.4
(a)
•
2022
Parallel shift:
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm's assets or liabilities or
future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and
revenue, the investment securities portfolio and non-U.S. dollar-denominated debt issuance. Treasury and CIO, working in
partnership with the LOBS, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these
risks using derivatives. Refer to Business Segment Results on page 62 for additional information.
Other sensitivity-based measures
The Firm quantifies the market risk of certain debt and equity and credit and funding-related exposures by assessing the
potential impact on net revenue, other comprehensive income ("OCI") and noninterest expense due to changes in relevant
market variables. Refer to the predominant business activities that give rise to market risk on page 132 for additional
information on the positions captured in other sensitivity-based measures.
The table below represents the potential impact to net revenue, OCI or noninterest expense for market risk sensitive
instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are
reported net of the positions being hedged. The sensitivities disclosed in the table below may not be representative of the
actual gain or loss that would have been realized at December 31, 2022 and 2021, as the movement in market parameters
across maturities may vary and are not intended to imply management's expectation of future changes in these sensitivities.
Gain/(loss) (in millions)
Activity
Debt and equity (a)
Asset Management activities
Other debt and equity
Credit- and funding-related exposures
Non-USD LTD cross-currency basis
Non-USD LTD hedges foreign currency
("FX") exposure
Derivatives - funding spread risk
CVA-counterparty credit risk (b)
Fair value option elected liabilities -
funding spread risk
Fair value option elected liabilities -
interest rate sensitivity
Description
50
Management's discussion and analysis
2021
137
(a) Given the level of market interest rates, these scenarios were not
considered to be meaningful as of December 31, 2021.
+100 bps shift in rates
$
0.7 $
0.8
-100 bps shift in rates
$
(a)
(0.6)
Steeper yield curve:
-100 bps shift in short-term rates
Flatter yield curve:
(a)
$
(0.6)
NM
+100 bps shift in short-term rates
0.6
0.8
The results of the non-U.S. dollar interest rate scenario
involving a steeper/flatter yield curve with long-term rates
increasing/decreasing by 100 basis points and short-term
rates staying at current levels were not material to the
Firm's earnings-at-risk at December 31, 2022 and 2021.
Earnings-at-risk scenarios estimate the potential change to
a net interest income baseline over the following 12 months
utilizing multiple assumptions. These scenarios include a
parallel shift involving changes to both short-term and long-
term rates by an equal amount; a steeper yield curve
involving holding short-term rates constant and increasing
long-term rates; and a flatter yield curve involving
increasing short-term rates and holding long-term rates
constant or holding short-term rates constant and
decreasing long-term rates. These scenarios consider many
different factors, including:
NM
JPMorgan Chase & Co./2022 Form 10-K
75
63
50
23
25
18
25
0
43
Backtesting Exceptions
19
13
3
4
1
>100% 150%
>150%
75
>50%-100%
100
136
0
deposits, deposits with banks, investment securities, long-
term debt and any related interest rate hedges, and funds
transfer pricing of other positions in risk management VaR
and other sensitivity-based measures as described on page
132.
First Quarter
2022
|
Second Quarter
2022
Third Quarter
2022
Fourth Quarter
2022
JPMorgan Chase & Co./2022 Form 10-K
VaR backtesting
The Firm performs daily VaR model backtesting, which compares the daily Risk Management VaR results with the daily gains
and losses that are utilized for VaR backtesting purposes. The gains and losses depicted in the chart below do not reflect the
Firm's reported revenue as they exclude certain components of total net revenue, such as those associated with the execution
of new transactions (i.e., intraday client-driven trading and intraday risk management activities), fees, commissions, other
valuation adjustments and net interest income. These excluded components of total net revenue may more than offset the
backtesting gain or loss on a particular day. The definition of backtesting gains and losses above is consistent with the
requirements for backtesting under Basel III capital rules.
A backtesting exception occurs when the daily backtesting loss exceeds the daily Risk Management VaR for the prior day.
Under the Firm's Risk Management VaR methodology, assuming current changes in market values are consistent with the
historical changes used in the simulation, the Firm would expect to incur VaR backtesting exceptions five times every 100
trading days on average. The number of VaR backtesting exceptions observed can differ from the statistically expected number
of backtesting exceptions if the current level of market volatility is materially different from the level of market volatility
during the 12 months of historical data used in the VaR calculation.
For the 12 months ended December 31, 2022, the Firm posted backtesting gains on 136 of the 259 days, and observed 17
VaR backtesting exceptions. Firmwide backtesting loss days can differ from the loss days for which Fixed Income Markets and
Equity Markets posted losses, as disclosed in CIB Markets revenue, as the population of positions which compose each metric
are different and due to the exclusion of certain components of total net revenue in backtesting gains and losses as described
above. For more information on CIB Markets revenue, refer to pages 70-71.
The following chart presents the distribution of Firmwide daily backtesting gains and losses for the trailing 12 months and
three months ended December 31, 2022. The daily backtesting losses are displayed as a percentage of the corresponding
daily Risk Management VaR. The count of days with backtesting losses are shown in aggregate, in fifty percentage point
intervals. Backtesting exceptions are displayed within the intervals that are greater than one hundred percent. The results in
the chart below differ from the results of backtesting disclosed in the Market Risk section of the Firm's Basel III Pillar 3
Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to the Firm's covered positions.
Distribution of Daily Backtesting Gains and Losses
150
125
Days with Backtesting Losses
Count of Trading Days
Days with
Backtesting Gains
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported periodically to senior management of the
Firm, as appropriate.
Stress scenarios are governed by the overall stress
framework, under the oversight of Market Risk
Management, and the models to calculate the stress results
are subject to the Firm's Estimations and Model Risk
Management Policy. The Firmwide Market Risk Stress
Methodology Committee reviews and approves changes to
stress testing methodology and scenarios across the Firm.
Significant changes to the framework are escalated to
senior management, as appropriate.
The Firm's stress testing framework is utilized in calculating
the Firm's CCAR and other stress test results, which are
reported periodically to the Board of Directors. In addition,
stress testing results are incorporated into the Firm's Risk
Appetite framework, and are reported periodically to the
Board Risk Committee.
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. A profit and
loss drawdown is a decline in revenue from its year-to-date
peak level.
Earnings-at-risk
The effect of interest rate exposure on the Firm's reported
net income is important as interest rate risk represents one
of the Firm's significant market risks. Interest rate risk
arises not only from trading activities but also from the
The Firm's stress framework covers market risk sensitive
positions in the LOBS and Corporate. The framework is used
to calculate multiple magnitudes of potential stress for both
market rallies and market sell-offs, assuming significant
changes in market factors such as credit spreads, equity
prices, interest rates, currency rates and commodity prices,
and combines them in multiple ways to capture an array of
hypothetical economic and market scenarios.
Firm's traditional banking activities, which include
extension of loans and credit facilities, taking deposits,
issuing debt and the investment securities portfolio. Refer
to the table on page 132 for a summary by LOB and
Corporate, identifying positions included in earnings-at-risk.
The CTC Risk Committee establishes the Firm's structural
interest rate risk policy and related limits, which are subject
to approval by the Board Risk Committee. Treasury and CIO,
working in partnership with the LOBS, calculates the Firm's
structural interest rate risk profile and reviews it with
senior management, including the CTC Risk Committee. In
addition, oversight of structural interest rate risk is
managed through a dedicated risk function reporting to the
CTC CRO. This risk function is responsible for providing
independent oversight and governance around assumptions
and establishing and monitoring limits for structural
interest rate risk. The Firm manages structural interest rate
risk generally through its investment securities portfolio
and interest rate derivatives.
•
Differences in timing among the maturity or repricing of
assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are maturing or repricing
at the same time
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, Firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of
interest, contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products.
One way that the Firm evaluates its structural interest rate
risk is through earnings-at-risk. Earnings-at-risk estimates
the Firm's interest rate exposure for a given interest rate
scenario. It is presented as a sensitivity to a baseline, which
includes net interest income and certain interest rate
sensitive fees. The baseline uses market interest rates and,
in the case of deposits, pricing assumptions. The Firm
conducts simulations of changes to this baseline for interest
rate-sensitive assets and liabilities denominated in U.S.
dollars and other currencies ("non-U.S. dollar" currencies).
These simulations primarily include retained loans,
Losses as a Percentage of Risk Management VaR (%)
•
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm's vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
Structural interest rate risk can arise due to a variety of
factors, including:
Other risk measures
0% - 50%
Stress testing
Trailing 12 Months
4Q22
JPMorgan Chase & Co./2022 Form 10-K
Backtesting Exceptions for
Trailing 12 Months
1Q22
3
136
2Q22
3
3Q22
7
4Q22
4
135
Management's discussion and analysis
One of the most significant judgments involved in
estimating the Firm's allowance for credit losses relates to
the macroeconomic forecasts used to estimate credit losses
over the eight-quarter forecast period within the Firm's
methodology. The eight-quarter forecast incorporates
hundreds of macroeconomic variables ("MEVS") that are
relevant for exposures across the Firm, with modeled credit
losses being driven primarily by a subset of less than twenty
variables. The specific variables that have the greatest
effect on the modeled losses of each portfolio vary by
portfolio and geography.
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
Allowance for credit losses
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses comprises:
•
The allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated),
•
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
The allowance for lending-related commitments, and
The allowance for credit losses on investment securities.
The allowance for credit losses involves significant
judgment on a number of matters including development
and weighting of macroeconomic forecasts, incorporation of
historical loss experience, assessment of risk
characteristics, assignment of risk ratings, valuation of
collateral, and the determination of remaining expected
life. Refer to Note 10 and Note 13 for further information
on these judgments as well as the Firm's policies and
methodologies used to determine the Firm's allowance for
credit losses.
•
JPMorgan Chase & Co./2022 Form 10-K
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. Users
and developers of models are responsible for developing,
implementing and testing their models, as well as referring
models to MRGR for review and approval. Once models have
been approved, model users and developers are responsible
for maintaining a robust operating environment, and must
monitor and evaluate the performance of the models on an
ongoing basis. Model users and developers may seek to
enhance models in response to changes in the portfolios
and in product and market developments, as well as to
capture improvements in available modeling techniques
and systems capabilities.
Under the Firm's Estimations and Model Risk Management
Policy, MRGR reviews and approves new models, as well as
material changes to existing models, prior to their use. In
certain circumstances, exceptions may be granted to the
Firm's policy to allow a model to be used prior to review or
approval. MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
While models are inherently imprecise, the degree of
imprecision or uncertainty can be heightened by the market
or economic environment. This is particularly true when the
current and forecasted environments are significantly
different from the historical environments upon which the
models were developed, as the Firm experienced during the
early stages of the COVID-19 pandemic. This increased
uncertainty may necessitate a greater degree of judgment
and analytics to inform any adjustments that the Firm may
make to model outputs than would otherwise be the case.
Refer to Critical Accounting Estimates Used by the Firm on
pages 149-152 and Note 2 for a summary of model-based
valuations and other valuation techniques.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of MRGR. In its review of a model, MRGR
considers whether the model is suitable for the specific
purposes for which it will be used. When reviewing a model,
MRGR analyzes and challenges the model methodology and
the reasonableness of model assumptions, and may
perform or require additional testing, including back-testing
of model outcomes. Model reviews are approved by the
appropriate level of management within MRGR based on the
relevant model tier.
providing legal advice to the LOBS, Corporate and the
Board.
The governance of analytical and judgment-based
estimations within MRGR's scope follows a consistent
approach which is used for models, as described in detail
below.
ESTIMATIONS AND MODEL RISK MANAGEMENT
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
evaluating the allowance for credit losses and making
business decisions. A dedicated independent function,
Model Risk Governance and Review ("MRGR"), defines and
governs the Firm's policies relating to the management of
model risk and risks associated with certain analytical and
judgment-based estimations, such as those used in risk
management, budget forecasting and capital planning and
analysis.
Management's discussion and analysis
147
Legal serves on and advises various committees and advises
the Firm's LOBS and Corporate on potential reputation risk
issues.
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The Firm's
General Counsel and other members of Legal report on
significant legal matters to the Firm's Board of Directors
and to the Audit Committee.
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have
the potential to create conflicts of interest for the Firm.
Governance and oversight
148
JPMorgan Chase & Co./2022 Form 10-K
Firm compared the modeled estimates under its relative
adverse scenario to its central scenario. Without
considering offsetting or correlated effects in other
qualitative components of the Firm's allowance for credit
losses, the comparison between these two scenarios for the
exposures below reflect the following differences:
Key MEVS for the consumer portfolio include regional U.S.
unemployment rates, HPI and U.S. real GDP.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis, including
derivatives, structured note products and certain securities
financing agreements. Certain assets and liabilities are
measured at fair value on a nonrecurring basis, including
certain mortgage, home equity and other loans, where the
carrying value is based on the fair value of the underlying
collateral.
advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
Fair value
Recognizing that forecasts of macroeconomic conditions are
inherently uncertain, particularly in light of the recent
economic conditions, the Firm believes that its process to
consider the available information and associated risks and
uncertainties is appropriately governed and that its
estimates of expected credit losses were reasonable and
appropriate for the period ended December 31, 2022.
This analysis relates only to the modeled credit loss
estimates and is not intended to estimate changes in the
overall allowance for credit losses as it does not reflect any
potential changes in other adjustments to the quantitative
calculation, which would also be influenced by the judgment
management applies to the modeled lifetime loss estimates
to reflect the uncertainty and imprecision of these modeled
lifetime loss estimates based on then-current circumstances
and conditions.
• An increase of approximately $3.9 billion for wholesale
loans and lending-related commitments
• An increase of approximately $2.2 billion for credit card
loans
• An increase of approximately $500 million for residential
real estate loans and lending-related commitments
Management's discussion and analysis
149
JPMorgan Chase & Co./2022 Form 10-K
To demonstrate the sensitivity of credit loss estimates to
macroeconomic forecasts as of December 31, 2022, the
Expectations of future changes in portfolio composition
and borrower behavior can significantly affect the
allowance for credit losses.
Assets measured at fair value
• The impacts of changes in many MEVS are both
interrelated and nonlinear, so the results of this analysis
cannot be simply extrapolated for more severe changes
in macroeconomic variables.
The allowance as of December 31, 2022, reflects credit
losses beyond those estimated under the central scenario
due to the weight placed on the adverse scenarios.
This analysis is not intended to estimate expected future
changes in the allowance for credit losses, for a number of
reasons, including:
•
•
To consider the impact of a hypothetical alternate
macroeconomic forecast, the Firm compared the modeled
credit losses determined using its central and relative
adverse macroeconomic scenarios, which are two of the five
scenarios considered in estimating the allowances for loan
losses and lending-related commitments. The central and
relative adverse scenarios each included a full suite of
MEVS, but differed in the levels, paths and peaks/troughs of
those variables over the eight-quarter forecast period.
For example, compared to the Firm's central scenario
shown on page 127 and in Note 13, the Firm's relative
adverse scenario assumes an elevated U.S. unemployment
rate, averaging approximately 1.9% higher over the eight-
quarter forecast, with a peak difference of approximately
2.8% in the fourth quarter of 2023; lower U.S. real GDP
with a slower recovery, remaining nearly 3.1% lower at the
end of the eight-quarter forecast, with a peak difference of
approximately 3.9% in the fourth quarter of 2023; and
lower national HPI with a peak difference of approximately
8.4% in the third quarter of 2024.
It is difficult to estimate how potential changes in any one
factor or input might affect the overall allowance for credit
losses because management considers a wide variety of
factors and inputs in estimating the allowance for credit
losses. Changes in the factors and inputs considered may
not occur at the same rate and may not be consistent across
all geographies or product types, and changes in factors
and inputs may be directionally inconsistent, such that
improvement in one factor or input may offset deterioration
in others.
Changes in the Firm's assumptions and forecasts of
economic conditions could significantly affect its estimate of
expected credit losses in the portfolio at the balance sheet
date or lead to significant changes in the estimate from one
reporting period to the next.
Key MEVS for the wholesale portfolio include U.S. real
GDP, U.S. unemployment, U.S. equity prices, U.S. interest
rates, corporate credit spreads, oil prices, commercial
real estate prices and HPI.
•
interpreting existing laws, rules and regulations, and
advising on changes to them
Compliance risk, a subcategory of operational risk, is the
risk of failing to comply with laws, rules, regulations or
codes of conduct and standards of self-regulatory
organizations.
advising on offering and marketing documents and new
business initiatives
Code of Conduct
The Firm maintains oversight and coordination of its
compliance risk through the implementation of the CCOR
Management Framework. The Firm's Global CCO and FRE
for Operational Risk and Qualitative Risk Appetite also
provides regular updates to the Board Risk Committee and
the Audit Committee on significant compliance risk issues,
as appropriate.
Operational Risk and Compliance is led by the Firm's Global
CCO and FRE for Operational Risk and Qualitative Risk
Appetite.
Governance and oversight
Operational Risk and Compliance implements policies and
standards designed to govern, identify, measure, monitor
and test, manage, and report on compliance risk.
Other functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
These compliance risks relate to a wide variety of laws,
rules and regulations varying across the LOBS and
Corporate, and jurisdictions, and include risks related to
financial products and services, relationships and
interactions with clients and customers, and employee
activities. For example, compliance risks include those
associated with anti-money laundering compliance, trading
activities, market conduct, and complying with the laws,
rules, and regulations related to the offering of products
and services across jurisdictional borders. Compliance risk
is also inherent in the Firm's fiduciary activities, including
the failure to exercise the applicable standard of care to act
in the best interest of fiduciary clients and customers or to
treat fiduciary clients and customers fairly.
Each of the LOBs and Corporate hold primary ownership of
and accountability for managing their compliance risk. The
Firm's Operational Risk and Compliance Organization
("Operational Risk and Compliance"), which is independent
of the LOBS and Corporate, provides independent review,
monitoring and oversight of business operations with a
focus on compliance with the laws, rules, and regulations
applicable to the delivery of the Firm's products and
services to clients and customers.
Overview
COMPLIANCE RISK MANAGEMENT
JPMorgan Chase & Co./2022 Form 10-K
144
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and
maintains a wholly-owned captive insurer, Park Assurance
Company. Insurance may also be required by third parties
with whom the Firm does business.
Insurance
The Firm's Third-Party Oversight ("TPO") and Inter-affiliates
Oversight ("IAO") frameworks assist the LOBS and
Corporate in selecting, documenting, onboarding,
monitoring and managing their supplier relationships
including services provided by affiliates. The objectives of
the TPO framework are to hold suppliers and other third
parties to a high level of operational performance and to
mitigate key risks, including data loss and business
disruptions. The Corporate Third-Party Oversight group
is responsible for Firmwide training, monitoring, reporting
and standards.
Third-party outsourcing risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. The
Firm employs various controls for managing payment fraud
risk as well as providing employee and client education and
awareness trainings.
Payment fraud risk
Business and technology resiliency risk
Disruptions can occur due to forces beyond the Firm's
control such as the spread of infectious diseases or
pandemics, severe weather, power or telecommunications
loss, failure of a third party to provide expected services,
cyberattacks and terrorism. The Firmwide Business
Resiliency Program is designed to enable the Firm to
prepare for, adapt to, withstand and recover from business
disruptions including occurrence of an extraordinary event
beyond its control that may impact critical business
functions and supporting assets (i.e., staff, technology,
facilities and third parties). The program includes
governance, awareness training, planning and testing of
recovery strategies, as well as strategic and tactical
initiatives to identify, assess, and manage business
interruption and public safety risks.
The Firm's Security Awareness Program includes training
that reinforces the Firm's Information Technology Risk and
Security Management policies, standards and practices, as
well as the expectation that employees comply with these
policies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm's resources and
information. This training is mandatory for all employees
globally on a periodic basis, and it is supplemented by
Firmwide testing initiatives, including periodic phishing
tests. The Firm provides specialized security training for
certain employee roles such as application developers.
Finally, the Firm's Global Privacy Program requires all
employees to take periodic awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding to
unauthorized access to or use of information.
The IRM function provides oversight of the activities
designed to identify, assess, measure, and mitigate
cybersecurity risk.
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the fair value hierarchy. Refer to Note 2 for
further information.
The Global Cybersecurity and Technology Controls
governance structure is designed to identify, escalate, and
mitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
technology efforts. These forums are established at multiple
levels throughout the Firm. The forums are used to escalate
information security risks or other matters as appropriate.
The Firm has a Code of Conduct (the "Code") that sets forth
the Firm's expectation that employees will conduct
themselves with integrity at all times and provides the
principles that govern employee conduct with clients,
customers, shareholders and one another, as well as with
the markets and communities in which the Firm does
business. The Code requires employees to promptly report
any potential or actual violation of the Code, any Firm
policy, or any law or regulation applicable to the Firm's
business. It also requires employees to report any illegal
conduct, or conduct that violates the underlying principles
of the Code, by any of the Firm's employees, clients,
customers, suppliers, contract workers, business partners,
or agents. Training is assigned to newly hired employees
upon joining the Firm, and to current employees
periodically on an ongoing basis. Employees are required to
affirm their compliance with the Code annually.
managing dispute resolution
Employees can report any potential or actual violations of
the Code through the Firm's Conduct Hotline by phone or
the internet. The Hotline is anonymous, except in certain
non-U.S. jurisdictions where laws prohibit anonymous
reporting, and is available at all times globally, with
translation services. It is administered by an outside service
provider. The Code prohibits retaliation against anyone who
raises an issue or concern in good faith. Periodically, the
Audit Committee receives reports on the Code of Conduct
program.
145
advising on products and services, including contract
negotiation and documentation
enforcement matters, including internal reviews and
investigations related to such matters
managing actual and potential litigation and
.
•
.
•
•
•
The global Legal function (“Legal") provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm's exposure to legal risk by:
Overview
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
LEGAL RISK MANAGEMENT
JPMorgan Chase & Co./2022 Form 10-K
146
The Firm has a senior forum that provides oversight of the
Firm's conduct initiatives to develop a more holistic view of
conduct risks and to connect key programs across the Firm
in order to identify opportunities and emerging areas of
focus. This forum is responsible for setting overall program
direction for strategic enhancements to the Firm's
employee conduct framework and reviewing the
consolidated Firmwide Conduct Risk Appetite Assessment.
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
each designated corporate function completes an
assessment of conduct risk periodically, reviews metrics
and issues which may involve conduct risk, and provides
conduct education as appropriate.
The Conduct Risk Program is governed by the CCOR
Management policy, which establishes the framework for
governance, identification, measurement, monitoring and
testing, management and reporting conduct risk in the
Firm.
Governance and oversight
Each LOB and Corporate is accountable for identifying and
managing its conduct risk to provide appropriate
engagement, ownership and sustainability of a culture
consistent with the Firm's How We Do Business Principles
(the "Principles"). The Principles serve as a guide for how
employees are expected to conduct themselves. With the
Principles serving as a guide, the Firm's Code sets out the
Firm's expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with applicable laws,
rules and regulations everywhere the Firm operates. Refer
to Compliance Risk Management on page 145 for further
discussion of the Code.
Overview
Conduct risk, a subcategory of operational risk, is the risk
that any action or misconduct by an employee could lead to
unfair client or customer outcomes, impact the integrity of
the markets in which the Firm operates, harm employees or
the Firm, or compromise the Firm's reputation.
CONDUCT RISK MANAGEMENT
Management's discussion and analysis
JPMorgan Chase & Co./2022 Form 10-K
December 31, 2022
1,418
Total assets
at fair value
205,857
13,591
453,756
10,682
70,880
2,909
382,876
CLIMATE RISK MANAGEMENT
Climate risk is the risk associated with the impacts of
climate change on the Firm's clients, customers, operations
and business strategy. Climate change is viewed as a driver
of risk that may impact existing types of risks managed by
the Firm. Climate risk is categorized into physical risk and
transition risk.
Physical risk refers to economic costs and financial loss
associated with a changing climate. Acute physical risk
drivers include the increased frequency or severity of
climate and weather events, such as floods, wildfires and
tropical storms. Chronic physical risk drivers include more
gradual shifts in the climate, such as rising sea levels,
persistent changes in precipitation levels and increases in
average ambient temperatures.
Transition risk refers to the financial and economic
implications associated with a societal adjustment to a low-
carbon economy. Transition risk drivers include possible
changes in public policy, adoption of new technologies and
shifts in consumer preferences. Transition risks may also be
influenced by changes in the physical climate.
Organization and management
The Firm has a Climate Risk Management function that is
responsible for establishing the Firmwide framework and
strategy for managing climate risk. The Climate Risk
Management function engages across the Firm to help
integrate climate risk considerations into existing risk
management frameworks, as appropriate.
Other responsibilities of Climate Risk Management include:
•
•
•
Setting policies, standards, procedures and processes to
support identification, escalation, monitoring and
management of climate risk across the Firm
Developing metrics, scenarios, and stress testing
mechanisms designed to assess the range of potential
climate-related financial and economic impacts to the
Firm
Establishing a Firmwide climate risk data strategy and
the supporting climate risk technology infrastructure
The LOBS and Corporate are responsible for the
identification, assessment and management of climate risks
present in their business activities and for adherence to
applicable climate-related laws, rules and regulations.
239
Governance and oversight
42,079
7,973
Global Technology Product Security
JPMorgan Chase & Co./2022 Form 10-K
150
(a) For purposes of the table above, the derivative receivables total
reflects the impact of netting adjustments; however, the $10.7 billion
of derivative receivables classified as level 3 does not reflect the
netting adjustment as such netting is not relevant to a presentation
based on the transparency of inputs to the valuation of an asset. The
level 3 balances would be reduced if netting were applied, including
the netting benefit associated with cash collateral.
2.3%
Level 3 assets at fair value as a
percentage of total Firm assets at fair
value(a)
0.7%
(a)
percentage of total Firm assets
Level 3 assets at fair value as a
$3,665,743
1,979
$ 25,605
$ 1,108,261
Total assets measured at fair value
Total Firm assets
2,658
Total assets measured at fair value on a
nonrecurring basis
Total assets measured at fair value on
a recurring basis
MSRS
Other
Loans
23,626
1,105,603
405
14,014
7,973
The Firm's approach to managing climate risk is consistent
with the Firm's risk governance structure. The LOBS and
Corporate are responsible for integrating climate risk
management into existing governance frameworks, or
creating new governance frameworks, as appropriate.
The LOBS, Corporate and Climate Risk Management are
responsible for providing the Board Risk Committee with
information on significant climate risks and climate-related
initiatives, as appropriate.
JPMorgan Chase & Co./2022 Form 10-K
141
The Firm has experienced, and expects that it will continue
to experience, a higher volume and complexity of cyber
attacks against the backdrop of heightened geopolitical
tensions. The Firm has implemented precautionary
measures and controls reasonably designed to address this
increased risk, such as enhanced threat monitoring. There
can be no assurance that the measures taken by the Firm
will be successful in defending against cyber attacks.
Ongoing business expansions may expose the Firm to
potential new threats as well as expanded regulatory
scrutiny including the introduction of new cybersecurity
requirements. The Firm continues to make significant
investments in enhancing its cyber defense capabilities and
to strengthen its partnerships with the appropriate
government and law enforcement agencies and other
businesses in order to understand the full spectrum of
cybersecurity risks in the operating environment, enhance
defenses and improve resiliency against cybersecurity
threats. The Firm actively participates in discussions and
simulations of cybersecurity risks both internally and with
law enforcement, government officials, peer and industry
groups, and has significantly increased efforts to educate
employees and certain clients on the topic of cybersecurity
risks.
Third parties with which the Firm does business or that
facilitate the Firm's business activities (e.g., vendors, supply
chain, exchanges, clearing houses, central depositories, and
financial intermediaries) are also sources of cybersecurity
risk to the Firm. Third party cybersecurity incidents such as
system breakdowns or failures, misconduct by the
employees of such parties, or cyber attacks, including
ransomware and supply-chain compromises, could affect
their ability to deliver a product or service to the Firm or
result in lost or compromised information of the Firm or its
clients. Clients are also sources of cybersecurity risk to the
Firm and its information assets, particularly when their
activities and systems are beyond the Firm's own security
and control systems. As a result, the Firm engages in
regular and ongoing discussions with certain vendors and
clients regarding cybersecurity risks and opportunities to
improve security. However, where cybersecurity incidents
occur as a result of client failures to maintain the security of
their own systems and processes, clients are responsible for
losses incurred.
To help safeguard the confidentiality, integrity and
availability of the Firm's infrastructure, resources and
information, the Firm maintains a Information Security
Program designed to prevent, detect, and respond to
cyberattacks. The Board of Directors is periodically
provided with updates on the Firm's Information Security
Program, recommended changes, cybersecurity policies and
practices, ongoing efforts to improve security, as well as the
Firm's efforts regarding significant cybersecurity events. In
addition, the Firm has a cybersecurity incident response
JPMorgan Chase & Co./2022 Form 10-K
143
Management's discussion and analysis
plan ("IRP") designed to enable the Firm to respond to
attempted cybersecurity incidents, coordinate such
responses with law enforcement and other government
agencies, and notify clients and customers, as applicable.
Among other key focus areas, the IRP is designed to
mitigate the risk of insider trading connected to a
cybersecurity incident, and includes various escalation
points.
The Global Cybersecurity and Technology Controls
organization, working with each of the Firm's LOBS and
Corporate, is responsible for identifying technology and
cybersecurity risks and is responsible for the controls to
manage threats. The organization consists of business
aligned information security personnel that are supported
within the organization by the following products and
services that execute the Information Security Program for
the Firm:
•
•
Cyber Operations
•
Identity & Access Management
•
Trading-debt and equity instruments
Derivative receivables (a)
AFS securities
Total trading assets
Trading assets:
70,041
$
$ 311,883
Federal funds sold and securities
purchased under resale agreements
Securities borrowed
Total level 3
assets
disrupt or degrade service, sabotage systems or cause other
damage.
Cybersecurity risk is the risk of the Firm's exposure to harm
or loss resulting from misuse or abuse of technology by
malicious actors. Cybersecurity risk is an important and
continuously evolving focus for the Firm. Significant
resources are devoted to protecting and enhancing the
security of computer systems, software, networks, storage
devices, and other technology assets. The Firm's security
efforts are designed to protect against, among other things,
cybersecurity attacks by unauthorized parties attempting to
obtain access to confidential information, destroy data,
Cybersecurity risk
In response to the war in Ukraine, numerous financial and
economic sanctions have been imposed on Russia and
Russia-associated entities and individuals by various
governments around the world, including the authorities in
the U.S., U.K. and EU. These sanctions are complex and
continue to evolve. The Firm continues to face increased
operational risk associated with addressing these complex
compliance-related matters. To manage this increased risk,
the Firm has implemented controls reasonably designed to
mitigate the risk of non-compliance and to prevent dealing
with sanctioned persons or in property subject to sanctions,
as well as to block or restrict payments as required by the
applicable regulations.
Management's discussion and analysis
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk of an adverse outcome resulting
from inadequate or failed internal processes or systems;
human factors; or external events impacting the Firm's
processes or systems. Operational Risk includes
compliance, conduct, legal, and estimations and model risk.
Operational risk is inherent in the Firm's activities and can
manifest itself in various ways, including fraudulent acts,
business disruptions (including those caused by
extraordinary events beyond the Firm's control), cyber
attacks, inappropriate employee behavior, failure to comply
with applicable laws, rules and regulations or failure of
vendors or other third party providers to perform in
accordance with their agreements. Operational Risk
Management attempts to manage operational risk at
appropriate levels in light of the Firm's financial position,
the characteristics of its businesses, and the markets and
regulatory environments in which it operates.
Operational Risk Management Framework
The Firm's Compliance, Conduct, and Operational Risk
("CCOR") Management Framework is designed to enable
the Firm to govern, identify, measure, monitor and test,
manage and report on the Firm's operational risk.
Operational Risk Governance
The LOBS and Corporate are responsible for the
management of operational risk. The Control Management
Organization, which consists of control managers within
each LOB and Corporate, is responsible for the day-to-day
execution of the CCOR Framework.
The Firm's Global Chief Compliance Officer ("CCO") and FRE
for Operational Risk and Qualitative Risk Appetite is
responsible for defining the CCOR Management Framework
and establishing the minimum standards for its execution.
The LOB and Corporate aligned CCOR Lead Officers report
to the Global CCO and FRE for Operational Risk and
Qualitative Risk Appetite and are independent of the
respective businesses or functions they oversee. The CCOR
Management Framework is included in the Risk Governance
and Oversight Policy that is reviewed and approved by the
Board Risk Committee periodically.
Operational Risk Identification
The Firm utilizes a structured risk and control self-
assessment process that is executed by the LOBS and
Corporate. As part of this process, the LOBS and Corporate
evaluate the effectiveness of their respective control
environment to assess where controls have failed, and to
determine where remediation efforts may be required. The
Firm's Operational Risk and Compliance organization
("Operational Risk and Compliance") provides oversight of
and challenge to these evaluations and may also perform
independent assessments of significant operational risk
events and areas of concentrated or emerging risk.
(in millions, except ratios)
Operational Risk Measurement
Operational Risk and Compliance performs an independent
assessment of the operational risks inherent within the
LOBS and Corporate, which includes evaluating the
effectiveness of the control environments and reporting the
results to senior management.
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and other stress
testing processes.
Refer to Capital Risk Management on pages 86-96 for
information related to operational risk RWA, and CCAR.
Operational Risk Monitoring and testing
The results of risk assessments performed by Operational
Risk and Compliance are used in connection with their
independent monitoring and testing compliance of the LOBS
and Corporate with laws, rules and regulations. Through
monitoring and testing, Operational Risk and Compliance
independently identify areas of heightened operational risk
and tests the effectiveness of controls within the LOBS and
Corporate.
142
JPMorgan Chase & Co./2022 Form 10-K
Management of Operational Risk
The operational risk areas or issues identified through
monitoring and testing are escalated to the LOBS and
Corporate to be remediated through action plans, as
needed, to mitigate operational risk. Operational Risk and
Compliance may advise the LOBS and Corporate in the
development and implementation of action plans.
Operational Risk Reporting
All employees of the Firm are expected to escalate risks
appropriately. Risks identified by Operational Risk and
Compliance are escalated to the appropriate LOB and
Corporate Control Committees, as needed. Operational Risk
and Compliance has established standards designed to
ensure that consistent operational risk reporting and
operational risk reports are produced on a Firmwide basis
as well as by the LOBS and Corporate. Reporting includes
the evaluation of key risk and performance indicators
against established thresholds as well as the assessment of
different types of operational risk against stated risk
appetite. The standards reinforce escalation protocols to
senior management and to the Board of Directors.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories include Compliance risk,
Conduct risk, Legal risk, and Estimations and Model risk.
Refer to pages 145, 146, 147 and 148, respectively for
more information on Compliance, Conduct, Legal, and
Estimations and Model risk. Details on other select
examples of operational risks such as cybersecurity,
business and technology resiliency, payment fraud and
third-party outsourcing are provided below.
War in Ukraine and Sanctions
In addition, Operational Risk and Compliance assesses
operational risks through quantitative means, including
operational risk-based capital and estimation of operational
risk losses under both baseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach ("LDA")
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the
Firm's operational risk-based capital methodology, which
uses the Advanced Measurement Approach ("AMA”),
incorporates internal and external losses as well as
management's view of tail risk captured through
operational risk scenario analysis, and evaluation of key
business environment and internal control metrics. The
Firm does not reflect the impact of insurance in its AMA
estimate of operational risk capital.
Governance, Risk & Controls
2,170
Management's report on internal control over financial reporting
Technology changes instituted by the Firm, its
counterparties or competitors;
The effectiveness of the Firm's control agenda;
Ability of the Firm to develop or discontinue products
and services, and the extent to which products or
services previously sold by the Firm require the Firm to
incur liabilities or absorb losses not contemplated at
their initiation or origination;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm to
innovate and to increase market share;
Ability of the Firm to attract and retain qualified and
diverse employees;
Ability of the Firm to control expenses;
Competitive pressures;
Changes in the credit quality of the Firm's clients,
customers and counterparties;
Adequacy of the Firm's risk management framework,
disclosure controls and procedures and internal control
over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies, including the
introduction of new accounting standards;
Ability of the Firm to determine accurate values of
certain assets and liabilities;
Occurrence of natural or man-made disasters or
calamities, including health emergencies, the spread of
infectious diseases, epidemics or pandemics, an outbreak
or escalation of hostilities or other geopolitical
instabilities, the effects of climate change or
extraordinary events beyond the Firm's control, and the
Firm's ability to deal effectively with disruptions caused
by the foregoing;
Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing and
other operational systems and facilities;
Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
Ability of the Firm to effectively defend itself against
cyber attacks and other attempts by unauthorized parties
to access information of the Firm or its customers or to
disrupt the Firm's systems; and
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in JPMorgan Chase's 2022 Form 10-K.
Any forward-looking statements made by or on behalf of the
Firm speak only as of the date they are made, and JPMorgan
Chase does not undertake to update any forward-looking
statements. The reader should, however, consult any further
disclosures of a forward-looking nature the Firm may make
in any subsequent Form 10-Ks, Quarterly Reports on Form
10-Qs, or Current Reports on Form 8-K.
154
JPMorgan Chase & Co./2022 Form 10-K
•
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America ("U.S. GAAP").
•
.
Changes in the level of inflation;
•
Changes in income tax laws, rules, and regulations;
•
Securities and capital markets behavior, including
changes in market liquidity and volatility;
•
•
•
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital and
liquidity;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
•
Damage to the Firm's reputation;
•
•
Ability of the Firm to appropriately address social,
environmental and sustainability concerns that may
arise, including from its business activities;
Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption,
including, but not limited to, in the interest rate
environment;
•
•
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures of the
Firm are being made only in accordance with authorizations
of JPMorgan Chase's management and directors; and (3)
provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of the Firm's assets that could have a material
effect on the financial statements.
Based upon the assessment performed, management
concluded that as of December 31, 2022, JPMorgan
Chase's internal control over financial reporting was
effective based upon the COSO 2013 framework.
Additionally, based upon management's assessment, the
Firm determined that there were no material weaknesses in
its internal control over financial reporting as of
December 31, 2022.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and
directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers LLP • 300 Madison Avenue • New York, NY 10017
156
JPMorgan Chase & Co./2022 Form 10-K
Report of Independent Registered Public Accounting Firm
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required
to be communicated to the audit committee and that (i)
relate to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Allowance for Loan Losses - Portfolio-based component of
Wholesale Loan and Credit Card Loan Portfolios
As described in Note 13 to the consolidated financial
statements, the allowance for loan losses for the portfolio-
based component of the wholesale and credit card loan
portfolios was $17.0 billion on total portfolio-based
retained loans of $785.9 billion at December 31, 2022. The
Firm's allowance for loan losses represents management's
estimate of expected credit losses over the remaining
expected life of the Firm's loan portfolios and considers
expected future changes in macroeconomic conditions. The
portfolio-based component of the Firm's allowance for loan
losses for the wholesale and credit card retained loan
portfolios begins with a quantitative calculation of expected
credit losses over the expected life of the loan by applying
credit loss factors to the estimated exposure at default. The
credit loss factors applied are determined based on the
weighted average of five internally developed
macroeconomic scenarios that take into consideration the
Firm's economic outlook as derived through forecast
macroeconomic variables, the most significant of which are
U.S. unemployment and U.S. real gross domestic product.
This quantitative calculation is further adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate.
The principal considerations for our determination that
performing procedures relating to the allowance for loan
losses for the portfolio-based component of the wholesale
and credit card loan portfolios is a critical audit matter are
(i) the significant judgment and estimation by management
in the forecast of macroeconomic variables, specifically U.S.
unemployment and U.S. real gross domestic product, as the
Firm's forecasts of economic conditions significantly affect
its estimate of expected credit losses at the balance sheet
date, (ii) the significant judgment and estimation by
management in determining the quantitative calculation
utilized in their credit loss estimates and the adjustments to
take into consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate,
which both in turn led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures and in
evaluating audit evidence obtained relating to the credit
loss estimates and the appropriateness of the adjustments
to the credit loss estimates, and (iii) the audit effort
involved the use of professionals with specialized skill and
knowledge.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's allowance for loan losses,
including controls over model validation and generation of
macroeconomic scenarios. These procedures also included,
among others, testing management's process for estimating
the allowance for loan losses, which involved (i) evaluating
the appropriateness of the models and methodologies used
in quantitative calculations; (ii) evaluating the
reasonableness of forecasts of U.S. unemployment and U.S.
real gross domestic product; (iii) testing the completeness
and accuracy of data used in the estimate; and (iv)
evaluating the reasonableness of management's
adjustments to the quantitative output for the impacts of
model imprecision, emerging risk assessments, trends and
other subjective factors that are not yet otherwise reflected
in the credit loss estimate. These procedures also included
the use of professionals with specialized skill and
knowledge to assist in evaluating the appropriateness of
certain models, methodologies and macroeconomic
variables.
Fair Value of Certain Level 3 Financial Instruments
As described in Notes 2 and 3 to the consolidated financial
statements, the Firm carries $1.1 trillion of its assets and
$453.7 billion of its liabilities at fair value on a recurring
basis. Included in these balances are $13.6 billion of
trading assets and $37.8 billion of liabilities measured at
fair value on a recurring basis, collectively financial
instruments, which are classified as level 3 as they contain
one or more inputs to valuation which are unobservable
and significant to their fair value measurement. The Firm
utilized internally developed valuation models and
unobservable inputs to estimate fair value of the level 3
financial instruments. The unobservable inputs used by
management to estimate the fair value of certain of these
financial instruments include volatility relating to interest
rates, correlation relating to interest rates, equity prices,
credit and foreign exchange rates, and Bermudan switch
values.
The principal considerations for our determination that
performing procedures relating to the fair value of certain
level 3 financial instruments is a critical audit matter are (i)
the significant judgment and estimation by management in
determining the inputs to estimate fair value, which in turn
led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures and in evaluating audit
evidence obtained related to the fair value of these financial
instruments, and (ii) the audit effort involved the use of
professionals with specialized skill and knowledge.
JPMorgan Chase & Co./2022 Form 10-K
157
Report of Independent Registered Public Accounting Firm
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's determination of the fair
value, including controls over models, inputs, and data.
These procedures also included, among others, the
involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate
of fair value for a sample of these financial instruments and
comparing management's estimate to the independently
developed estimate of fair value. Developing the
independent estimate involved testing the completeness
and accuracy of data provided by management, developing
independent inputs and, as appropriate, evaluating and
utilizing management's aforementioned unobservable
inputs.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles
used and significant estimates made by management, as
well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and
testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2022. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO").
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
Basis for Opinions
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2022, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
James Dimon
спие
Dinin
Chairman and Chief Executive Officer
Jeremy Barnum
Executive Vice President and Chief Financial Officer
JPMorgan Chase & Co./2022 Form 10-K
February 21, 2023
155
Report of Independent Registered Public Accounting Firm
pwc
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
"Firm") as of December 31, 2022 and 2021, and the related
consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 2022,
including the related notes (collectively referred to as the
“consolidated financial statements"). We also have audited
the Firm's internal control over financial reporting as of
December 31, 2022, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Firm as of December 31, 2022 and
2021, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2022 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2022, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial
statements, the Firm changed the manner in which it
accounts for credit losses on certain financial instruments in
2020.
The Firm's management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management's report on internal control over financial
reporting. Our responsibility is to express opinions on the
Firm's consolidated financial statements and on the Firm's
internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to
the Firm in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
PriceuntuhouseCoopers LLP
Changes in trade, monetary and fiscal policies and laws;
Changes in laws, rules, and regulatory requirements,
including capital and liquidity requirements affecting the
Firm's businesses, and the ability of the Firm to address
those requirements;
Refer to Note 25 for additional information on income
taxes.
Litigation reserves
Refer to Note 30 for a description of the significant
estimates and judgments associated with establishing
litigation reserves.
152
JPMorgan Chase & Co./2022 Form 10-K
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB”) Standards Adopted since January 1, 2021
Standard
Reference Rate
Reform
•
Issued March
2020 and updated
January 2021 and
December 2022
Summary of guidance
•
•
Provides optional expedients and exceptions to
current accounting guidance when financial
instruments, hedge accounting relationships, and
other transactions are amended due to reference rate
reform.
Provides an election to account for certain contract
amendments related to reference rate reform as
modifications rather than extinguishments without
the requirement to assess the significance of the
amendments.
The Firm's provision for income taxes is composed of
current and deferred taxes. The current and deferred tax
provisions are calculated based on estimates and
assumptions that could differ from the actual results
reflected in income tax returns filed during the subsequent
year. Adjustments based on filed returns are generally
recorded in the period when the tax returns are filed and
the global tax implications are known, which could impact
the Firm's effective tax rate.
Allows for changes in critical terms of a hedge
accounting relationship without automatic
termination of that relationship. Provides various
practical expedients and elections designed to allow
hedge accounting to continue uninterrupted during
the transition period.
The Firm adjusts its unrecognized tax benefits as necessary
when new information becomes available, including
changes in tax law and regulations, and interactions with
taxing authorities. Uncertain tax positions that meet the
more-likely-than-not recognition threshold are measured to
determine the amount of benefit to recognize. An uncertain
tax position is measured at the largest amount of benefit
that management believes is more likely than not to be
realized upon settlement. It is possible that the
reassessment of JPMorgan Chase's unrecognized tax
benefits may have a material impact on its effective income
tax rate in the period in which the reassessment occurs.
Although the Firm believes that its estimates are
reasonable, the final tax amount could be different from the
amounts reflected in the Firm's income tax provisions and
accruals. To the extent that the final outcome of these
amounts is different than the amounts recorded, such
differences will generally impact the Firm's provision for
income taxes in the period in which such a determination is
made.
The Firm has also recognized deferred tax assets in
connection with certain tax attributes, including net
operating loss (“NOL”) carryforwards and foreign tax credit
("FTC") carryforwards. The Firm performs regular reviews
to ascertain whether its deferred tax assets are realizable.
These reviews include management's estimates and
assumptions regarding future taxable income, including
foreign source income, and may incorporate various tax
planning strategies, including strategies that may be
available to utilize NOLS and FTCs before they expire. In
connection with these reviews, if it is determined that a
deferred tax asset is not realizable, a valuation allowance is
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, the lack of observability of certain significant
inputs requires management to assess relevant empirical
data in deriving valuation inputs including, for example,
transaction details, yield curves, interest rates, prepayment
speed, default rates, volatilities, correlations, prices (such
as commodity, equity or debt prices), valuations of
comparable instruments, foreign exchange rates and credit
curves. Refer to Note 2 for a further discussion of the
valuation of level 3 instruments, including unobservable
inputs used.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for portfolios
that meet specified criteria, the size of the net open risk
position. The judgments made are typically affected by the
type of product and its specific contractual terms, and the
level of liquidity for the product or within the market as a
whole. In periods of heightened market volatility and
uncertainty judgments are further affected by the wider
variation of reasonable valuation estimates, particularly for
positions that are less liquid. Refer to Note 2 for a further
discussion of valuation adjustments applied by the Firm.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies or
assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. Refer to Note 2 for a detailed discussion of the Firm's
valuation process and hierarchy, and its determination of
fair value for individual financial instruments.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The
Firm's process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
For the year ended December 31, 2022, the Firm reviewed
current economic conditions, estimated market cost of
equity, as well as actual business results and projections of
business performance. Based on such reviews, the Firm has
concluded that goodwill was not impaired as of
December 31, 2022. For each of the reporting units, fair
value exceeded carrying value by at least 10% and there
was no indication of a significant risk of goodwill
impairment based on current projections and valuations.
The projections for the Firm's reporting units are consistent
with management's current business outlook assumptions
in the short term, and the Firm's best estimates of long-
term growth and return on equity in the longer term. Where
possible, the Firm uses third-party and peer data to
benchmark its assumptions and estimates.
Refer to Note 15 for additional information on goodwill,
including the goodwill impairment assessment as of
December 31, 2022.
Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do the points expire, and the points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the
estimated cost of rewards points earned and expected to be
redeemed by cardholders. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $11.3 billion
and $9.8 billion at December 31, 2022 and 2021,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets. The increase
the liability was driven by continued growth in rewards
points earned on increased cardholder spending and
promotional offers outpacing redemptions throughout
2022.
The rewards liability is sensitive to redemption rate (“RR”)
and cost per point (“CPP”) assumptions. The RR assumption
is used to estimate the number of points earned by
customers that will be redeemed over the life of the
account. The CPP assumption is used to estimate the cost of
future point redemptions. These assumptions are evaluated
periodically considering historical actuals, cardholder
redemption behavior and management judgment. Updates
JPMorgan Chase & Co./2022 Form 10-K
151
Management's discussion and analysis
to these assumptions will impact the rewards liability. As of
December 31, 2022, a combined increase of 25 basis
points in RR and 1 basis point in CPP would increase the
rewards liability by approximately $315 million.
Income taxes
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
unrecognized tax benefits, as appropriate. In addition, the
Firm may revise its estimate of income taxes due to changes
in income tax laws, legal interpretations, and business
strategies. It is possible that revisions in the Firm's estimate
of income taxes may materially affect the Firm's results of
operations in any reporting period.
Deferred taxes arise from differences between assets and
liabilities measured for financial reporting versus income
tax return purposes. Deferred tax assets are recognized if,
in management's judgment, their realizability is determined
to be more likely than not. Deferred taxes are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized within the
provision for income taxes in the period enacted.
established. The valuation allowance may be reversed in a
subsequent reporting period if the Firm determines that,
based on revised estimates of future taxable income or
changes in tax planning strategies, it is more likely than not
that all or part of the deferred tax asset will become
realizable. As of December 31, 2022, management has
determined it is more likely than not that the Firm will
realize its deferred tax assets, net of the existing valuation
allowance.
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices,
including dealings with retail customers;
• Provides a one-time election to transfer securities out
of the held-to-maturity classification if certain criteria
are met.
The January 2021 update provides an election to
account for derivatives modified to change the rate
used for discounting, margining, or contract price
alignment (collectively "discounting transition") as
modifications.
Effects on financial statements
.
Issued and effective March 12, 2020. The
January 7, 2021 and December 21, 2022
updates were effective when issued.
The Firm elected to apply certain of the
practical expedients related to contract
modifications and hedge accounting
relationships, and discounting transition
beginning in the third quarter of 2020. The
discounting transition election was applied
retrospectively. The main purpose of the
practical expedients is to ease the
administrative burden of accounting for
contracts impacted by reference rate reform.
These elections did not have a material impact
on the Consolidated Financial Statements.
Effects on financial statements
• Adopted prospectively on January 1, 2023
and, as permitted by the guidance, in January
2023 the Firm transferred and designated
approximately $7.0 billion of HTM securities
into a closed AFS securities portfolio hedged
under the portfolio layer method.
•
• Adopted January 1, 2023.
This guidance was adopted using a modified
retrospective method which resulted in a net
decrease to the allowance for credit losses of
approximately $600 million and an increase to
retained earnings of approximately $450
million after-tax, predominantly driven by
residential real estate and credit card. Refer to
Note 1 for further information.
153
Management's discussion and analysis
FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements often
use words such as "anticipate,” “target,” “expect,”
"estimate," "intend,” “plan,” “goal," "believe," or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this 2022 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm's senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ
from those in the forward-looking statements:
•
•
•
•
Local, regional and global business, economic and
political conditions and geopolitical events, including the
war in Ukraine;
JPMorgan Chase & Co./2022 Form 10-K
•
is reflected as an adjustment to retained earnings at
the effective date.
Requires disclosure of current period loan charge-off
information by origination year.
⚫ The December 2022 update extends the termination
date of the optional expedients and exceptions to
current accounting guidance to December 31, 2024.
FASB Standards Issued but Not Adopted as of December 31, 2022
Standard
Summary of guidance
Derivatives and
Hedging: Fair Value
Hedging Portfolio
Layer Method
Issued March 2022
Financial
Instruments
Credit Losses:
Troubled Debt
Restructurings and
Vintage Disclosures
Issued March 2022
•
•
•
•
•
•
Expands the current ability to hedge a portfolio of
prepayable assets to allow more of the portfolio to be
hedged. Non-prepayable assets can also be included
in the same portfolio, thus increasing the size of the
portfolio and the amount available to be hedged.
Clarifies the types of derivatives that can be used as
hedges, and the balance sheet presentation and
disclosure requirements for the hedge accounting
adjustments.
Allows a one-time reclassification from HTM to AFS
upon adoption.
Eliminates existing accounting and disclosure
requirements for Troubled Debt Restructurings,
including the requirement to measure the allowance
using a discounted cash flow methodology.
Requires disclosure of loan modifications for
borrowers experiencing financial difficulty involving
principal forgiveness, interest rate reduction, other-
than-insignificant payment delay, term extension or a
combination of these modifications.
May be adopted prospectively, or by using a modified
retrospective method wherein the effect of adoption
Details of the Firm's processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
February 21, 2023
158
Weighted-average diluted shares
$
12.10
12.09
15.39
15.36
$
8.89
8.88
2,965.8
3,021.5
2,970.0
3,026.6
3,082.4
3,087.4
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2022 Form 10-K
159
JPMorgan Chase & Co.
Consolidated statements of comprehensive income
Year ended December 31, (in millions)
Weighted-average basic shares
Net income
Diluted earnings per share
Net income per common share data
76,140
71,343
66,656
46,166
59,562
35,815
8,490
11,228
6,684
$
37,676 $
48,334 $
29,131
Net income applicable to common stockholders
$
35,892
$
46,503 $
27,410
Basic earnings per share
5,941
Other comprehensive income/(loss), after-tax
Translation adjustments, net of hedges
922
212
DVA on fair value option elected liabilities
1,621
(293)
(491)
Total other comprehensive income/(loss), after-tax
Comprehensive income
(17,257)
(8,070)
6,417
$
20,419
$
40,264
$
35,548
The Notes to Consolidated Financial Statements are an integral part of these statements.
160
JPMorgan Chase & Co./2022 Form 10-K
(1,241)
Unrealized gains/(losses) on investment securities
Defined benefit pension and OPEB plans
(2,679)
Fair value hedges
Cash flow hedges
2022
2021
2020
$
37,676 $
48,334 $
29,131
(11,764)
(5,540)
4,123
(611)
(461)
234
98
(19)
19
(5,360)
2,320
We have served as the Firm's auditor since 1965.
5,469
Net income
6,686 $
13,216 $
9,486
19,912
16,304
18,021
7,098
7,032
6,511
20,677
18,177
(2,380)
(345)
802
1,250
3,091
4,420
5,102
4,435
$
4,322
2020
2022
JPMorgan Chase & Co./2022 Form 10-K
JPMorgan Chase & Co.
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
Revenue
Investment banking fees
Principal transactions
Lending- and deposit-related fees
Asset management, administration and commissions
Investment securities gains/(losses)
Mortgage fees and related income
Card income
Other income
Noninterest revenue
Interest income
Interest expense
Net interest income
Total net revenue
Provision for credit losses
2021
6,365
4,830
61,985
4,696
4,516
4,449
Technology, communications and equipment expense
9,358
9,941
10,338
Professional and outside services
10,174
9,814
8,464
Marketing
3,911
3,036
2,476
Other expense
Total noninterest expense
Income before income tax expense
Income tax expense
Occupancy expense
4,865
34,988
41,636
69,338
65,388
92,807
57,864
64,523
26,097
5,553
9,960
66,710
52,311
54,563
128,695
121,649
119,951
6,389
(9,256)
17,480
Noninterest expense
Compensation expense
38,567
Valuation
21,029
629
34,473
(47,115)
48,626
50,897
(33,676) (111,756)
21,360
(12,400)
39,159
84,616
(126,258)
44,892
(128,968)
(11,932)
(137,819)
50,075
162,748 149,758
(248,785) (397,145)
(54,278)
57,675
23,559
(50,263)
(7,341)
(129,344) (261,912)
All other investing activities, net
Net cash (used in) investing activities
Financing activities
35,845
(91,797)
(11,044)
Net change in:
(79,910)
107,119
(22,970)
(12,401)
(18,012)
(2,882)
(11,745)
(42,430)
11,170
78,084
(23,190)
77,198
58,614
43,162
7,415
2,339
(398)
3,115
Loans and lending-related
commitments - wholesale
Deposits
(136,895)
293,764
Cash and due from banks and deposits with banks at the beginning of the period
Cash and due from banks and deposits with banks at the end of the period
Cash interest paid
7,350
4,500
(7,434)
(2,575)
(1,430)
(3,162)
Net increase/(decrease) in cash and due from banks and deposits with banks
(18,408)
(13,562)
(12,858)
(12,690)
234
(1,477)
(927)
(126,257)
(6,517)
Effect of exchange rate changes on cash and due from banks and deposits with banks
Net cash provided by/(used in) financing activities
All other financing activities, net
602,765
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Beneficial interests issued by consolidated VIES
8,455
(8,984)
2,205
(20,799)
7,773
(4,254)
31,528
4,438
Proceeds from long-term borrowings
Payments of long-term borrowings
78,442
(45,556)
82,409
(54,932) (105,055)
1,347
78,686
Proceeds from issuance of preferred stock
Redemption of preferred stock
Treasury stock repurchased
Dividends paid
(20,734)
275,993
(45,635)
(31,449)
20,203
JPMorgan Chase & Co./2022 Form 10-K
JPMorgan Chase & Co.
Consolidated statements of cash flows
Year ended December 31, (in millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
162
Provision for credit losses
Deferred tax (benefit)/expense
Other
Originations and purchases of loans held-for-sale
Proceeds from sales, securitizations and paydowns of loans held-for-sale
Net change in:
Trading assets
Securities borrowed
Depreciation and amortization
Accrued interest and accounts receivable
The Notes to Consolidated Financial Statements are an integral part of these statements.
Total stockholders' equity
Balance at January 1
Repurchase
Reissuance
(21)
21
(105,415)
(3,122)
1,201
(107,336)
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
(88,184)
(18,448)
(6,397)
1,217
(105,415)
$ 292,332
$ 294,127
1,262
(88,184)
$ 279,354
Balance at December 31
(83,049)
Other assets
Trading liabilities
Accounts payable and other liabilities
(9,256)
17,480
7,051
7,932
8,614
(2,738)
3,748
6,389
(3,573)
3,274
1,649
(149,167)
(347,864)
167,709
336,413
(166,504)
175,490
5,174
$ 48,334 $ 29,131
37,676
$
Other operating adjustments
Net cash provided by/(used in) operating activities
Investing activities
Net change in:
Federal funds sold and securities purchased under resale agreements
Held-to-maturity securities:
Proceeds from paydowns and maturities
Purchases
Available-for-sale securities:
Proceeds from paydowns and maturities
Proceeds from sales
Purchases
Proceeds from sales and securitizations of loans held-for-investment
Other changes in loans, net
2022
2021
2020
85,710 (148,749)
Treasury stock, at cost
596,645
(11,508)
Note 18
page 260
Long-term debt
Note 20
page 263
Earnings per share
Note 23
Leases
page 268
Note 25
Other
Variable interest entities
Off-balance sheet lending-related financial
instruments, guarantees and other
commitments
Litigation
Note 28
Income taxes
page 276
page 259
page 255
Investment securities
Note 10
page 217
Securities financing activities
Note 11
page 222
Loans
Note 16
Note 12
Allowance for credit losses
Note 13
page 242
Note 14
page 247
Goodwill and Mortgage servicing rights
Premises and equipment
Note 15
page 225
Note 30
page 283
166
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction terms
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs in those models.
Under the Firm's Estimations and Model Risk Management
Policy, MRGR reviews and approves new models, as well as
material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances exceptions may be granted to the Firm's
policy to allow a model to be used prior to review or
approval. MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
Fair value hierarchy
A three-level fair value hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The fair value hierarchy is based on the observability of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
•
•
•
Valuation model review and approval
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 3 - one or more inputs to the valuation
methodology are unobservable and significant to the fair
value measurement.
A financial instrument's categorization within the fair value
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
168
JPMorgan Chase & Co./2022 Form 10-K
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the fair value hierarchy.
Product/instrument
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. Refer to
Credit and funding adjustments on page 184 of this Note
for more information on such adjustments.
Uncertainty adjustments related to unobservable
parameters may be made when positions are valued
using prices or input parameters to valuation models
that are unobservable due to a lack of market activity or
because they cannot be implied from observable market
data. Such prices or parameters must be estimated and
are, therefore, subject to management judgment.
Adjustments are made to reflect the uncertainty
inherent in the resulting valuation estimate.
Notes to consolidated financial statements
JPMorgan Chase & Co./2022 Form 10-K
Note 2 - Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets,
liabilities and unfunded lending-related commitments are
measured at fair value on a nonrecurring basis; that is, they
are not measured at fair value on an ongoing basis but are
subject to fair value adjustments only in certain
circumstances (for example, when there is evidence of
impairment).
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use, as inputs,
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, prices (such as
commodity, equity or debt prices), correlations, foreign
exchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments are
recorded at fair value, as described below.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
Valuation process
Risk-taking functions are responsible for providing fair
value estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's
Valuation Control Group ("VCG"), which is part of the Firm's
Finance function and independent of the risk-taking
functions, is responsible for verifying these estimates and
determining any fair value adjustments that may be
required to ensure that the Firm's positions are recorded at
fair value. In addition, the Firm's Valuation Governance
Forum ("VGF"), which is composed of senior finance and
risk executives, is responsible for overseeing the
management of risks arising from valuation activities
conducted across the Firm. The Firmwide VGF is chaired by
the Firmwide head of the VCG (under the direction of the
Firm's Controller), and includes sub-forums covering the
CIB, CCB, CB, AWM and certain corporate functions including
Treasury and CIO.
Price verification process
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived
prices, valuation inputs and other market data, where
available. Where independent prices or inputs are not
available, the VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral
valuation. There are also additional levels of management
review for more significant or complex positions.
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to the discussion below for further
information on the fair value hierarchy). For other
positions, judgment is required to assess the need for
valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
•
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower
market activity. Liquidity valuation adjustments are
made based on current market conditions. Factors that
may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
JPMorgan Chase & Co./2022 Form 10-K
167
•
page 215
(16,643)
Note 9
page 212
Certain amounts reported in prior periods have been
revised to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
Voting interest entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting, or (ii) at fair value if the fair value option was
elected. These investments are generally included in other
assets, with income or loss included in noninterest revenue.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-
affiliated partners or members have the ability to remove
the Firm as the general partner or managing member
without cause (i.e., kick-out rights), based on a simple
majority vote, or the non-affiliated partners or members
have rights to participate in important decisions.
Accordingly, the Firm does not consolidate these voting
interest entities. However, in the limited cases where the
non-managing partners or members do not have
substantive kick-out or participating rights, the Firm
evaluates the funds as VIES and consolidates the funds if
the Firm is the general partner or managing member and
has both power and a potentially significant interest.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
The Firm's investment companies and asset management
funds have investments in both publicly-held and privately-
held entities, including investments in buyouts, growth
equity and venture opportunities. These investments are
accounted for under investment company guidelines and,
accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidated
balance sheets at fair value, and are recorded other
assets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains the accounting under such
specialized investment company guidelines.
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
The most common type of VIE is an SPE. SPEs are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE's
investors and other parties that have rights to those cash
flows. SPES are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE'S
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
164
JPMorgan Chase & Co./2022 Form 10-K
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over
those activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Refer to Note 14 for further discussion of the Firm's VIES.
Revenue recognition
Interest income
Variable interest entities
The Firm recognizes interest income on loans, debt
securities, and other debt instruments, generally on a level-
yield basis, based on the underlying contractual rate. Refer
to Note 7 for further information.
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading financial services firm based in the
U.S., with operations worldwide. The Firm is a leader in
investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction
processing and asset management. Refer to Note 32 for a
further discussion of the Firm's business segments.
Notes to consolidated financial statements
9,155
(173,600)
213,225
263,978
740,834
527,609
263,631
Note 1 - Basis of presentation
Cash income taxes paid, net
$ 527,609
5,142
18,737
$ 13,077
8,140
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2022 Form 10-K
163
$ 567,234 $ 740,834
$ 23,143 $
4,355
Revenue from contracts with customers
JPMorgan Chase recognizes noninterest revenue from
certain contracts with customers, in investment banking
fees, deposit-related fees, asset management
administration and commissions, and components of card
income, when the Firm's related performance obligations
are satisfied. Refer to Note 6 for further discussion of the
Firm's revenue from contracts with customers.
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. Refer to Notes 2 and 3 for
further discussion of fair value measurement. Refer to Note
6 for further discussion of principal transactions revenue.
Note 2
page 167
Note 3
page 188
Derivative instruments
Note 5
page 194
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Fair value measurement
Fair value option
Noninterest revenue and noninterest
expense
page 208
Interest income and Interest expense
Note 7
page 211
Pension and other postretirement
employee benefit plans
Note 8
Note 6
Significant accounting policies
Financial Instruments - Credit Losses ("CECL")
The adoption of this guidance established a single
allowance framework for all financial assets measured at
amortized cost and certain off-balance sheet credit
exposures. This framework requires that management's
estimate reflects credit losses over the instrument's
remaining expected life and considers expected future
changes in macroeconomic conditions. Prior to the adoption
of the CECL accounting guidance, the Firm's allowance for
credit losses represented management's estimate of
probable credit losses inherent in the Firm's retained loan
portfolios and certain lending-related commitments.
Accounting standard adopted January 1, 2020
Use of estimates in the preparation of consolidated
financial statements
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in the
Consolidated statements of comprehensive income. Gains
and losses relating to nonfunctional currency transactions,
including non-U.S. operations where the functional currency
is the U.S. dollar, are reported in the Consolidated
statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances where it has determined that
the specified conditions are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of “in the money" transactions are
netted against the negative values of “out of the money"
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
agreements and securities loan agreements in general (i)
all transactions are terminated and accelerated, (ii) all
values of securities or cash held or to be delivered are
calculated, and all such sums are netted against each other
and (iii) the only remaining payment obligation is of one of
the parties to pay the netted termination amount.
JPMorgan Chase & Co./2022 Form 10-K
165
Notes to consolidated financial statements
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
Refer to Note 5 for further discussion of the Firm's
derivative instruments. Refer to Note 11 for further
discussion of the Firm's securities financing agreements.
Statements of cash flows
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks on the
Consolidated balance sheets.
Accounting standard adopted January 1, 2023
Financial Instruments - Credit Losses: Troubled Debt
Restructurings ("TDRS")
The adoption of this guidance eliminates the accounting and
disclosure requirements for TDRs, including the
requirement to measure the allowance using a discounted
cash flow ("DCF") methodology, and allows the option of a
non-DCF portfolio-based approach for modified loans to
troubled borrowers. If a DCF methodology is still applied for
these modified loans, the discount rate must be the post-
modification effective interest rate, instead of the pre-
modification effective interest rate.
The Firm elected to apply its non-DCF, portfolio-based
allowance approach for modified loans to troubled
borrowers for all portfolios except modified nonaccrual
risk-rated loans which the Firm elected to continue applying
a DCF methodology. See Note 13 for a description of the
portfolio-based allowance approach and the asset-specific
allowance approach.
This guidance was adopted on January 1, 2023 under the
modified retrospective method which resulted in a net
decrease to the allowance for credit losses of approximately
$600 million and an increase to retained earnings of
approximately $450 million, after-tax predominantly driven
by residential real estate and credit card.
Employee share-based incentives
Balance at December 31
page 270
Balance at January 1
Beneficial interests issued by consolidated VIEs (included $5 and $12 at fair value)
Long-term debt (included $72,281 and $74,934 at fair value)
Accounts payable and other liabilities (included $7,038 and $5,651 at fair value)
Trading liabilities
Short-term borrowings (included $15,792 and $20,015 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $151,999 and $126,435
at fair value)
Deposits (included $28,620 and $11,333 at fair value)
Liabilities
Total liabilities (a)
181,498
Other assets (included $14,921 and $14,753 at fair value and assets pledged of $7,998 and $5,298)
Total assets (a)
56,691
60,859
27,070
27,734
102,570
125,189
182,884
1,061,328
Commitments and contingencies (refer to Notes 28, 29 and 30)
$ 2,340,179 $ 2,462,303
Retained earnings
Additional paid-in capital
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,740,375 and 3,483,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Stockholders' equity
3,449,440
3,373,411
301,005
$ 3,665,743 $ 3,743,567
295,865
12,610
262,755
300,141
164,693
177,976
194,340
53,594
202,613
44,027
10,750
1,115,921
(16,386)
(19,726)
185,369
261,698
315,592
Federal funds sold and securities purchased under resale agreements (included $311,883 and $252,720 at fair value)
Securities borrowed (included $70,041 and $81,463 at fair value)
714,396
539,537
Deposits with banks
206,071
26,438
$
Cash and due from banks
Assets
2021
2022
December 31, (in millions, except share data)
Consolidated balance sheets
27,697 $
Trading assets (included assets pledged of $93,687 and $102,710)
453,799
433,575
1,077,714
1,135,647
Goodwill, MSRS and other intangible assets
Premises and equipment
Accrued interest and accounts receivable
Loans, net of allowance for loan losses
Allowance for loan losses
Loans (included $42,079 and $58,820 at fair value)
672,232
631,162
Investment securities, net of allowance for credit losses
363,707
425,305
Held-to-maturity securities
308,525
205,857
Available-for-sale securities (amortized cost of $216,188 and $308,254; included assets pledged of $9,158 and
$18,268)
Accumulated other comprehensive losses
Treasury stock, at cost (1,170,676,094 and 1,160,784,750 shares)
Total stockholders' equity
Total liabilities and stockholders' equity
$ 26,993
30,063
$ 34,838 $
2020
2021
2022
Balance at December 31
-
Redemption
Balance at January 1
Preferred stock
Year ended December 31, (in millions, except per share data)
Consolidated statements of changes in stockholders' equity
JPMorgan Chase & Co.
161
JPMorgan Chase & Co./2022 Form 10-K
Issuance
7,350
4,500
(7,434)
Liquidation of RSU Trust
Shares issued and commitments to issue common stock for employee share-based compensation awards, and
related tax effects
88,522
88,394
88,415
Balance at January 1
Additional paid-in capital
4,105
4,105
4,105
Balance at January 1 and December 31
Common stock
30,063
34,838
27,404
(1,430)
(2,575)
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co.
10,750
245
10,995
12,889
Assets
December 31, (in millions)
(a) The following table presents information on assets and liabilities related to VIES that are consolidated by the Firm at December 31, 2022 and 2021. The
assets of the consolidated VIEs are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general
credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIES and exclude
intercompany balances that eliminate in consolidation. Refer to Note 14 for a further discussion.
$ 3,665,743 $ 3,743,567
294,127
292,332
(84)
(105,415)
Trading assets
(107,336)
272,268
296,456
88,415
89,044
4,105
34,838
27,404
4,105
(17,341)
Loans
All other assets
Total assets
$
279
12,610 $
$
2,010
33,024
490
35,524
$
37,112
$
550
2,151 $
34,411
$
2021
2022
Total liabilities
All other liabilities
Beneficial interests issued by consolidated VIES
Liabilities
$
Loans carried at fair value
(trading loans and non-trading
loans) and associated
Securities financing agreements
Loans - consumer
• Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-specific
issues and lack of liquidity
• Additional available inputs relevant to the investment
Net asset value
•
NAV is supported by the ability to redeem and purchase at the NAV
level
Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where
observable activity is limited
Valued using observable market information, where available.
Operating performance of the underlying portfolio company
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
Level 2 or 3 (a)
Level 2 or 3
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
170
JPMorgan Chase & Co./2022 Form 10-K
Balance at December 31
89,044
Level 1
152
(131)
88,415
Beneficial interests issued by
consolidated VIES
Trading multiples of comparable public companies
Equity-IR correlation
Commodity derivatives specific inputs include:
•
Forward commodity price
• Commodity volatility
•
Commodity correlation
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
Mortgage servicing rights
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 184 of this Note.
Refer to Mortgage servicing rights in Note 15.
Level 3
Fair value is estimated using all available information; the range of
potential inputs include:
Level 2 or 3
•
Transaction prices
.
Private equity direct
investments
(72)
(56)
88,394
272,268
236,990
Accumulated other comprehensive income/(loss)
Other comprehensive income/(loss), after-tax
Balance at December 31
Shares held in restricted stock units (“RSU”) Trust, at cost
(84)
296,456
7,986
(17,257)
(8,070)
6,417
(17,341)
(84)
lending-related commitments
7,986
1,569
(11,119)
(11,456)
(11,893)
Retained earnings
Balance at January 1
Cumulative effect of change in accounting principles
Net income
272,268
236,990
223,211
(2,650)
37,676
48,334
29,131
Dividends declared:
Preferred stock
(1,595)
(1,600)
(1,583)
Common stock ($4.00, $3.80 and $3.60 per share for 2022, 2021 and 2020, respectively)
Balance at December 31
•
Equity-FX correlation
Balance at January 1
• Equity correlation
In the absence of quoted market prices, securities are valued based
Level 2 or 3
on:
• Observable market prices for similar securities
• Relevant broker quotes
Discounted cash flows
In addition, the following inputs to discounted cash flows are used for
the following products:
Level 1
Mortgage- and asset-backed securities specific inputs:
• Deal-specific payment and loss allocations
• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
Collateralized loan obligations ("CLOS") specific inputs:
Collateral characteristics
⚫ Deal-specific payment and loss allocations
Expected prepayment speed, conditional default rates, loss
severity
• Collateral characteristics
Quoted market prices
Investment and trading
securities
sold
Valuation methodology
•
-
Valuations are based on discounted cash flows, which consider:
Derivative features: refer to the discussion of derivatives below
for further information
• Market rates for the respective maturity
Collateral characteristics
Where observable market data is available, valuations are based on:
Observed market prices (circumstances are infrequent)
Relevant broker quotes
Where observable market data is unavailable or limited, valuations are
based on discounted cash flows, which consider the following:
Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
Prepayment speed
• Collateral characteristics
Classifications in the fair value
hierarchy
Predominantly level 2
Level 2 or 3
Fair value is based on observable market prices for mortgage-backed Predominantly level 2
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
Loans carried at fair value
conforming residential
mortgage loans expected to be value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
• Credit spreads
• Credit rating data
• Observed market prices for similar instruments
Valued using observable market prices or data.
•
Bermudan switch value
•
Interest rate correlation
•
Interest rate-FX correlation
.
Interest rate spread volatility
Foreign exchange correlation
•
Equity derivatives specific inputs include:
•
Equity volatility
Physical commodities
Forward equity price
•
Credit derivatives specific inputs include:
•
Credit correlation between the underlying debt instruments
•
JPMorgan Chase & Co./2022 Form 10-K
Interest rate volatility
Notes to consolidated financial statements
Product/instrument
Valuation methodology
Actively traded derivatives, e.g., exchange-traded derivatives, that are
valued using quoted prices.
Level 1 or 2
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
Derivatives
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
Interest rate curve
•
Level 2 or 3
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, foreign exchange rates, volatilities, correlations, CDS
spreads, recovery rates and prepayment speed.
Level 1
169
Classifications in the fair value
hierarchy
Interest rate and FX exotic derivatives specific inputs include:
14%
19%
17%
23%
18%
13%
13%
13%
11%
ROTCE (%)
$13.2
$28.5
12%
$9.2
$34.0
$22.6
$30.7
Excellent returns
$34.6
$27.4
$46.5
$16.3
$35.9
stockholders ($B)³
$9.6
$10.8
$14.4
$22.0
$27.9
Capital returned to common
Huge capital generation (even in a recession)
Page 15
Investment
Page 26
$22.6
Keeping an eye on all of our competitors
Page 24
Adjusting our strategy to the new regulatory reality (Basel III Endgame)
Page 21
Banking turmoil and regulatory goals
Page 20
Al, data and our journey to the cloud
Page 20
Climate complexity and planning
Page 20
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Page 18
Dividends
The state of Ohio: How JPMorgan Chase drives community growth
Page 14
Page 14
- Highlighting our diversity, equity and inclusion efforts
Our purpose
United by principles and purpose
WHY WE ARE PROUD OF JPMORGAN CHASE
Within this letter, I discuss the following:
12
For footnoted information, refer to page 43 in this Annual Report.
ROTCE Return on tangible common equity
CET1 = Common equity Tier 1
CAGR = Compound annual growth rate
Retain if necessary
■Stock buyback or
Page 16
$22.4
2020
$16.6
2021
2019
2018
2017
2016
80%
90%
($ in billions)
Liquid Assets²
■Tangible common equity (average) ($B)
2015
2014
2013
$149
$161
$170
$191
MANAGEMENT LESSONS
12.2%
12.1%
12.4%
12.0%
11.6%
2022
10.7%
$203
$204
$180
$185
$183
$187
10.2%
$20.1
CET1 (%)¹
129%
Net income applicable to
common stockholders ($B)
6.6% CAGR
since 2013
Average loans/Liquid assets (%)
Liquid assets ($B)²
2022
2021
2020
2019
2018
2017
2016
2015
2014
2013
$1,427
$1,437
$1,652
119%
115%
110%
106%
$921
$804
3.5% CAGR
since 2013
$860
$786
$764
$755
77%
70%
63%
$745
Page 27
ond chance. Lest anyone think that I've become a
little soft, rest assured your CEO is a red-blooded,
patriotic, free-enterprise and free-market capital-
ist (properly regulated, of course) and finds noth-
ing inconsistent with the multifaceted ways we use
our capabilities to lift up our communities.
Page 27
we continue our efforts to provide homeowner-
ship opportunities for Black, Hispanic and Latino
households across all income levels, including
advocating for policies that reduce barriers to
owning a home. The biggest barriers are upfront
cash for a down payment and closing costs.
Homeownership. In a rising rate environment,
and rehabilitation of affordable rental housing.
Affordable Housing Preservation program, we
approved funding of approximately $18 billion in
loans to incentivize the preservation of nearly
170,000 affordable housing rental units across
the United States. Additionally, we financed
approximately $4 billion for the construction
Affordable rental housing. Through our
Supplier diversity. In 2022, our firm spent
approximately $2.1 billion directly with diverse
suppliers - an increase of 25% over 2021. As a
part of our racial equity commitment, $400
million was spent in 2022 with over 200 Black-,
Hispanic-and Latino-owned businesses - more
than doubling the amount spent in 2021.
•
•
Here are some details on our program's progress
through 2022:
•
WHY WE ARE PROUD OF JPMORGAN CHASE
16
16
By the end of 2022, we reported nearly $29 billion
in progress toward our original goal. But our
focus is not on how much money is deployed -
it is on long-term impact and outcomes.
In 2022, we expanded our $5,000 Chase Home-
buyer Grant program to include over 11,000
majority Black, Hispanic and Latino communi-
ties. Since our grant program began in 2021,
we have provided about 2,700 grants totaling
$13.5 million. We have also assisted Black,
Hispanic and Latino homeowners with 11,500
incremental home loans together worth over
$4 billion, mainly driven by refinance activity
when rates were low.
What began in 2020 as a $30 billion, five-year
commitment is now transforming into a consistent
business practice that our lines of business deliver
each day to support Black, Hispanic, Latino and
other underserved communities.
• The firm's Office of Disability Inclusion (ODI) con-
tinues to lead strategy and initiatives aimed at
advancing careers while helping the firm be a
bank of choice for people with disabilities. As
ODI kicked off its business growth and entrepre-
neurship work in 2022, it provided business
coaching to over 225 entrepreneurs with
disabilities and commissioned research with
the National Disability Institute, which identified
unique opportunities and challenges among
small business owners who have a disability.
grew to 21%, 18% and 14%, respectively. In 2022,
the number of employees who self-identified
as LGBTQ+ increased by 35% year-over-year,
following 50% year-over-year growth in 2021.
We continue to make strides in developing a
diversified workplace. By year-end, women rep-
resented 49% of the firm's total workforce. Over-
all, Hispanic, Asian and Black representation
• We continue to identify ways to support our
military veterans. In 2011, along with 10 other
companies, JPMorgan Chase co-founded the
Veteran Jobs Mission (VJM), a coalition commit-
ted to hiring at least 100,000 veterans by 2020.
Since its founding, more than 300 member com-
panies representing various industries across
the United States have reported over 880,000
veteran hires. In 2022, VJM increased its goal
to 2 million veteran hires and 200,000 military
spouse hires over the next decade. JPMorgan
Chase alone has hired over 18,000 veterans
since 2011 and currently employs approximately
3,000 military spouses.
We seek to create a company that reflects the
diverse communities that we serve, a workplace
in which all employees feel they belong and are
respected. We believe these efforts not only make
us a positive work environment, but they also
make our company stronger, our business more
profitable and our institution a better global cor-
porate citizen. This objective is integrated into how
we do business every day. Some of our recent
progress is highlighted below:
HIGHLIGHTING OUR DIVERSITY, EQUITY AND INCLUSION EFFORTS
Part of our corporate responsibility efforts are
focused on progress toward diversity, equity and
inclusion (DEI), which is detailed in the sidebar
below. And the sidebar on pages 18 and 19 shows
how our work on the ground translates to a partic-
ular geography, in this case the state of Ohio.
13.2%
We are also dedicated to corporate responsibility,
and our efforts extend far beyond significant phil-
anthropic contributions (which total more than
$350 million a year globally). For example, at the
local level, we support educational institutions and
work-skills training programs around the world, as
well as finance affordable housing and small busi-
nesses. In addition, we help formulate broad-
based policies that are good for countries on
issues such as healthcare, infrastructure, educa-
tion and employment. Sometimes we promote spe-
cific initiatives; for example, programs that help
individuals with a criminal background get a sec-
15
15
WHY WE ARE PROUD OF JPMORGAN CHASE
- an unmatched combination
of humanity and excellence
at scale.
We are a great place to work
An update on our $30 billion racial equity
commitment
• Small business. In 2022, we launched a Special
Purpose Credit Program, the first of its kind
nationally, to expand credit access for small busi-
nesses in majority Black, Hispanic and Latino
communities, which have traditionally been
underserved. When I visited Houston last year,
I met Sherice and Steve Garner, Chase customers
who own a local barbecue business, Southern Q.
They are examples of the types of customers we
want to support. Previously, they had been using
their personal bank account to run their busi-
ness. We helped them secure a small business
loan to purchase their business location. To
assist more families like the Garners, we hired
•
45 local senior business consultants to provide
one-on-one coaching and host educational
events, community workshops and business
training seminars to support minority entrepre-
neurs across 21 U.S. cities.
WHY WE ARE PROUD OF JPMORGAN CHASE
18
In 2022, we oversaw more than $20 billion in
investment and annuity assets for clients.
Ranked as the second largest provider of
consumer banking in Ohio with over 2 million
checking and savings accounts and customer
deposits totaling nearly $37 billion in 2022
• To help Ohioans build wealth and be financially
healthy, we have provided more than 4 million
savings, checking and credit card accounts,
enabling these consumers to gain access to
resources such as free financial health services,
as well as mortgage and auto loans.
Our support to consumer banking needs:
We operate nearly 225 branches and over
530 ATMs across the state.
⚫ In 2022 alone, JPMorgan Chase helped over
160,000 small businesses thrive and grow through
access to customers, capital and networks, giving
us the second largest business banking market
share in the state. We also offered some 106,000
hours of advice and support to small businesses.
- Includes support for distribution of the
federal government's Paycheck Protection
Program (PPP) to help small businesses
navigate the pandemic in 2020 and 2021
-
By the end of 2022, loan balances for small
business customers in Ohio totaled over $800
million funds being used to run and grow
companies and create jobs.
Our support to small businesses:
Importantly, we bank 19 of Ohio's regional,
midsized and community banks, helping them
serve local communities and accomplish their
other goals.
We have provided nearly $20 billion in credit
and capital over the last five years for financial
institutions such as local banks, insurance
companies, asset managers and securities firms.
Our support to local financial firms:
We have over 4,800 large and midsized clients in
Ohio, up over 70% compared with 2019, which
also includes emerging middle market companies
owned by veterans, women, LGBTQ+ individuals
and people of color. This gives us leading market
shares in the state compared with other banks.
Our support includes $120 billion in credit and
capital over the last five years for Commercial &
Industrial clients such as energy, retail and auto
businesses.
•
Minority depository institutions (MDI) and
community development financial institutions
(CDFI). We invested more than $100 million in
equity in diverse financial institutions and pro-
vided over $200 million in incremental financing
to CDFIs to support communities that lack access
to traditional financing. We also helped them
build their capacity so they can provide a
greater number of critical services like mort-
gages and small business loans. Additionally,
we do not charge a fee for nearly all our partici-
pating MDI and CDFI customers who make a
withdrawal at a Chase ATM.
Access to banking. We helped more than
400,000 customers open low-cost checking
accounts; we've also opened 13 Community Center
branches (a total of 15 Community Center
branches since 2019), often in areas with larger
Black, Hispanic and Latino populations; and we
hired over 140 Community Managers in under-
served communities to build relationships with
community leaders, nonprofits and small busi-
nesses. These Community Center branches are
unique spaces in the heart of urban communi-
ties with more space than standard bank
branches to host local events, small business
mentoring sessions and financial health semi-
nars. The majority were built with minority
contractors from the community; we hire staff
locally and we engage local artists to help
ensure these locations complement their neigh-
borhood. We have been pleased by the dramatic
positive effect these specialized branches have
had on their communities to date and expect to
expand the program.
By driving inclusive economic growth, we can help
create a brighter future for all, no matter where
people live or the circumstances they're born into.
We provide regular updates on our corporate web-
site about our progress toward equity and equal-
ity, and I encourage you to read about the mean-
ingful impact we're making within our firm and
with the people we serve.
WHY WE ARE PROUD OF JPMORGAN CHASE
17
THE STATE OF OHIO: HOW JPMORGAN CHASE DRIVES
COMMUNITY GROWTH
We champion opportunity
and enterprise that unlock
equity, inclusion and
sustainable growth.
When JPMorgan Chase does business in a commu-
nity, we do more than just open branches. We lend
to small, midsized and big businesses; we hire, pay
well and provide great benefits; and we finance
hospitals, schools, grocery stores, homes, automo-
biles and governments. For more than 200 years,
this approach has enabled us to make investments
that have a lasting impact on local economies,
families and neighborhoods while also supporting
them in good and challenging times.
Our support to government, higher education,
healthcare and nonprofit organizations:
•
We serve approximately 150 government, higher
education, healthcare and nonprofit clients
throughout the state, and over the last five
years, we provided nearly $9 billion in credit and
capital to them.
• Our clients range from University Hospitals
Health System, Inc. to the Ronald McDonald
House in Columbus and the University of Dayton
in Dayton.
• We are the primary treasury bank for Ohio State
University and the primary bank for the city of
Columbus; we also bank nearly 50 counties,
cities and school districts across the state.
Our support to investment and middle market
banking clients:
We have been in Ohio since 1812, and our experi-
ence there serves as a great example of how our
resources drive growth on the ground.
We uplift communities
around the world, making
tangible impact at scale.
We power economic growth,
serving our customers,
clients and communities for
over 200 years.
Our value proposition to employees, customers, communities, and shareholders
13
Page 40
Creating a comprehensive global economic strategy
Page 39
- The Wall Street Journal Op-Ed: “The West Needs America's Leadership"
Page 38
• Developing effective policy and effective government
COMPETENT GOVERNMENT
Page 38
OUR SERIOUS NEED FOR MORE EFFECTIVE PUBLIC POLICY AND
Page 35
Preparing for what may be a new and uncertain future
Page 33
quantitative tightening and geopolitical tensions
• Potential trouble brewing from unprecedented fiscal spending,
Page 32
The current economy: Pretty good but storm clouds ahead
• Learning from Investor Day
Page 28
• Balancing a customer-centric approach with (excessive) risk
Page 29
SOME COMMONSENSE PRINCIPLES FOR CORPORATE GOVERNANCE
Page 30
Why We Are Proud of
JPMorgan Chase
Promoting open communication and trust with the board
Confronting succession planning
Page 30
• Active engagement with asset managers
Page 31
EVALUATING AND MANAGING THE ECONOMIC AND GEOPOLITICAL
RISKS AHEAD
Page 32
Page 30
• Building true franchise value
Our vision is simple and unchanged: We aim to be
the most respected financial services firm in the
world, serving corporations and individuals. To
that end, it is imperative that we run a healthy,
vibrant and responsible company. In addition to
traditional banking, we do a lot to help the com-
munities in which we operate, which, in turn, pro-
vides the foundation for increased opportunity and
prosperity for all. And just to note, while we are
proud of the good things we do every day, we are
also an organization that acknowledges the mis-
takes we make along the way, which is important
to do. And when we do make mistakes, we own up
to them, learn from them and then move on.
-
A Great Team and
Winning Culture
A Commitment to
Integrity, Fairness
and Responsibility
Operational
Excellence
Our Promises
Exceptional
Client Service
The Business Principles that guide how we work
Our Principles
Our quality and rigor
at scale are unmatched.
We attract world-class
talent and create an
environment where
they can thrive. We
set high expectations,
commit to strong
performance and hold
ourselves accountable
to the highest standards
of integrity.
Excellence
We lead with expertise,
foresight and fortitude
to deliver exceptional
results. We face facts
and make disciplined
decisions grounded in
data, with a long-term
view. We strive to stand
up for what we believe
in and do the right thing.
Courage
We're distinguished
by our capacity to
imagine and build.
Our innovations are
powered by a deep
understanding of
our customers and
clients. We bring
our capabilities and
experience to bear on
the toughest challenges
in the world.
Curiosity
We take pride in what
we do and care deeply
about our customers,
communities and each
other. We have a culture
of teamwork, trust,
humanity and humility.
We create space for
people to bring their
full selves to work.
Heart
We put our customers
first, building with
their needs in mind,
providing world-
class service and
growing to reach
people, businesses
and communities
everywhere.
Service
In detailing the elements of our purpose, shown in
the following sidebar, we have tried to make every
word meaningful.
UNITED BY PRINCIPLES AND PURPOSE
We've always had and published principles to
guide how we do business, with values embedded
within them, which I described in the preceding
section. These tenets unite our company across
the globe. To complement these guidelines, we
recently developed a clearly stated purpose -
Make dreams possible for everyone, everywhere,
every day to knit together our values with our
everyday business principles and explain how we
have done business for years.
While our company has a rich history, is proud of
the critical role it plays in powering economic
growth and has done exceptionally well over the
past 200 years, research has shown that pur-
pose-driven companies achieve stronger business
14
WHY WE ARE PROUD OF JPMORGAN CHASE
Our Purpose
results and have greater impact by doing better for
their customers, employees and shareholders. Our
intention in documenting our purpose for ourselves
is to help energize our employees, differentiate our
company from our competitors, and push our orga-
nization to innovate on behalf of our clients, col-
leagues and communities. In addition, we are
launching a new effort - internally and externally
– to showcase how the work we do matters and has
tangible impact locally and around the world.
The impact that JPMC aspires to have
for everyone, everywhere, every day
Our Vision
The ambition we hold ourselves to
We aim to be the most respected financial services firm
in the world, serving corporations and individuals.
Our Values
The mindsets that unite us all
Make Dreams Possible
13.1%
2019
($ in billions)
$3,633
$3,617
$3,740
($ in billions)
$718 $1,186
$4,227 $4,211
Deposits and client assets¹
$1,209
$4,820
$1,314
$959
$1,132
$5,926
$1,148
$3,255
$6,580
at December 31, 2022
Assets Entrusted to us by Our Clients
9
1 Government, government-related and nonprofits available starting in 2019; included in Corporate clients and Small Business, Middle Market
and Commercial clients for prior years.
Government, government-related and nonprofits¹
Consumers
Corporate clients Small Business, Middle Market and Commercial clients
2022
2021
2020
2019
2018
2017
2016
$6,950
$503
$464
$3,802
$618
2010
2009
2008
$1,415 $1,743 51.881 51.383 ▬▬▬▬▬▬▬▬▬▬
$2,061
$2,329 $2,376 $2,353
$2,427
$2,783 $2,740
$648
$573
$3,258
$730
$558
$361
$755
$365
$3,781
$660
$679
$844
$558
$3,011
$4,488 $4,240
2015
$2,811
$439
$2,681
$398
$824 $861
$372
$757
$722
$784 $792
2011
2014
2012
$399
$1,820
$233
$274
$1,866
$480
$197
$250
$333
$244
$2,044
$258
$2,102
$641
$262 $226
$265
$216
$2,263
$2,345
$227
$2,307
$2,357
$2,410
$2,496
$331
$288
$3,186
($ in billions)
2008-2022
New and Renewed Credit and Capital for Our Clients
$2,144
$430
$326
$252
2011
2008 2009 2010
$1,329
$1,294 $1,346
$1,115 $1,158
$1,088
$1,264
$1,443
$1,392
$1,519
$1,619
$1,621
$1,693
$1,789
$167 $136
$167
$1,926
$1,567
$1,577
$275
$309
$615
$368
2013
$1,494
$463
$440
$252
$312
$243
$281
$222
13.1%
2012
2014
57%
Best-in-class
G-SIB ROTCE5,6
Best-in-class all
banks ROTCE4,6
JPM 2022
ROTCE
Best-in-class peer
overhead ratio³
JPM 2022
overhead ratio
Returns
Efficiency
Consumer &
WFC
MS
с
JPMorgan Chase
GS
Community
BAC
9%
WFC
76%
9%
73%
11%
GS
68%
15%
MS
66%
15%
BAC
65%
JPM
52%
BAC-CB
29%
31%
BAC-CB
Tangible Common Equity (Average)
Selected data for the year ended December 31, 2022
Our Fortress Balance Sheet
11
For footnoted information, refer to page 43 in this Annual Report.
ROTCE = Return on tangible common equity
G-SIB = Global systemically important banks
33%
MS-WM & IM
UBS-GWM & AM
41%
25%
61%
NTRS-WM & ALLIANZ-AM
67%
Asset & Wealth
Management
20%
WFC-CB
20%
WFC-CB
16%
31%
BAC-CB
Banking
Corporate &
57%
55%
14%
18%
Investment
17%
GS-IB & GM
17%
GS-IB & GM
Bank
Commercial
Banking
41%
37%
TFC
GS-IB & GM
2013
JPM
ROTCE
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2008 2009 2010
$13.2
$16.9
$16.1
$14.9
$20.5 $20.5 $19.9 $20.5
$18.8
$23.5 $23.2
($ in trillions)
2015
2016
2017
2018
2019
2020 2021
2021
2022
Consumer deposits
$33.2
$31.0
Assets under custody²
$28.6
$26.8
Client assets Wholesale deposits
58%
2022
10
Returns
Overhead ratio²
Efficiency
JPMorgan Chase Exhibits Strength in Both Efficiency and Returns When Compared
with Large Peers and Best-in-Class Peers¹
T = Trillions
M = Millions
1 Based on firmwide data using regulatory reporting guidelines as prescribed by the Federal Reserve Board.
I Daily merchant acquiring transactions (M)
2018
■Daily payment processing¹ ($T)
2017
2016
2022
2021
1 Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
2 Represents activities associated with the safekeeping and servicing of assets.
2020
$6.7
Daily Payment Processing and Merchant Acquiring Transactions
($ in trillions and transactions in millions)
113.4
102.4
90.4
82.4
$6.1
72.1
55.1
$9.7
$9.8
$8.6
$7.3
$7.0
62.3
$2,424
68,921
2,498
Total trading assets
Credit correlation
30%
60%
43%
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
(b) Comprises U.S. GSE and government agency securities of $752 million, nonagency securities of $5 million and non-trading loans of $892 million.
(c) Comprises U.S. GSE and government agency securities of $7 million, nonagency securities of $7 million, trading loans of $40 million and non-trading loans of
$369 million.
(d) Comprises trading loans of $719 million and non-trading loans of $157 million.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) Includes equity securities of $880 million including $216 million in Other assets, for which quoted prices are not readily available and the fair value is
generally based on internal valuation techniques such as EBITDA multiples and comparable analysis. All other level 3 assets and liabilities are insignificant
both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
(h) Forward equity price is expressed as a percentage of the current equity price.
(i) Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used.
176
1,072 Discounted cash flows
1,029
JPMorgan Chase & Co./2022 Form 10-K
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm's positions.
Yield - The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
Credit spread - The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV
ratios for residential mortgages and the nature of the
property and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states and
municipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of the
obligation.
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender's lien on the property and other instrument-
specific factors.
JPMorgan Chase & Co./2022 Form 10-K
177
Notes to consolidated financial statements
Correlation - Correlation is a measure of the relationship
between the movements of two variables. Correlation is a
pricing input for a derivative product where the payoff is
driven by one or more underlying risks. Correlation inputs are
related to the type of derivative (e.g., interest rate, credit,
equity, foreign exchange and commodity) due to the nature
of the underlying risks. When parameters are positively
correlated, an increase in one parameter will result in an
increase in the other parameter. When parameters are
negatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase in
correlation can result in an increase or a decrease in a fair
value measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result in
a decrease in a fair value measurement.
Changes in and ranges of unobservable inputs
Other level 3 assets and liabilities, net(f)
23%
50%
Long-term debt, short-term borrowings, and
(e)
deposits
7,973
26,583
Discounted cash flows
Option pricing
Refer to Note 15
Interest rate volatility
28bps
674bps
141bps
Bermudan switch value
0%
57%
17%
Interest rate correlation
(82)%
89%
16%
IR-FX correlation
(35)%
60%
7%
Equity correlation
17%
99%
55%
Equity-FX correlation
(86)%
60%
(27)%
Equity-IR correlation
(5)%
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
Volatility Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
Residential
nonagency
28
སྐཊུ
673
(125)
(84)
4
(5)
759
29
(1)
7
(5)
(12)
(12)
Commercial nonagency
10
(1)
3
(5)
√ G
Total mortgage-backed
securities
303
30
680
(131)
(96)
31
MSRS
265
1 $ - $ - $
Bermudan switch value - The switch value is the difference
between the overall value of a Bermudan swaption, which can
be exercised at multiple points in time, and its most
expensive European swaption and reflects the additional
value that the multiple exercise dates provide the holder.
Switch values are dependent on market conditions and can
vary greatly depending on a number of factors, such as the
tenor of the underlying swap as well as the strike price of the
option. An increase in switch value, in isolation, would
generally result in an increase in a fair value measurement.
Interest rate curve - represents the relationship of interest
rates over differing tenors. The interest rate curve is used to
set interest rate and foreign exchange derivative cash flows
and is also a pricing input used in the discounting of any
derivative cash flow.
Forward price - Forward price is the price at which the buyer
agrees to purchase the asset underlying a forward contract
on the predetermined future delivery date, and is such that
the value of the contract is zero at inception.
The forward price is used as an input in the valuation of
certain derivatives and depends on a number of factors
including interest rates, the current price of the underlying
asset, and the expected income to be received and costs to be
incurred by the seller as a result of holding that asset until
the delivery date. An increase in the forward can result in an
increase or a decrease in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2022, 2021 and 2020. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that
are part of the valuation methodology. Also, the Firm risk-
manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
178
JPMorgan Chase & Co./2022 Form 10-K
Year ended
December 31, 2022
(in millions)
Assets: (a)
Federal funds sold and securities
purchased under resale agreements
$
Trading assets:
Debt instruments:
Mortgage-backed securities:
Fair
Total
value at
January
realized/
unrealized
Fair value measurements using significant unobservable inputs
1, 2022 gains/(losses) Purchases (g) Sales
Transfers
into
Settlements(h) level 3
Transfers
(out of)
level 3
-$-$1$ (1) $
(1) $
Fair
value at
Dec. 31,
2022
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31, 2022
agencies
16%
77%
79%
735
Option pricing
Interest rate volatility
28bps
674bps
141bps
Interest rate spread volatility
23bps
35bps
26bps
Bermudan switch value
0%
57%
17%
Interest rate correlation
(82)%
89%
16%
(34) Discounted cash flows
IR-FX correlation
Prepayment speed
(35)%
60%
7%
0%
21%
7%
Net credit derivatives
(9) Discounted cash flows
Credit correlation
Net interest rate derivatives
30%
$84
$6
Loss severity
0%
110%
3%
Commercial mortgage-backed securities and
loans (c)
423
Market comparables
Price
$0
$99
$83
Corporate debt securities
702
Market comparables
Price
$0
$243
$95
Loans (d)
876
Market comparables
Price
$0
$356
$77
Non-U.S. government debt securities
155
Market comparables
Price
$100
7
60%
Credit spread
Equity volatility
5%
141%
37%
Equity correlation
17%
99%
55%
Equity-FX correlation
Equity-IR correlation
(86)%
60%
(27)%
(5)%
50%
23%
Net commodity derivatives
(146) Option pricing
Oil commodity forward
$72/BBL
$251 / BBL
$162/BBL
Natural gas commodity forward
$1/ MMBTU
$24/MMBTI $13 / MMBTU
Commodity volatility
Commodity correlation
4%
(45)%
154%
100%
43%
144%
(h)
1bps
12,107bps 1,057bps
Recovery rate
10%
67%
45%
22
Net foreign exchange derivatives
577
Market comparables
Option pricing
Price
$15
$115
$82
IR-FX correlation
(40)%
60%
21%
(88) Discounted cash flows
Prepayment speed
9%
9%
Interest rate curve
2%
29%
8%
Net equity derivatives
(384) Option pricing
Forward equity price"
84%
0%
(22)
29
Loans
Mortgage servicing rights
1,933
5,494 2,039
(158) (c)
568
(261)
(886)
1,053
(831)
1,418
(76) (c)
(e)
(e)
5
2,198
(936)
7,973
2,039
Other assets
306
194
(c)
50
(38)
(103)
(c)
2
(6)
(822)
239
(15)
88
110
(331)
350
5
56
(146)
(c)
1,893
(3,467)
587
89
(261)
673
369
4,765
(c)
Available-for-sale securities:
Mortgage-backed securities
Corporate debt securities
161
5
88
(15)
239
5
(d)
(d)
Total available-for-sale securities
161
5
405
191
Year ended
December 31, 2022
(in millions)
(c)(f)
(c)(f)
1,401
90
(8)
(c)
84
101
42
12,714
(6)
53
(16) (c)
(8,876)
793
(1,044)
(c)(f)
24,092
(3,447)
JPMorgan Chase & Co./2022 Form 10-K
179
Notes to consolidated financial statements
Year ended
December 31, 2021
(in millions)
Assets: (a)
Federal funds sold and securities
Fair value measurements using significant unobservable inputs
Total
$ (76)
(907) 571
(4,894) 6,726
(280) $ 2,162
(15)
$
Liabilities: (a)
Deposits
Short-term borrowings
Trading liabilities - debt and equity
instruments
Accounts payable and other liabilities
Long-term debt
Fair value measurements using significant unobservable inputs
Fair value Total realized/
at January unrealized
1, 2022
(gains)/losses Purchases Sales Issuances Settlements
(h)
Transfers
into
level 3
Transfers
(out of)
level 3
Fair
value at
Dec. 31,
2022
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2022
$ 2,317 $ (292)
2,481
(358) (c)(f)
(c)(f)
$
$
$ 531 $
30
69
(16) (c)
24,374 (3,869)
(c)(f)
(31) (c)
(43) 72517
3,963
(114) $
(4,685)
-
15
Total net derivative receivables
Commodity
(384) 3,435
(230)
925
(640)
759
(26)
Asset-backed securities
26
5
19
(24)
(1)
5
(7)
23
1
Total debt instruments
1,457
(138)
2,249
(1,276)
(431)
1,378
(1,061)
2,178
(197)
Equity securities
662 (1,036)
473
(377)
(605)
(2)
652
708
Obligations of U.S. states and
municipalities
7
I
I
7
T
Non-U.S. government debt
securities
81
(92)
494
(338)
(4)
84
(70)
155
(153)
Corporate debt securities
332
(30)
404
(178)
(100)
357
(322)
463
(48)
Loans
(51)
771
1,066
665
732
(373)
701
332
Credit
74
226
17
(9)
(271)
5
(29)
13
170
Foreign exchange
Equity
(419) 726
(3,626) 5,016
215
(114)
83
3
(5)
489
459
1,226
(2,530)
96
(656)
90
329
(121)
(483)
(16) 187
(840)
Physical commodities
(1)
3
-
2
(1)
Other
160
93
37
(221)
1
(6)
64
46
Total trading assets - debt and
equity instruments
2,279 (1,082)
(c)
(c)
2,762
(1,653)
(654)
2,445
(1,188)
2,909
(992)
Net derivative receivables: (b)
Interest rate
325
5%
0%
Conditional default rate
1,401
15,792
Debt and equity instruments(c)
98,719
28,032
84
126,835
Derivative payables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
1,105,603
28,620
151,999
Total derivative payables
2,643
284,280
3,368
9,377
160
250,647
594
714
(274,321)
(9,217)
(232,665)
15,970
754
18,856
57,649
4,812
Total trading liabilities
(568,713) $
$
$
2,162
Other
Loans (e)
3,085
3,085
Total available-for-sale securities
102,654
102,964
239
205,857
40,661
1,418
42,079
Mortgage servicing rights
7,973
7,973
Other assets (d)
Total assets measured at fair value on a recurring basis
Deposits
$
$
7,544
285,239 $
$
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
6,065
1,365,451
26,458
151,999
14,391
405
14,014
$
$
23,626
$
(53,657)
8,804
22,748
521
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential nonagency
Commercial - nonagency
Level 1
Level 2
Level 3
$
$
252,720
81,463
$
$
Derivative
netting
adjustments(f)
$
Total fair value
252,720
81,463
38,944
265
39,209
2,358
28
2,386
1,506
10
1,516
Total mortgage-backed securities
Securities borrowed
5,792
Federal funds sold and securities purchased under resale agreements
Fair value hierarchy
(16,512)
6,757
Accounts payable and other liabilities
2,803
101,522
5,702
624,701
10,009
652,733
1,283
10,093
53
(586,372)
(586,372)
51,141
177,976
7,038
Beneficial interests issued by consolidated VIES
5
5
Long-term debt
Total liabilities measured at fair value on a recurring basis
$
107,224 $
48,189
895,058
$
24,092
37,801
72,281
$
(586,372) $
453,711
172
JPMorgan Chase & Co./2022 Form 10-K
December 31, 2021 (in millions)
5,792
Collateralized loan obligations
Asset-backed securities:
2,536
23
2,559
Total debt instruments
Equity securities
Physical commodities
Other
Total debt and equity instruments(c)
Derivative receivables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative receivables
79,404
82,483
171,606
2,178
253,188
2,060
665
85,208
(b)
9,595
16,673
2
26,270
18,146
64
Asset-backed securities
18,210
6,503
5,744
2,503
1,448
7
1,455
Total mortgage-backed securities
72,108
771
72,879
U.S. Treasury, GSES and government agencies (a)
61,191
8,546
69,737
Obligations of U.S. states and municipalities
6,608
7
6,615
Certificates of deposit, bankers' acceptances and commercial paper
2,009
2,009
Non-U.S. government debt securities
18,213
48,429
155
66,797
Corporate debt securities
25,626
463
26,089
Loans
759
42,808
171,482
2,909
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential nonagency
Commercial nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies
3
71,500
4,620
1,958
3
78,078
92,060
71,503
4,620
1,958
78,081
92,060
Obligations of U.S. states and municipalities
6,786
6,786
Non-U.S. government debt securities
10,591
9,105
19,696
118
239
357
Corporate debt securities
Available-for-sale securities:
208,485
453,756
(568,713)
(568,713)
382,876
3,390
292,956
4,069
(271,996)
28,419
9,722
607
(9,239)
1,090
169
240,207
1,203
(218,214)
23,365
57,485
4,428
(52,774)
9,139
24,982
375
(16,490)
8,867
3,559
625,352
10,682
175,041
833,837
13,591
70,880
303
43,111
U.S. Treasury, GSES and government agencies (a)
Foreign exchange
Equity
Commodity
Total derivative payables
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIES
Long-term debt
Total liabilities measured at fair value on a recurring basis
$
87,831
26,716
30
114,577
981
237,714
2,036
10,468
444
(232,537)
(10,032)
8,194
880
123
174,349
1,274
(161,649)
14,097
72,609
7,118
Credit
(62,494)
Interest rate
Debt and equity instruments(c)
5,448
308,525
58,820
Mortgage servicing rights
5,494
5,494
Other assets(d)
Total assets measured at fair value on a recurring basis
$
Deposits
$
9,558
381,431 $
$
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
4,139
1,243,845
9,016
126,435
17,534
306
14,003
$
$
17,479
2,317
$
$
(488,206)
$
1,154,549
$
11,333
126,435
2,481
20,015
Trading liabilities:
Derivative payables:
9,662
17,233
1,328
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess relevant empirical data in
deriving valuation inputs including transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, prices (such as commodity, equity or
debt prices), valuations of comparable instruments, foreign
exchange rates and credit curves.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and the weighted or arithmetic averages of such
inputs. While the determination to classify an instrument
within level 3 is based on the significance of the unobservable
inputs to the overall fair value measurement, level 3 financial
instruments typically include observable components (that is,
components that are actively quoted and can be validated to
external sources) in addition to the unobservable
components. The level 1 and/or level 2 inputs are not
included in the table. In addition, the Firm manages the risk
of the observable components of level 3 financial instruments
using securities and derivative positions that are classified
within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
In the Firm's view, the input range, weighted and arithmetic
average values do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm's
estimates and assumptions. Rather, they reflect the
characteristics of the various instruments held by the Firm
and the relative distribution of instruments within the range
of characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
JPMorgan Chase & Co./2022 Form 10-K
175
Notes to consolidated financial statements
Level 3 inputs(a)
December 31, 2022
Product/Instrument
Fair value
(in millions)
Principal valuation
technique
Unobservable inputs (8)
Range of input values
Average (i)
(b)
Residential mortgage-backed securities and
loans
$
1,649
Discounted cash flows
Yield
4%
15%
7%
Prepayment speed
3%
11%
8%
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). Refer to pages 167-171 of this Note for further
information on the Firm's valuation process and a detailed
discussion of the determination of fair value for individual
financial instruments.
26,600
Level 3 valuations
174
(18,216)
9,712
1,104
88,935
5,115
521,740
12,200
548,456
467
12
12,230
69
(484,928)
(484,928)
50,116
164,693
5,651
12
50,560
94,050 $
752,480
$
24,374
41,471
74,934
$
(484,928)
$
403,073
(a) At December 31, 2022 and 2021, included total U.S. GSE obligations of $73.8 billion and $73.9 billion, respectively, which were mortgage-related.
(b) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. "Net realizable value" is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell ("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm's physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further
discussion of the Firm's hedge accounting relationships. To provide consistent fair value disclosure information, all physical commodities inventories have
been included in each period presented.
(c) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
JPMorgan Chase & Co./2022 Form 10-K
173
Notes to consolidated financial statements
(d) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2022 and 2021, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $950 million and $801 million, respectively. Included in these balances at December 31, 2022 and 2021,
were trading assets of $43 million and $51 million, respectively, and other assets of $907 million and $750 million, respectively.
(e) At December 31, 2022 and 2021, included $9.7 billion and $26.2 billion, respectively, of residential first-lien mortgages, and $6.8 billion and $8.2
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell
to U.S. GSES and government agencies of $2.4 billion and $13.6 billion, respectively.
(f) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid
when a legally enforceable master netting agreement exists. The level 3 balances would be reduced if netting were applied, including the netting benefit
associated with cash collateral.
JPMorgan Chase & Co./2022 Form 10-K
Fair
value at
January
1,933
125,467
56,887
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative receivables
95,509
139,015
1,457
235,981
86,904
1,741
662
89,307
5,357
20,788
26,145
24,850
160
25,010
187,770
186,394
2,279
376,443
1,072
267,493
2,020
(248,611)
21,974
9,321
Derivative receivables:
518
Total debt and equity instruments(c)
Physical commodities (b)
68,527
9,181
77,708
Obligations of U.S. states and municipalities
7,068
7
7,075
Certificates of deposit, bankers' acceptances and commercial paper
852
852
Non-U.S. government debt securities
26,982
44,581
81
71,644
Corporate debt securities
24,491
332
24,823
Loans
7,366
708
8,074
Asset-backed securities
2,668
26
2,694
Total debt instruments
Equity securities
Other
161
(8,808)
134
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
4
72,539
6,070
4,949
4
83,558
177,463
72,543
15,860
5,430
10,779
160
161
סיייייי
6,070
4,949
83,562
177,463
15,860
16,209
321
9,662
Other
Loans (e)
5,448
Total available-for-sale securities
182,897
Non-U.S. government debt securities
1,031
Obligations of U.S. states and municipalities
Total mortgage-backed securities
168,590
855
(156,954)
12,625
65,139
3,492
(58,650)
9,981
26,232
421
(15,183)
11,470
1,206
536,775
7,306
(488,206)
57,081
188,976
723,169
9,585
(488,206)
433,524
Total trading assets()
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential
nonagency
Commercial nonagency
U.S. Treasury and government agencies
realized/
U.S. GSES and government
1, 2021
(788)
(114)
3,022
98
3,276
(c)
(59)
1,933
(794)
1,301
(965)
(439)
612
(c)
(87)
2,305
(1)
(e)
161
5,494
538
Total
realized/
unrealized
at January
December 31, 2021
Fair value
Deposits
Liabilities:(a)
(in millions)
Year ended
Fair value measurements using significant unobservable inputs
11
306
(c)
(1)
(239)
(17)
9
16
(c)
1, 2021 (gains)/losses Purchases Sales Issuances Settlements
162
(1)
Total net derivative receivables
(c)
(426)
(907)
(12)
(4)
916
(493)
(155)
(3,626)
171
315
1,758
(2,813)
1,285
145
(731) (728)
Commodity
(4,993) 502
(d)
1,662
(c)
(d)
(1)
161
162
(1)
Other assets
Mortgage servicing rights
Loans
Total available-for-sale securities
Corporate debt securities
Mortgage-backed securities
Available-for-sale securities:
(145)
(4,894)
79
445
1,031
(3,620)
13
(h)
Transfers
(out of)
level 3
Level 2
311,883
70,041
Level 3
Derivative
netting
adjustments()
$ $ $ 31
Total fair value
311,883
70,041
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential nonagency
Commercial - nonagency
68,162
759
JPMorgan Chase & Co./2022 Form 10-K
180
(c)(f)
87
Securities borrowed
(809) 24,374
$
Federal funds sold and securities purchased under resale agreements
5
Fair
Product/instrument
Structured notes (included in
deposits, short-term
borrowings and long-term
debt)
Valuation methodology
Valuations are based on discounted cash flow analyses that consider the
embedded derivative and the terms and payment structure of the note.
The embedded derivative features are considered using models such as
the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservable
valuation inputs, depending on the embedded derivative. The specific
inputs used vary according to the nature of the embedded derivative
features, as described in the discussion above regarding derivatives
valuation. Adjustments are then made to this base valuation to reflect
the Firm's own credit risk (DVA). Refer to page 184 of this Note.
Classification in the fair value
hierarchy
Level 2 or 3
JPMorgan Chase & Co./2022 Form 10-K
171
Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2022 and 2021, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
December 31, 2022 (in millions)
Level 1
$
Transfers
into
level 3
103
13,505
(83) (c)(f)
(c)(f)
$ (77)
(482) $2,317
(72) 2,481
Trading liabilities - debt and equity
instruments
2 $
9
(467) $
(5,308)
6,823
2,420 (1,391) (c)(f)
Short-term borrowings
$ 431 $
$
$
$ 2,913 $ (80) (c) (f)
related to
financial
instruments held
at Dec. 31, 2021
Change in
unrealized
(gains)/losses
Fair
value at
Dec. 31,
2021
51
(12,191)
(8)
(101)
369 (c)(f)
23,397
8
(c)
69
(8)
-1---
8
68
(c)
Accounts payable and other liabilities
Long-term debt
(c)
(157)
30
(14)
64
38
(c)
(419)
98
(12)
(3)
(31)
ཤྩ ཋ། ལྷ
སྐྱེཀྱེལྱ སྐྱེ༔
7
(1)
8
Obligations of U.S. states and
municipalities
(36)
303
(2)
19
(132)
(98)
59
(23)
480
Non-U.S. government debt
securities
securities
Corporate debt securities
81
(107)
(7)
(332)
359
(14)
གྱེཀྱེས ཨྰཿསྐྱེདྱེ + ཐ
Physical commodities
476
Equity securities
2,098
Total debt instruments
28
Asset-backed securities
893
Loans
507
182
Total mortgage-backed
14
(17)
Mortgage-backed securities:
Debt instruments:
Trading assets:
$
at Dec. 31, 2021
Change in
unrealized
gains/(losses)
related to
financial
instruments held
$ -$-$- $ - $ - $ - $ - $ -
purchased under resale agreements
2021
Dec. 31,
value at
Transfers
(out of)
level 3
Transfers
into
level 3
tc(h)
Settlements
Purchases (g) Sales
unrealized
gains/
(losses)
U.S. GSES and government
agencies
449
(28)
14
(7)
12
(1)
4
(5)
(24)
26
265
(10)
(1)
(110)
(67)
21
222
5
3
Commercial nonagency
28
1
(23)
Residential nonagency
(489)
1,789
258
Interest rate
Net derivative receivables: (b)
(388) (c)
(1,428) 2,279
1,000
(531)
(1,855)
2,503
(33)
(c)
2,623
Total trading assets - debt and
equity instruments
31
160
(103)
116
5
(192)
112
222
(110)
404
110
141
74
(6)
34
146
(12)
6
Equity
Foreign exchange
Credit
282
(16)
(88)
(2,011)
(98)
(224) 130
(434) (209)
(3,862) (480)
49
(2)
(99)
76
28
(20)
708
(873)
648
(287)
162
994
2
(16)
332
233
(225)
(4)
2
(7)
(669)
(2)
26
Other
(335)
662
-
164
(168)
378
(77)
(111)
(30)
1,457
(1,214)
831
(433)
(1,687)
1,892
(84)
$1.6 billion of gross equity derivative receivables and
$2.3 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
• $1.1 billion of non-trading loans driven by a decrease in
observability.
• $793 million of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for structured notes.
•
$1.2 billion of gross interest rate derivative receivables
and $807 million of gross interest rate derivative
payables as a result of an increase in observability and a
decrease in the significance of unobservable inputs.
•
•
The following describes significant changes to level 3 assets
since December 31, 2021, for those items measured at fair
value on a recurring basis. Refer to Assets and liabilities
measured at fair value on a nonrecurring basis on page 185
for further information on changes impacting items measured
at fair value on a nonrecurring basis.
•
During the year ended December 31, 2022, significant
transfers from level 3 into level 2 included the following:
$1.2 billion of total debt and equity instruments, largely
due to trading loans, driven by an increase in
observability.
$2.2 billion of gross equity derivative receivables and
$2.3 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$1.6 billion of gross interest rate derivative receivables
and $878 million of gross interest rate derivative
payables as a result of a decrease in observability and an
increase in the significance of unobservable inputs.
Refer to the sections below for additional information.
•
•
•
•
During the year ended December 31, 2022, significant
transfers from level 2 into level 3 included the following:
Transfers between levels for instruments carried at
fair value on a recurring basis
Refer to Note 15 for information on MSRs.
$2.5 billion increase in MSRs.
•
$3.4 billion increase in gross derivative receivables due to
gains and purchases partially offset by settlements.
The increase for the year ended December 31, 2022 was
predominantly driven by:
Level 3 assets were $23.6 billion at December 31, 2022,
reflecting an increase of $6.1 billion from December 31,
2021.
For the year ended December 31, 2022
•
$2.4 billion of total debt and equity instruments,
predominantly due to equity securities of $1.1 billion
driven by a decrease in observability predominantly as a
result of restricted access to certain markets and trading
loans of $925 million driven by a decrease in
observability.
• $831 million of non-trading loans driven by an increase in
observability.
During the year ended December 31, 2020, significant
transfers from level 2 into level 3 included the following:
During the year ended December 31, 2021, significant
transfers from level 2 into level 3 included the following:
•
•
Consolidated balance sheets changes
•
•
During the year ended December 31, 2020, significant
transfers from level 3 into level 2 included the following:
$1.2 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for structured notes.
$2.6 billion of non-trading loans driven by a decrease in
observability.
a result of a decrease in observability and an increase in
the significance of unobservable inputs.
$880 million of gross interest rate derivative payables as
$2.6 billion of gross equity derivative receivables and
$3.5 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
• $1.8 billion of total debt and equity instruments,
predominantly equity securities and trading loans, driven
by a decrease in observability.
•
•
•
$809 million of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
$794 million of non-trading loans driven by an increase in
observability.
$1.9 billion of gross equity derivative receivables and
$2.1 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
observability.
$1.4 billion of total debt and equity instruments, largely
due to trading loans, driven by an increase in
•
•
During the year ended December 31, 2021, significant
transfers from level 3 into level 2 included the following:
JPMorgan Chase & Co./2022 Form 10-K
182
$1.3 billion of non-trading loans driven by a decrease in
observability.
$1.5 billion of gross equity derivative receivables and
$1.2 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
due to trading loans, driven by a decrease in observability.
$1.0 billion of total debt and equity instruments, largely
$1.0 billion of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
Level 3 analysis
(126)
(g) Loan originations are included in purchases.
136
(4)
14
(c)
(2)
41
Trading liabilities - debt and equity
instruments
(c)(f)
143
(c)(f)
$ 455
(943) $2,913
(46) 2,420
265 $
105
(8)
$
$
$ 671
5,140
(338) (c)(f)
1,674
Short-term borrowings
$
$
(c)(f)
$ 3,360 $ 165
Deposits
Liabilities: (a)
31, 2020
$2.0 billion of total debt and equity instruments,
predominantly due to corporate debt and trading loans,
driven by an increase in observability
(605)
(4,115)
51
(1)
(c)
(f) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and were not material for the years
ended December 31, 2022, 2021 and 2020. Unrealized (gains)/losses are reported in OCI, and they were $(529) million, $258 million and $221 million for
the years ended December 31, 2022, 2021 and 2020, respectively.
(e) Changes in fair value for MSRS are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities are reported in investment securities gains/(losses). Unrealized gains/(losses) are reported in OCI. Realized and
unrealized gains/(losses) recorded on AFS securities were not material for the years ended December 31, 2022, 2021 and 2020.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans and lending-related commitments
originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(a) Level 3 assets at fair value as a percentage of total Firm assets at fair value (including assets measured at fair value on a nonrecurring basis) were 2% at both
December 31, 2022 and December 31, 2021 and 1% at December 31, 2020. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair
value (including liabilities measured at fair value on a nonrecurring basis) were 8%, 10% and 9% at December 31, 2022, 2021 and 2020, respectively.
(b) All level 3 derivatives are presented on a net basis, irrespective of the underlying counterparty.
Notes to consolidated financial statements
181
JPMorgan Chase & Co./2022 Form 10-K
1,920 (c)(f)
23,397
(1,282)
1,250
(9,833)
9,883
40
23,339
(c)(f)
Long-term debt
28
68
(7)
(c)
47
37
(87)
33
45
(c)
Accounts payable and other liabilities
(h) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial
interests in VIES and other items.
$2.4 billion of gross equity derivative receivables and
$2.4 billion of gross equity derivative payables as a result
NA
significance of unobservable inputs.
At December 31, 2022 and 2021, the contractual amount of lending-related commitments for which the fair value option was
elected was $7.6 billion and $11.9 billion, respectively, with a corresponding fair value of $24 million and $10 million,
respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments.
190
JPMorgan Chase & Co./2022 Form 10-K
Level 3
Level 2
Level 1
(in millions)
December 31, 2021
Fair value hierarchy
84
$
84
$
(e) Prior-period amounts have been revised to conform with the current presentation.
$
Total liabilities measured at fair value on a nonrecurring basis
84
84
2,658
$
1,979
$
679
$
$
Total assets measured at fair value on a nonrecurring basis
Accounts payable and other liabilities
1,388
1,352
$
(d) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
(a) These balances are excluded from nonaccrual loans as the loans are insured and/or guaranteed by U.S. government agencies.
(b) There were no performing loans that were ninety days or more past due as of December 31, 2022 and 2021.
(c) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for
structured notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors
are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
ΝΑ
held at Dec.
41,135
NA
Total long-term debt
ΝΑ
$
72,281
NA
ΝΑ
$
74,934
ΝΑ
Long-term beneficial interests
Nonprincipal-protected debt (c)
Total long-term beneficial interests
NA
$
5
NA
ΝΑ
$
12
NA
ΝΑ
$
5
ΝΑ
ΝΑ $
12
36
of an increase in observability and a decrease in the
(a)
1,270
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm's credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter ("OTC")
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm's positions with
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm's existing positions with
each counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm's credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
Notes to consolidated financial statements
183
JPMorgan Chase & Co./2022 Form 10-K
Refer to Note 15 for information on MSRs.
$102 million of net gains on liabilities driven by market
movements in short-term borrowings.
$10 million of net gains on assets driven by gains in net
interest rate derivative receivables due to market
movements largely offset by losses in MSRS reflecting
faster prepayment speeds on lower rates.
2020
$1.1 billion of net gains on liabilities, driven by gains in
short-term borrowings due to market movements.
$495 million of net gains on assets, driven by gains in net
interest rate derivative receivables due to market
movements, partially offset by losses in net equity
derivative receivables and net commodity derivative
receivables due to market movements.
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm's own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm's own credit quality over time.
2021
prepayment speeds on higher rates.
$7.7 billion of net gains on assets, predominantly driven
by gains in net equity derivative receivables due to market
movements and gains in MSRs reflecting lower
•
•
•
•
•
The following describes significant components of total
realized/unrealized gains/(losses) for instruments measured
at fair value on a recurring basis for the years ended
December 31, 2022, 2021 and 2020. These amounts
exclude any effects of the Firm's risk management activities
where the financial instruments are classified as level 1 and 2
of the fair value hierarchy. Refer to Changes in level 3
recurring fair value measurements rollforward tables on
pages 178-182 for further information on these instruments.
2022
•
Gains and losses
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur
at the beginning of the quarterly reporting period in which
they occur.
$1.3 billion of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
$943 million of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
$4.6 billion of net gains on liabilities, predominantly
driven by a decline in the fair value of long-term debt due
to market movements.
Year ended December 31,
(in millions)
2022
2021
$
627
$
643
$
$
Loans
(b)
Total fair value
Level 3
Level 2
Level 1
Fair value hierarchy
(in millions)
December 31, 2022
The following tables present the assets and liabilities held as of December 31, 2022 and 2021, for which nonrecurring fair
value adjustments were recorded during the years ended December 31, 2022 and 2021, by major product category and fair
value hierarchy.
Assets and liabilities measured at fair value on a nonrecurring basis
JPMorgan Chase & Co./2022 Form 10-K
184
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported in
principal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 182 in this Note and Note
24 for further information.
Valuation adjustments on fair value option elected
liabilities
(64)
22 $ 362 $ (337)
47
42
Derivatives FVA
$
Derivatives CVA
Credit and funding adjustments:
2020
Other assets
Change in
unrealized
(gains)/losses
related to
financial
instruments
Loans
Transfers
(out of)
level 3
(25)
507
(580)
411
(236)
(205)
582
(23)
558
Corporate debt securities
11
182
(23)
NA
(7)
281
21
155
securities
Non-U.S. government debt
--8
(1)
(1)
10
municipalities
Obligations of U.S. states and
(151)
480
(245)
673
(73)
1,112
(137)
196
Equity securities
(209)
2,098
(1,563)
1,213
(601)
(1,129)
2,169
(248)
2,257
Total debt instruments
(4)
28
(10)
9
(9)
(40)
44
(3)
37
Asset-backed securities
(40)
893
(944)
791
(182)
(484)
(6)
2
(166)
(154)
-$$ - $ - $ - $ - $ - $ - $ -
$
purchased under resale agreements
Federal funds sold and securities
Assets: (a)
2020
Dec. 31,
(out of)
level 3
level 3
Settlements (h)
Sales
ac(g)
Purchases
Transfers
Transfers
into
31, 2020
held at Dec.
Change in
unrealized
gains/(losses)
related to
financial
instruments
Fair
value at
Fair value measurements using significant unobservable inputs
gains/(losses)
unrealized
1,2020
January
value at Total realized/
Fair
(in millions)
December 31, 2020
Year ended
Trading assets:
412
Debt instruments:
U.S. GSES and government
agencies
150
(170)
824
securities
Total mortgage-backed
3
(3)
(1)
28
(3)
(150)
| 2ཀྱི
449
N I I
(1)
1
4
Commercial nonagency
(4)
(5)
15
2
23
Residential nonagency
(161)
(149)
134
(172)
797
Mortgage-backed securities:
Fair
value at
Dec. 31,
2020
(376)
535
(c)
(1)
1
Other assets
Mortgage servicing rights
Loans
Total available-for-sale securities
Corporate debt securities
1---(1) ----
Mortgage-backed securities
Available-for-sale securities:
42
(c)
516
4,699
917
267
(310)
(1,505)
356
(446)
(241)
(2,884)
2,121
1,908
(4,489)
Total net derivative receivables
(c)
27
(546)
(16)
Commodity
(3,862) (556)
(1) (731)
302 (4,993)
(243)
(1,540) (e)
(63)
962
(84)
Transfers
into
level 3
Settlements (h)
Sales Issuances
Purchases
unrealized
(gains)/losses
1, 2020
January
value at Total realized/
Year ended
December 31, 2020
(in millions)
Fair
Fair value measurements using significant unobservable inputs
(c)
(3)
538
(7)
40
(320)
(104)
(c)
(18)
(1,540) (e)
3,276
(899)
(176)
1,192
75
(c)
2,305
(684)
2,571
(733)
24
(935)
1,162
(2,317)
Interest rate
(b)
Net derivative receivables:"
(23)
2,623
(c)
(1,961)
1,754
(1,099)
(1,514)
2,810
(52) (c)
2,685
Total trading assets - debt and
equity instruments
268
49
(245)
6
(497)
(9)
229
333
232
Other
-
Physical commodities
(82)
476
(153)
(332)
(1)
2,682
(148)
1,664
(65)
(3,395)
Equity
116
(434)
3
13
83
(24)
49
49
(607)
Foreign exchange
(110)
(224)
(32)
59
181
(154)
73
(212)
(139)
Credit
325
258
308
(332)
(2,228)
308
41,176
(e)
Nonprincipal-protected debt(c)
Level 2
Level 1
Carrying
value(a)(B)
(in billions)
December 31, 2021
Estimated fair value hierarchy
Estimated fair value hierarchy
December 31, 2022
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value and the estimated fair value of these wholesale lending-related commitments were as
follows for the periods indicated.
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. Carrying
value of the loan takes into account the loan's allowance for loan losses, which represents the loan's expected credit losses over its remaining expected
life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including
credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value.
(b) Prior-period amounts have been revised to conform with the current presentation.
232.6
3.1
229.5
226.0
219.3
10.8
10.8
10.7
Level 3
12.6
Total
estimated
fair value
Carrying
value(a)(b)
2.9
2.9 $
$
$
2.1 $
$
3.2
3.2 $
$
$
2.3 $
related commitments $
Wholesale lending-
estimated
fair value
Level 3
Level 2
Level 1
Total
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
2.8
12.6
223.6
67.9
50.6
50.6
50.6
agreements
under repurchase
securities loaned or sold
Federal funds purchased and
$ 2,451.0
$
$2,451.0
-
$2,451.0 $
$ 2,311.5
$2,311.5 $
-
$2,311.6 $
67.9
12.6
216.5
67.9
28.2
Long-term debt
Beneficial interests issued by
consolidated VIES
217.0
4.9
212.1
217.6
256.8
5.6
251.2
257.5
liabilities
Accounts payable and other
33.6
33.6
33.6
28.2
28.2
Short-term borrowings
(b) Includes the wholesale allowance for lending-related commitments.
The Firm does not estimate the fair value of consumer off-balance sheet lending-related commitments. In many cases, the Firm
can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without
notice. Refer to page 169 of this Note for a further discussion of the valuation of lending-related commitments.
JPMorgan Chase & Co./2022 Form 10-K
specific credit risk
Changes in instrument-
assets:
Loans reported as trading
(2,171)
(1,703)
(1,703)
loans
instruments, excluding
Debt and equity
Trading assets:
143
143
12
$
$
12
(136)
(112) $
(200)
(136)
Other changes in fair
value
specific credit risk
(19)
135
(19)
(8)
135
353
2,586
(1) (c)
2,587
(2,172)
(1) (c)
Changes in instrument-
Loans:
(8)
(59)
(59)
353
$
(112) $
(200)
$ (384) $
(499)
JPMorgan Chase & Co./2022 Form 10-K
188
Certain long-term beneficial interests issued by CIB's
consolidated securitization trusts where the underlying
assets are carried at fair value
Structured notes and other hybrid instruments, which
are predominantly financial instruments that contain
embedded derivatives, that are issued or transacted as
part of client-driven activities
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
Certain securities financing agreements
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
•
•
•
•
The Firm's election of fair value includes the following
instruments:
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments that otherwise would be accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
The fair value option provides an option to elect fair value
for selected financial assets, financial liabilities,
unrecognized firm commitments, and written loan
commitments.
Note 3 - Fair value option
Notes to consolidated financial statements
187
Changes in fair value under the fair value option election
years ended
The following table presents the changes in fair value included in the Consolidated statements of income for the
December 31, 2022, 2021 and 2020, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
2022
(384) $
(499)
Securities borrowed
$
resale agreements
securities purchased under
Federal funds sold and
Total
changes in
fair value
recorded (e)
All other
income
Deposits
Principal
transactions
All other
income
NA
Total
changes in
fair value
recorded (e)
All other
income
Principal
transactions
December 31, (in millions)
2020
2021
Total
changes in
fair value
recorded (e)
Financial liabilities
98.8
1.4
Upward carrying value changes (b)
Carrying value (a)
Other assets
(in millions)
As of or for the year ended December 31,
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2022 and 2021, that are measured under the measurement alternative and the related adjustments recorded
during the periods presented for those securities with observable price changes. These securities are included in the
nonrecurring fair value tables when applicable price changes are observable.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm's estimated fair values. Such adjustments may include adjustments to reflect the different
rights and obligations of similar securities, and other adjustments that are consistent with the Firm's valuation techniques for
private equity direct investments.
The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or
minus observable price changes from an identical or similar investment of the same issuer (i.e., measurement alternative),
with such changes recognized in other income.
Equity securities without readily determinable fair values
Notes to consolidated financial statements
185
JPMorgan Chase & Co./2022 Form 10-K
Refer to Note 12 for further information about the
measurement of collateral-dependent loans.
(a) Included $(338) million, $379 million and $(134) million for the years
ended December 31, 2022, 2021 and 2020, respectively, of net
gains/(losses) as a result of the measurement alternative.
$ (547) $ 277 $ (933)
(11)
5
Downward carrying value changes/impairment (c)
(529)
2022
4,096
488
(826)
December 31, 2022
The following table presents, by fair value hierarchy classification, the carrying values and estimated fair values at
December 31, 2022 and 2021, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
JPMorgan Chase & Co./2022 Form 10-K
186
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
Financial instruments for which carrying value approximates
fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, which are included in the
following table. However, this table does not include other
items, such as nonfinancial assets, intangible assets, certain
financial instruments, and customer relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this table.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
As of December 31, 2022, the Firm's remaining interest in Visa B shares was approximately 37 million shares. On January 5,
2023, Visa filed a Current Report on Form 8-K with the SEC indicating that the conversion rate of Visa B shares to Visa A
shares decreased from 1.6059 to 1.5991 effective December 29, 2022. The conversion rate may be further adjusted by Visa
depending on developments related to the litigation matters. The outcome of those litigation matters, and the effect that the
resolution of those matters may have on the conversion rate, is unknown, and accordingly, as of December 31, 2022, there is
significant uncertainty regarding the date of the termination of transfer restrictions and the value of the final conversion rate.
As a result of this, as well as differences in voting rights, Visa B shares are not considered to be similar to Visa A shares, and
they continue to be held at their nominal carrying value.
Under the terms of the derivative instrument, the Firm will (a) make or receive payments based on subsequent changes in the
conversion rate and (b) make periodic interest payments to the purchaser of the Visa B shares. The payments under the
derivative continue as long as the Visa B shares remain subject to transfer restrictions. The derivative is accounted for at fair
value using a discounted cash flow methodology based upon the Firm's estimate of the timing and magnitude of final
resolution of the litigation matters. The derivative is recorded in trading liabilities and changes in fair value are recognized in
other income. As of December 31, 2022, the Firm held derivative instruments associated with the 23 million Visa B shares
that it has sold, which are all subject to similar terms and conditions.
(a) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.
(b) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2022 were $1.4 billion.
(c) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2022 were $(918) million.
Included in other assets above is the Firm's interest in Visa Class B common shares ("Visa B shares") recorded at a nominal
carrying value. In November 2022, the Firm sold approximately 3 million Visa B shares, resulting in a net pretax gain of
$914 million recorded in other income. Visa B shares are subject to certain transfer restrictions and are convertible into Visa
Class A common shares ("Visa A shares") at a specified conversion rate upon final resolution of certain litigation matters
involving Visa. In connection with the sale, and consistent with the Firm's sale of 20 million Visa B shares in 2013, the Firm
entered into a derivative instrument with the purchaser of the shares, under which the Firm retains the risk associated with
changes in the conversion rate.
(53)
432
3.642
$
2021
2020
(72) $ (393)
344
(409)
(83)
2021
1,010
$
$
Total assets measured at fair value on a nonrecurring basis
Accounts payable and other liabilities
1,616
1,612
4
Other assets
1,862
$
856
$
1,006
$
$
Loans
Total fair value
$
2,468
$
3,478
2022
$ (55) $
Total nonrecurring fair value gains/
(losses)
Accounts payable and other liabilities
Other assets (a)
December 31, (in millions)
Loans
The following table presents the total change in value of
assets and liabilities for which fair value adjustments have
been recognized for the years ended December 31, 2022,
2021 and 2020, related to assets and liabilities held at
those dates.
Nonrecurring fair value changes
(b) of the $627 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2022, $83 million related to residential real
estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans). These amounts are classified as level 3 as
they are valued using information from broker's price opinions, appraisals and automated valuation models and discounted based upon the Firm's
experience with actual liquidation values. These discounts ranged from 9% to 56% with a weighted average of 23%.
Estimated fair value hierarchy
(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative). Of the $1.4 billion in level 3 assets measured at fair value on a
nonrecurring basis as of December 31, 2022, $1.2 billion related to equity securities adjusted based on the measurement alternative. These equity
securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
$
3
$
$
$
Total liabilities measured at fair value on a nonrecurring basis
3
3
3
(c)
December 31, 2021
Estimated fair value hierarchy
Level 1
199.5
189.1
425.3
Investment securities, held-to-
maturity
124.6
9.0
124.6
9.0
124.6
115.3
9.0
3.7
115.3
3.7
115.3
Securities borrowed
3.7
388.6
resale agreements
363.7
179.3
97.4
98.7
1,023.2
821.1
202.1
1,002.5
1,047.9
101.3
1.7
99.6
101.2
Other
853.9
194.0
1,073.9
loan losses (a)
Loans, net of allowance for
362.6
183.3
securities purchased under
Federal funds sold and
102.1
$
$
27.7 $
539.3
539.5
Deposits with banks
$ 27.7 $
Cash and due from banks
Financial assets
(in billions)
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value
Total
estimated
fair value
Level 3
Level 2
27.7
$
0.2
539.5
0.1
102.0
102.1
124.7
0.1
124.6
124.7
Accrued interest and accounts
receivable
Carrying
value
714.4
(b)
(b)
26.4
$
$
$
26.4
714.1
26.4 $
714.4
0.3
(242) 21
Principal
transactions
589
$
Subtotal
90 or more days past due and government guaranteed
Loans (a)
3,484
1,197
(2,287)
368 $ (2,149) $ 3,263
829
(138)
918
4,181
$
546 $ (2,717)
797
1,343
(121)
(2,838)
124
115
(9)
293
All other performing loans"
(b)
281
(12)
2,517
967
Loans reported as trading assets
Loans
Loans reported as trading assets
information, where available, or benchmarking to
similar entities or industries.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread as
observed in the bond market.
Securities financing agreements: Generally, for these
types of agreements, there is a requirement that
collateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related to
these agreements.
JPMorgan Chase & Co./2022 Form 10-K
189
Notes to consolidated financial statements
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2022 and 2021, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
December 31, (in millions)
Loans
Nonaccrual loans
2022
Contractual
principal
outstanding
Fair value
Fair value
over/
(under)
contractual
principal
outstanding
2021
Contractual
principal
outstanding
over/
(under)
contractual
Fair value
principal
outstanding
$
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for
the period is made between those changes in value that
are interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
7,823
6,135
(5,437) $
70,493
$
66,894 $
(3,599)
Principal-protected debt
(d)
$
41,341
$
31,105 $ (10,236) $
(d)
35,957
$
33,799 $
(2,158)
(1,001) (e)
7,528
(221)
48,582 $
(e)
$
$
(1,688)
8,529
Loans
(e)
42,588
41,135
(1,453)
57,490
57,742
252
Subtotal
Total loans
Long-term debt
50,411
47,270
(3,141)
66,019
65,270
(749)
54,019
•
Fair value
Determination of instrument-specific credit risk for items
for which the fair value option was elected
(26) (c
(d)
(14)
103
(65)
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
38
Deposits (a)
901
901
(183)
(183)
(726)
(726)
Federal funds purchased and
securities loaned or sold
under repurchase
agreements
181
12
181
33
39
(7)
(c)
582
190
(c)
7
197
Other changes in fair value
(c)
(1,421) (794)
(2,215)
(c)
(c)
(139) 2,056
1,917
470
3,239
3,709
Other assets
(6) (d)
69
(d)
(6)
(c)(d)
98
(1)
(11)
9,088
(17)
(980)
(c)(d)
4
(17)
(976)
(94)
(2,120)
(1)
(c)
(94)
69
(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected are recorded in OCI,
while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in
principal transactions revenue were not material for the years ended December 31, 2022, 2021 and 2020.
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such
risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than certain hybrid
financial instruments in CIB. Refer to Note 7 for further information regarding interest income and interest expense.
| |
(1)
(2,121)
(11)
8,990
(6)
Short-term borrowings (a)
473
(366)
(366)
294
བཏྟེ
Trading liabilities
43
294
7
7
2
473
2
Beneficial interests issued by
consolidated VIES
Other liabilities
Long-term debt (a)(b)
43
18,147
585
15,115
33,216
15,322
1,563
11,759
Automotive
33,287
14,735
529
18,023
34,573
720
16,331
33,847
9,107
23,498
22,094
$ 31,973
471,980
5,121
23,915
42,606
11,039
State & Municipal Govt(d)
6,034
Utilities
36,218
3,269
23,842
33,203
5,969
3,736
25,533
Insurance
603,670
35,427
2,387
3,050
Total
4,962
Financial Markets Infrastructure
2,451
1,260
469
4,180
4,123
3,387
556
8,066
Securities Firms
8,400
782
1,899
4,377
5
2,487
70,880
639,097
1,231,214
Total wholesale
31,687
471,980
4,075
70,880
$
5,453
35,427
49,257
Loans held-for-sale and loans at fair value
1,146,530
Subtotal
87,545
123,307
All other(e)
1,885
Receivables from customers
14,635
9,437
567
Central Govt
12,063
564
5,033
17,660
13,852
407
19,095
5,771
Chemicals & Plastics
9,923
2,700
1,303
13,926
10,577
8,081
20,030
21,045
3,167
2,973
5,005
15,009
Transportation
10,076
924
5,696
16,696
12,955
10,042
5,398
15,915
Metals & Mining
1,591
6,837
2,889
11,317
475
260
185,175
$ 56,888
45,867
1,650
73,038
122,789
39,588
2,669
80,532
Asset Managers
95,656
40,511
16,397
38,748
81,228
41,031
9,351
120,555
30,846
Consumer & Retail
1,317
730,534
775,868
Wholesale(b)
Real Estate
Individuals and Individual Entities"
15(c)
170,857 131,681
130,815 120,424
249
434
38,927
9,957
155,069
119,753
1,113
34,203
141,973
130,576
10,080
Industrials
72,483
26,960
37,960
59,014
18,587
2,575
37,852
Banks & Finance Cos
51,816
32,172
3,246
16,398
54,684
34,217
4,418
16,049
Oil & Gas
1,683
22,970
62,613
Healthcare
1,770
43,753
66,974
21,652
1,224
44,098
Technology, Media &
sheet)
$ 45,334
Telecommunications
21,622
2,950
47,714
84,070
17,815
2,640
63,615
72,286
$ 24,655
(i)
On-balance sheet
Derivatives
4,272
3,545
38,681
(a)
16
2
1,673
29,317
405
6,827
5,125
41,269
(a)
3
408
$ 71,271 $ 5,506
30,864
1,655
$ 28,252
4,767
315
$ 34,127 $
1 $ 4,860
$ 38,988
4,105
170
-
4,275
6,352
858
7,210
2,674
788
50
3,512
3,386
1,066
$ 105,029
$ 73,587 $
8,001 $ 11,054
Off-balance
Derivatives sheet
Credit
exposure
(h)
Consumer, excluding credit card
Credit card (a)
(i)
$ 344,893 $ 311,375
$
$ 33,518
1,006,459
821,284
Total consumer(a)
1,351,352
496,550
854,802
Loans
$ 368,640 $ 323,306 $
884,830 154,296
1,253,470 477,602
exposure (h) Loans
December 31, (in millions)
Credit
On-balance sheet
$ 92,642
(a) Excludes deposits linked to precious metals for which the fair value option has not been elected of $602 million and $692 million for the years ended
December 31, 2022 and 2021, respectively.
JPMorgan Chase & Co./2022 Form 10-K
191
Notes to consolidated financial statements
Note 4 - Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm's
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
Off-balance
In the Firm's consumer portfolio, concentrations are
managed primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. Refer to Note 12 for additional
information on the geographic composition of the Firm's
consumer loan portfolios. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual client or counterparty basis.
The Firm does not believe that its exposure to any
particular loan product or industry segment results in a
significant concentration of credit risk.
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for loan losses.
192
JPMorgan Chase & Co./2022 Form 10-K
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale credit exposure by the Firm's
three credit portfolio segments as of December 31, 2022 and 2021. The wholesale industry of risk category is generally based
on the client or counterparty's primary business activity.
2022
2021
The Firm's wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,
credit derivatives, master netting agreements, collateral
and other risk-reduction techniques. Refer to Note 12 for
additional information on loans.
(g)(h)
13
$2,582,566 $1,135,647
Commodity contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total commodity contracts
Derivative receivables with appropriate legal opinion
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
Total derivative receivables recognized on the
Consolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(c)
Net amounts
JPMorgan Chase & Co./2022 Form 10-K
14,430
120
(112)
9,103
(8,745)
23,653 (16,490)
630,361 (568,713)
(7,633)
6,797
15,063
8
3,149
358
(58,650)
(34,673)
166,980
(156,954)
10,026
Equity contracts:
OTC
Exchange-traded (a)
Total equity contracts
30,323
28,467
58,790
(25,665)
(27,109)
(52,774)
4,658
1,358
25,704
(23,977)
1,727
6,016
36,095
61,799
1,422
7,163
61,648
(d)
49
8,279
23,391
528,471
December 31, (in millions)
U.S. GAAP nettable derivative payables
Interest rate contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total interest rate contracts
Credit contracts:
OTC
OTC-cleared
Total credit contracts
Foreign exchange contracts:
2022
Amounts netted
Gross
derivative
Notes to consolidated financial statements
199
$ 46,979
(10,102)
(6,868)
(49)
(8,266)
(15,183)
(488,206)
8,195
13
8,208
40,265
(d)
9,232
9,232
16,816
21,203
16,816
$
70,880
$ 545,287
$ 57,081
(23,014)
$
47,866
$ 639,593
payables
6
9,934
OTC-cleared
Exchange-traded (a)
Total interest rate contracts
Credit contracts:
OTC
OTC-cleared
2022
Gross
derivative
receivables
Amounts netted
on the
Net
Consolidated derivative
balance sheets receivables
Gross
derivative
receivables
Amounts netted
on the
Consolidated
balance sheets
Net
derivative
receivables
$ 203,922 $ (178,261) $
25,661
OTC
93,800
559
Interest rate contracts:
December 31, (in millions)
5,836 $ 545,287 $ 57,081
$ 526,829 $ 8,215 $ 535,044 $ 50,116
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
198
JPMorgan Chase & Co./2022 Form 10-K
Derivatives netting
The following tables present, as of December 31, 2022 and 2021, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown
separately in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
•
collateral that consists of liquid securities and other cash collateral held at third-party custodians, which are shown
separately as "Collateral not nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure
amount. For the purpose of this disclosure, the definition of liquid securities is consistent with the definition of high quality
liquid assets as defined in the LCR rule;
⚫ the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
•
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
2021
U.S. GAAP nettable derivative receivables
298,281
(93,424)
(311)
(271,996)
376
248
Foreign exchange contracts:
OTC
237,941
(216,796)
21,145
166,185
OTC-cleared
Exchange-traded (a)
1,461
15
Total foreign exchange contracts
239,417
(1,417)
(1)
(218,214)
44
14
789
6
(156,251)
(703)
Total credit contracts
40
898
(8,808)
9,706
26,285
$ 251,953
14,144
498
266,595
$ (234,283)
(13,839)
(489)
(248,611)
$ 17,670
305
9
17,984
8,474
1,746
10,220
(7,535)
86
939
(7,177)
858
(1,704)
(9,239)
42
1,671
(1,631)
981
8,035
on the
Consolidated
balance sheets
Net
derivative
payables
Gross
derivative
payables
8,954
(73)
(8,476)
4,575
38,384
(d)
23,901
518,487
(18,216)
(484,928)
478
5,685
33,559
(d)
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
12,757
12,757
16,557
16,557
Total derivative payables recognized on the
Consolidated balance sheets
263
Collateral not nettable on the Consolidated balance
sheets(b)(c)
73
(112)
(8,758)
(16,512)
(586,372)
9,506
Total equity contracts
Commodity contracts:
OTC
11,954
(7,642)
4,312
14,874
(9,667)
5,207
OTC-cleared
Exchange-traded (a)
Total commodity contracts
Derivative payables with appropriate legal opinion
112
9,021
21,087
624,756
-
$
637,513
$
Short-term
Long-term
debt
December 31, 2021
Total structured notes
Commodity
Equity
Foreign exchange
Credit
Interest rate
Risk exposure
(in millions)
December 31, 2022
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
Structured note products by balance sheet classification and risk component
Total exposure
borrowings
Deposits
Total
Long-term Short-term
debt borrowings
51,141
$ 535,044
$ 50,116
Net amounts
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(5,872)
$ 44,244
(62,494)
(b) Includes liquid securities and other cash collateral held at third-party custodians related to derivative instruments where an appropriate legal opinion has
been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables
balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that
counterparty.
(d) Net derivatives receivable included cash collateral netted of $51.5 billion and $67.6 billion at December 31, 2022 and 2021, respectively. Net derivatives
payable included cash collateral netted of $69.2 billion and $64.3 billion at December 31, 2022 and 2021, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
$
(3,318)
47,823
200
JPMorgan Chase & Co./2022 Form 10-K
38,668
Deposits
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
72,000
4,467
(53,657)
(7,572)
482
9,021
(8,421)
600
1,674
(1,645)
29
9,728
(9,217)
511
1,679
10,700
(1,611)
(10,032)
68
668
8,054
7,026
4
(288)
(232,537)
2021
Amounts netted
on the
Consolidated
balance sheets
Net
derivative
payables
$
97,417
327
190,108 $ (176,890)
(97,126)
OTC
$ 13,218
291
287,852
(274,321)
22
13,531
$ 223,576
15,695
292
$ (216,757)
(15,492)
$ 6,819
203
239,563
(305)
$
246,457
15,209
Equity contracts:
OTC
Exchange-traded (a)
29,833
28,291
(26,554)
3,279
31,379
(27,830)
3,549
(27,103)
1,188
40,621
(34,664)
5,957
58,124
10,674
(161,649)
172,323
15,300
171,610
OTC-cleared
1,488
(1,417)
71
Exchange-traded (a)
20
(231,248)
20
(160,946)
(703)
10,664
3
7
Total foreign exchange contracts
247,965
(232,665)
706
7
$ 539,451
9,632
Total fair value of trading
• Various
• Various
Market-making and related risk management
Other derivatives
Market-making and other
Market-making and other
CIB
205
CIB, AWM,
205
Corporate
196
JPMorgan Chase & Co./2022 Form 10-K
Notional amount of derivative contracts
The following table summarizes the notional amount of
free-standing derivative contracts outstanding as of
December 31, 2022 and 2021.
205
December 31, (in billions)
Specified risk management Corporate
CIB
• Interest rate and
foreign exchange
• Commodity
Manage specifically
• Interest rate
• Credit
Hedge commodity inventory
identified risk exposures not designated in qualifying hedge accounting relationships:
Manage the risk associated with mortgage commitments, warehouse
loans and MSRS
Manage the credit risk associated with wholesale lending exposures
Manage the risk associated with certain other specified assets and
liabilities
Market-making derivatives and other activities:
Fair value hedge
CIB, AWM
202-203
Specified risk management
CCB
205
Specified risk management
205
Interest rate contracts
(b)
Notional amounts
1,053
Foreign exchange contracts
Cross-currency swaps
4,196
4,112
Spot, futures and forwards
7,017
7,679
Written options
775
741
Purchased options
759
727
Total foreign exchange contracts
1,132
Credit derivatives (a)
32,801
33,166
2022
2021
Swaps
$
24,491 $
24,075
Futures and forwards
204
2,636
Written options
3,047
3,018
Purchased options
2,992
3,188
Total interest rate contracts
2,520
12,747
Corporate
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
(j) Represents lending-related financial instruments.
JPMorgan Chase & Co./2022 Form 10-K
193
Notes to consolidated financial statements
Note 5 - Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
Market-making derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative contracts or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
The Firm generally uses interest rate derivatives to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increase or decrease as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
Foreign currency derivatives are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
Commodities derivatives are used to manage the price risk
of certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. Refer to the Credit derivatives section on pages
205-207 of this Note for a further discussion of credit
derivatives.
Refer to the risk management derivatives gains and losses
table on page 205 and the hedge accounting gains and
losses tables on pages 202-204 of this Note for more
information about risk management derivatives.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Derivative clearing services
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain exchanges and
clearing houses. The Firm does not reflect the clients'
derivative contracts in its Consolidated Financial
Statements. Refer to Note 28 for further information on the
Firm's clearing services.
(i) At December 31, 2022 and 2021, included $350 million and $5.4 billion of loans in Business Banking under the PPP, respectively. PPP loans are
guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an
allowance for loan losses on these loans.
Accounting for derivatives
(h) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2022 and 2021, noted above, the
Firm held: $6.6 billion and $7.1 billion, respectively, of trading assets; $6.8 billion and $15.9 billion, respectively, of AFS securities; and $19.7 billion and
$14.0 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(e) All other includes: SPES and Private education and civic organizations, representing approximately 95% and 5%, respectively, at December 31, 2022 and
94% and 6%, respectively, at December 31, 2021. Refer to Note 14 for more information on exposures to SPES.
assets and liabilities
$ 70,880 $1,326,782
111,690
1,103,880
39,758
59,645
1,203,283
$2,456,753 $1,077,714
72,198
4,167
35,325
560,354
39,758
57,081
486,445
600,112
57,081
$ 57,081
486,445
$1,262,313
(a) Also includes commercial card lending-related commitments primarily in CB and CIB.
(b) The industry rankings presented in the table as of December 31, 2021, are based on the industry rankings of the corresponding exposures at
December 31, 2022, not actual rankings of such exposures at December 31, 2021.
(c) Individuals and Individual Entities predominantly consists of Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB, and
includes exposure to personal investment companies and personal and testamentary trusts.
(f) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM that are collateralized by assets
maintained in the clients' brokerage accounts (e.g., cash on deposit, liquid and readily marketable debt or equity securities). Because of this
collateralization, no allowance for credit losses is generally held against these receivables. To manage its credit risk the Firm establishes margin
requirements and monitors the required margin levels on an ongoing basis, and requires clients to deposit additional cash or other collateral, or to reduce
positions, when appropriate. These receivables are reported within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
(g) Excludes cash placed with banks of $556.6 billion and $729.6 billion, at December 31, 2022 and 2021, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
198-205 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. Refer to Notes 2 and 3 for a further
discussion of derivatives embedded in structured notes.
194
• Foreign exchange
Hedge fixed rate assets and liabilities
Hedge floating-rate assets and liabilities
Fair value hedge
Corporate
202-203
Cash flow hedge
Corporate
• Foreign exchange
Hedge foreign currency-denominated assets and liabilities
Hedge foreign currency-denominated forecasted revenue and
expense
Corporate
204
202-203
Cash flow hedge
Corporate
204
• Foreign exchange
• Interest rate
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Interest rate
Designation and disclosure segment or unit reference
JPMorgan Chase & Co./2022 Form 10-K
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives associated with the
Firm's risk management activities. For example, the Firm
does not apply hedge accounting to purchased CDS used to
manage the credit risk of loans and lending-related
commitments, because of the difficulties in qualifying such
contracts as hedges. For the same reason, the Firm does
not apply hedge accounting to certain interest rate, foreign
exchange, and commodity derivatives used for risk
management purposes.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. If it is determined that a
derivative is not highly effective at hedging the designated
exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. If the
hedge relationship is terminated, then the adjustment to
the hedged item continues to be reported as part of the
basis of the hedged item, and for benchmark interest rate
hedges, is amortized to earnings as a yield adjustment.
Derivative amounts affecting earnings are recognized
consistent with the classification of the hedged item -
primarily net interest income and principal transactions
revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, changes in the fair value of the derivative are
Net investment hedge
JPMorgan Chase & Co./2022 Form 10-K
195
Notes to consolidated financial statements
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Affected
Page
Type of Derivative
Use of Derivative
recorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item - primarily noninterest revenue, net
interest income and compensation expense. If the hedge
relationship is terminated, then the change in value of the
derivative recorded in AOCI is recognized in earnings when
the cash flows that were hedged affect earnings. For hedge
relationships that are discontinued because a forecasted
transaction is expected to not occur according to the
original hedge forecast, any related derivative values
recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
13,259
Fair value hedge
Swaps
23,269
6,757
Total fair value of trading
assets and liabilities
70,880
$ 632,392 $ 5,121 $ 637,513
$
51,141
$ 636,251 $ 3,342 $ 639,593 $
Gross derivative receivables
Gross derivative payables
December 31, 2021
Not
designated
(in millions)
as hedges
2,511
Designated
as hedges
20,758
25,357
9,971
754
2,610
251,521
18,856
Equity
61,913
61,913
9,139
62,461
62,461
8,804
Commodity
23,652
1,705
8,867
Total
derivative
receivables
Net
derivative
receivables (b)
Not
designated
as hedges
880
14,097
Equity
Commodity
68,631
21,233
5,420
68,631
26,653
9,981
11,470
79,727
20,837
79,727
17,233
7,091
Equity contracts
9,712
27,928
10,912
175,746
1,124
10,912
174,622
8,194
Total
derivative
payables
Net
derivative
payables (b)
Trading assets and
liabilities
Interest rate
$ 270,562 $
23
Credit
9,971
248,911
9,839
169,186
393
$ 270,585
9,839
169,579
$ 21,974
1,031
12,625
$ 240,731 $
$ 240,731
$
Foreign exchange
23,365
Designated
as hedges
1,633
Written options
117
135
Purchased options
98
111
Total commodity contracts
487
619
Total derivative notional amounts
$
49,476 $
49,735
(a) Refer to the Credit derivatives discussion on pages 205-207 for more
information on volumes and types of credit derivative contracts.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
188
136
185
136
Written options
Purchased options
241,579
618
612
110
139
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative contracts, the notional
amount is not exchanged; it is simply a reference amount
used to calculate payments.
636
580
598
1,944
2,003
Total equity contracts
Commodity contracts
Swaps
654
JPMorgan Chase & Co./2022 Form 10-K
Spot, futures and forwards
Notes to consolidated financial statements
Interest rate
$ 300,411
$
4
$ 300,415 $ 28,419
$ 290,291
$
liabilities
$ 290,291
Credit
10,329
10,329
197
1,090
Foreign exchange
239,946
$ 15,970
Trading assets and
Futures and forwards
derivative
payables
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2022 and 2021, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables (a)
Gross derivative receivables
Gross derivative payables
December 31, 2022
(in millions)
Not
designated
as hedges
Impact of derivatives on the Consolidated balance sheets
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
Designated
as hedges
(420)
$
(267)
$
(153)
$
Total change
in OCI for period
Amounts recorded
in OCI
Foreign exchange (b)
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Total
Interest rate (a)
Contract type
$
Year ended December 31, 2022
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2022, 2021 and 2020,
respectively. The Firm includes the gains/(losses) on the hedging derivative in the same line item in the Consolidated
statements of income as the change in cash flows on the related hedged item.
Cash flow hedge gains and losses
Amounts reclassified
from AOCI to income
(in millions)
(7,053)
$
$
in OCI
Amounts recorded
Total
Interest rate (a)
Contract type
from AOCI to income
(in millions)
(7,131)
Amounts reclassified
Total change
in OCI for period
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Notes to consolidated financial statements
$
(7,473)
(75)
(342)
(6,978)
Year ended December 31, 2021
Foreign exchange (b)
Liabilities
JPMorgan Chase & Co./2022 Form 10-K
(d)ie)
Discontinued hedging
relationships
(a)(B)
items
Active hedging
of the hedged
Carrying amount
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Long-term debt
Investment securities - AFS
Assets
(in millions)
December 31, 2021
Beneficial interests issued by consolidated VIES
1,032
(15,192)
relationships
Total
(c)
65,746
(e) Represents basis adjustments existing on the balance sheet date associated with hedged items that have been de-designated from qualifying fair value
hedging relationships.
(d) Positive (negative) amounts related to assets represent cumulative fair value hedge basis adjustments that will reduce (increase) net interest income in
future periods. Positive (negative) amounts related to liabilities represent cumulative fair value hedge basis adjustments that will increase (reduce) net
interest income in future periods.
(c) Carrying amount represents the amortized cost, net of allowance if applicable. Refer to Note 10 for additional information.
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. At December 31, 2022 and 2021, the carrying amount excluded for AFS securities is
$20.3 billion and $14.0 billion, respectively, and for long-term debt is $221 million and $9.7 billion, respectively. Prior-period amount has been revised
to conform with the current presentation.
Beneficial interests issued by consolidated VIEs
(a) Excludes physical commodities with a carrying value of $26.0 billion and $25.7 billion at December 31, 2022 and 2021, respectively, to which the Firm
applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing
unrealized gains and losses in current periods. Since the Firm exits these positions at fair value, there is no incremental impact to net income in future
periods.
(1)
(1)
749
203
6,835
(1,999) $
$
195,642
$
1,078
661 $
417 $
$
8,834 $
$
(827) $ 1,078
51
(94)
(48)
94
(2,370)
67
(in millions)
Year ended December 31,
The following table presents pre-tax gains/(losses)
recorded on a limited number of derivatives, not designated
in hedge accounting relationships, that are used to manage
risks associated with certain specified assets and liabilities,
including certain risks arising from mortgage commitments,
warehouse loans, MSRS, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Gains and losses on derivatives used for specified risk
management purposes
JPMorgan Chase & Co./2022 Form 10-K
204
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. The Firm reclassified net pre-tax gains of $38 million and
$3 million to other income/expense related to the liquidation of certain legal entities during the years ended December 31, 2022 and 2020, respectively.
The amount reclassified for the year ended December 31, 2021 was not material. Refer to Note 24 for further information.
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
Contract type
$ (1,408)
Amounts
recorded in
OCI
income(a)(b)
Amounts
recorded in
Amounts
recorded in
OCI
$2,452
$(228)
Amounts
recorded in
income(a)(b)
Amounts
recorded in
OCI
$3,591
$(123)
$(122)
Amounts
recorded in
income(a)(b)
Interest rate (a)
Foreign exchange
Total
(3,313) $
205
JPMorgan Chase & Co./2022 Form 10-K
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) in its
wholesale and consumer businesses and derivatives
counterparty exposures in its wholesale businesses, and to
manage the credit risk arising from certain financial
instruments in the Firm's market-making businesses.
Following is a summary of various types of credit
derivatives.
Credit derivatives
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this
category. Gains and losses on these derivatives are
primarily recorded in principal transactions revenue. Refer
to Note 6 for information on principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
Credit (b)
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
$ (824) $ 1,078 $ 2,861
$ 2,994
(176)
43
$
2020
2021
2022
Derivatives gains/(losses)
recorded in income
(c)
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in mortgage commitments, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
190
2020
2022
Contract type
Total change
in OCI for period
in OCI
Amounts recorded
from AOCI to income
Amounts reclassified
(in millions)
Year ended December 31, 2020
Interest rate (a)
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
$
(2,303)
$
1,222
$
(123)
(3,402)
$
(3,525)
2021
$
$
Foreign exchange derivatives
Year ended December 31,
(in millions)
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2022, 2021 and
2020.
Net investment hedge gains and losses
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2022, 2021 and 2020.
Over the next 12 months, the Firm expects that approximately $(1.5) billion (after-tax) of net losses recorded in AOCI at
December 31, 2022, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately seven years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm's
longer-dated forecasted transactions relate to core lending and borrowing activities.
(a) Primarily consists of hedges of SOFR-indexed and LIBOR-indexed floating-rate assets. Gains and losses were recorded in net interest income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of
gains and losses follows the hedged item - primarily noninterest revenue and compensation expense.
3,053
$
570
3,623
570
$
Total
41
3,012
$
3,582
41
Foreign exchange (b)
$
(11,879) $
128 $
175,257
Commodity (d)
Foreign exchange(c)
Interest rate (a)(b)
Contract type
(in millions)
Year ended December 31, 2020
Total
Commodity (d)
Foreign exchange (c)
Interest rate (a)(b)
Contract type
(in millions)
Year ended December 31, 2021
Total
Commodity (d)
Foreign exchange (c)
Interest rate (a)(b)
Total
Gains/(losses) recorded in income
Income statement impact of
(e)
excluded components"
OCI impact
130
106
(528)
106
1,423
(262) $
$
(305) $
Contract type
14,047 $
$
$
Derivatives -
Gains/(losses),
recorded in OCI(f)
Changes in fair
value
Amortization
approach
Income
statement
impact
Hedged items
Derivatives
(14,352) $
(1,317)
106
(15,563) $
(in millions)
Year ended December 31, 2022
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2022,
2021 and 2020, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
Single-notch
downgrade
Two-notch
downgrade
Single-notch
downgrade
(in millions)
December 31, 2021
December 31, 2022
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, N.A., at December 31, 2022 and 2021, related to OTC
and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings
downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the
predefined rating threshold is breached. A downgrade by a single rating agency that does not result in a rating lower than a
preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral
(except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination
payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating
of the rating agencies referred to in the derivative contract.
Two-notch
downgrade
19,402
16,023
15,505
$
Aggregate fair value of net derivative payables
Collateral posted
December 31, 2022
OTC and OTC-cleared derivative payables containing downgrade triggers
(in millions)
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value of the
contracts moves in the counterparties' favor or upon specified downgrades in the Firm's and its subsidiaries' respective credit
ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the
Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net
derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that
may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of
business, at December 31, 2022 and 2021.
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to
credit risk - the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts
and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of
JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral
agreements to mitigate derivative counterparty credit risk inherent in derivative receivables.
Liquidity risk and credit-related contingent features
December 31, 2021
$ 20,114
(70)
15,400 $
Amount of additional collateral to be posted upon downgrade (a)
Notes to consolidated financial statements
Fair value hedge gains and losses
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Impact of derivatives on the Consolidated statements of income
Notes to consolidated financial statements
201
JPMorgan Chase & Co./2022 Form 10-K
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding was not material at both December 31, 2022 and
2021.
Derivatives executed in contemplation of a sale of the underlying financial asset
$
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
787
1,577
98
219 $
$
1,293
925
88
Amount required to settle contracts with termination triggers upon downgrade (b)
(a) Includes the additional collateral to be posted for initial margin.
36
48
(163) $
(f) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-
currency basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
(e) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts, time values and cross-currency basis spreads. Excluded components may impact earnings either through
amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were
recorded primarily in principal transactions revenue and net interest income.
(b) Effective January 1, 2022, the Firm updated its presentation in the tables above to include the amortization of income/expense associated with the
inception hedge accounting adjustment applied to the hedged item; prior-period amounts have been revised to conform with the current presentation.
Excludes the accrual of interest on interest rate swaps and the related hedged items.
(a) Primarily consists of hedges of the benchmark (e.g., Secured Overnight Financing Rate ("SOFR"), London Interbank Offered Rate ("LIBOR")) interest rate
risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income.
25
(422) $
202
(457) $
(733) $
174
137
143
(405) $
2,650
(1,653) $
(2,507)
1,248 $
$
(457)
174
$
25
(722) $
JPMorgan Chase & Co./2022 Form 10-K
December 31, 2022
$
Long-term debt
(5,691)
(1,542) $
(4,149) $
$
84,073
$
As of December 31, 2022 and 2021, the following amounts were recorded on the Consolidated balance sheets related to
certain cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future
periods as an adjustment to yield.
(c)
(d)fe)
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Active hedging Discontinued hedging
relationships relationships
Carrying amount
of the hedged
items (a)(B)
Liabilities
Investment securities - AFS
Assets
(in millions)
Total
$
(3,684) $
(619)
$
(439) $
$
(558) $
3,765 $
(4,323) $
(1,317)
(9,609)
$
Derivatives -
Gains/(losses)..
recorded in OCI(f)
Changes in fair
value
1,349
Amortization
approach
Hedged items
Derivatives
OCI impact
Income statement impact of
(e)
excluded components
Gains/(losses) recorded in income
130
(108) $
(528) $
Income
statement
impact
2,962 $
793
$ (15,249) $
32
101
Gains/(losses),
recorded in Oci(f)
Changes in fair
value
Amortization
approach
Derivatives -
Income
statement
impact
Hedged items
Derivatives
OCI impact
9,710
14,824 $
Income statement impact of
excluded components
(e)
(26)
(335) $
(286) $
(425) $
72
(26)
32
(286)
Gains/(losses) recorded in income
Credit default swaps
The following table presents the components of investment
banking fees.
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Total asset management fees
17,840
16,325
19,957
338
378
331
$ 11,694
$ 14,027
$ 13,765
Asset management fees
Investment management fees a
All other asset management fees (b)
2,088
1,428
2,348
6,171
7,773
8,068
14,096
14,405
12,032
(45)
4,070
4,233
937
1,024
1,402
2,959
3,046
2,831
Year ended December 31,
(in millions)
Brokerage commissions (d)
All other commissions and fees (e)
Total commissions and fees
$ 16,304 $ 18,021
$ 19,912
2,249
2,554
2,348
Total administration fees (c)
181
(21)
Commissions and other fees
4,253
2,787
5,119
(a)
instrument type
Trading revenue by
(in millions)
Year ended December 31,
JPMorgan Chase & Co./2022 Form 10-K
208
Trading revenue is presented primarily by instrument type.
The Firm's client-driven market-making businesses
generally utilize a variety of instrument types in connection
with their market-making and related risk-management
activities; accordingly, the trading revenue presented in the
table below is not representative of the total revenue of any
individual LOB.
2022
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities in CIB and fund deployment activities in
Treasury and CIO. Refer to Note 7 for further information
on interest income and interest expense.
Refer to Note 5 for further information on the income
statement classification of gains and losses from derivatives
activities.
derivatives used for specific risk management purposes,
primarily to mitigate credit, foreign exchange and
interest rate risks.
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
•
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
Unrealized gains and losses result from changes in
valuation.
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
3,896
2021
providers are generally recorded in professional and
outside services expense.
2,753
2,691
1,412 (c)
1,646 $ 2,575
$
$ 3,010
2020
2021
2020
2022
Private equity gains/(losses)
Total trading revenue
Commodity
Equity
Foreign exchange
Credit (b)
Interest rate
The following table presents the components of Firmwide
asset management, administration and commissions.
Principal transactions
Total asset management,
(a) Includes the impact of changes in funding valuation adjustments on
derivatives.
(b) Includes the impact of changes in credit valuation adjustments on
derivatives, net of the associated hedging activities.
Gain on sale of Visa B shares
Year ended December 31,
(in millions)
Operating lease income
Losses on tax-oriented
investments (a)
The following table presents certain components of other
income:
This revenue category includes operating lease income, as
well as losses associated with the Firm's tax-oriented
investments, predominantly alternative energy equity-
method investments in CIB.
Other income
Card income is earned primarily by CCB, CIB and CB. Refer
to Note 32 for segment results.
(a) Predominantly represents the amortization of account origination
costs and annual fees, which are deferred and recognized on a
straight-line basis over a 12-month period.
4,420 $ 5,102 $ 4,435
2022
$
(622)
(17,868)
(22,162)
(1,503)
$ 18,563
$ 23,592
$ 28,085
2020
2021
(13,637)
(491)
2022
2021
$ 3,654 $ 4,914 $ 5,539
JPMorgan Chase & Co./2022 Form 10-K
210
1,115
$ 426 $
2020
2021
2022
266
$
2020
Legal expense
Other expense on the Firm's Consolidated statements of
income included:
Other expense
Refer to Note 2 and 18 for additional information on Visa B
shares and operating leases, respectively.
Noninterest expense
(a) The losses associated with these tax-oriented investments are more
than offset by lower income tax expense from the associated tax
credits.
(1,280)
914
(1,570)
(1,491)
Year ended December 31,
(in millions)
-
Total card income
Year ended December 31,
(in millions)
JPMorgan Chase & Co./2022 Form 10-K
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 32 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to these third-party service
$ 1,271
5,240
$ 6,511
2020
Total lending- and deposit-related fees $7,098
$ 7,032
5,560
5,630
administration and commissions $ 20,677 $ 21,029 $ 18,177
(a) Represents fees earned from managing assets on behalf of the Firm's
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
Deposit-related fees
2021
2022
$ 1,468
Lending-related fees
Year ended December 31, (in millions)
The following table presents the components of lending-
and deposit-related fees.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned from providing overdraft
and other deposit account services, and from performing
cash management activities. Lending- and deposit-related
fees in this revenue category are recognized over the period
in which the related service is provided.
Principal transactions revenue is earned primarily by CIB.
Refer to Note 32 for segment results.
(c) Includes net markdowns on held-for-sale positions, primarily unfunded
commitments, in the bridge financing portfolio.
$ 1,472
Interchange and merchant
processing income
Reward costs and partner
payments
(b) Represents fees for services that are ancillary to investment
management services, such as commissions earned on the sales or
distribution of mutual funds to clients. These fees are recorded as
revenue at the time the service is rendered or, in the case of certain
distribution fees based on the underlying fund's asset value and/or
investor redemption, recorded over time as the investor remains in the
fund or upon investor redemption.
(d) Represents commissions earned when the Firm acts as a broker, by
facilitating its clients' purchases and sales of securities and other
financial instruments. Brokerage commissions are collected and
recognized as revenue upon occurrence of the client transaction. The
Firm reports certain costs paid to third-party clearing houses and
exchanges net against commission revenue.
The following table presents the components of card income:
income is earned.
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program rewards are reported as a
reduction of card income when incurred. Payments to
partners based on new credit card account originations are
accounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on a
straight-line basis over a 12-month period. Payments to
partners based on sales volumes are reported as a
reduction of card income when the related interchange
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
Credit card revenue sharing agreements
Certain credit card products offer the cardholder the ability
to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
This revenue category includes interchange and other
income from credit and debit card transactions; and fees
earned from processing card transactions for merchants,
both of which are recognized when purchases are made by
a cardholder and presented net of certain transaction-
related costs. Card income also includes account origination
costs and annual fees, which are deferred and recognized
on a straight-line basis over a 12-month period.
Card income
(c) Predominantly includes fees for custody, securities lending, funds
services and securities clearance. These fees are recorded as revenue
over the period in which the related service is provided.
Net interest income from mortgage loans is recorded in
interest income.
with MSRS; and gains and losses on securitization of excess
mortgage servicing. Net mortgage servicing revenue also
includes gains and losses on sales and lower of cost or fair
value adjustments of certain repurchased loans insured by
U.S. government agencies.
Notes to consolidated financial statements
209
Production revenue includes fees and income recognized as
earned on mortgage loans originated with the intent to sell,
and the impact of risk management activities associated
with the mortgage pipeline and warehouse loans.
Production revenue also includes gains and losses on sales
and lower of cost or fair value adjustments on mortgage
loans held-for-sale (excluding certain repurchased loans
insured by U.S. government agencies), and changes in the
fair value of financial instruments measured under the fair
value option. Net mortgage servicing revenue includes
operating revenue earned from servicing third-party
mortgage loans, which is recognized over the period in
which the service is provided; changes in the fair value of
MSRS; the impact of risk management activities associated
This revenue category reflects CCB's Home Lending
production and net mortgage servicing revenue.
Mortgage fees and related income
Asset management, administration and commissions are
earned primarily by AWM, CIB and CCB. Refer to Note 32 for
segment results.
(e) Includes travel-related and annuity sales commissions, depositary
receipt-related service fees, as well as other service fees, which are
recognized as revenue when the services are rendered.
Refer to Note 15 for further information on risk
management activities and MSRS.
Credit derivatives may reference the credit of either a single
reference entity (“single-name”), broad-based index or
portfolio. The Firm purchases and sells protection on both
single- name and index-reference obligations. Single-name
CDS and index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
•
Net protection
with identical
underlyings)
Protection sold
Protection purchased
Maximum payout/Notional amount
22,526
$
32,153
$
$ 574,875
(542,722)
$
7,863
-
-
14,663
32,153
(sold)/
purchased (d)
Other protection
purchased(e)
$
$
38,155
$
537,766
$
(499,611)
$
9,437
11,746
15,704
13,435
23,456
2,269
$
14,699
$
$ 458,180
79,586
537,766
(443,481)
(56,130)
(499,611)
38,155
17,864
65,029
574,875
(542,722)
(in millions)
December 31, 2021
Total
Credit-related notes (b)
Total credit derivatives
(a)
Other credit derivatives"
Credit default swaps
Credit derivatives
Credit derivatives
December 31, 2022
Total credit derivatives and credit-related notes
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
JPMorgan Chase & Co./2022 Form 10-K
206
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2022 and
2021. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased by CIB through credit-related notes primarily in
its market-making businesses. In addition, the Firm obtains
credit protection against certain loans in the retained
consumer portfolio through the issuance of credit-related
notes. Since these credit-related notes are not part of the
market-making businesses they are not included in the
table below.
A credit-related note is a funded derivative with a credit risk
component where the issuer of the credit-related note
purchases from the note investor credit protection on a
reference entity or an index. Under the contract, the
investor pays the issuer the par value of the note at the
inception of the transaction, and in return, the issuer pays
periodic payments to the investor, based on the credit risk
of the referenced entity. The issuer also repays the investor
the par value of the note at maturity unless the reference
entity (or one of the entities that makes up a reference
index) experiences a specified credit event. If a credit event
occurs, the issuer is not obligated to repay the par value of
the note, but rather, the issuer pays the investor the
difference between the par value of the note and the fair
value of the defaulted reference obligation at the time of
settlement. Neither party to the credit-related note has
recourse to the defaulting reference entity.
Credit-related notes
(in millions)
25,141
Credit default swaps
(a)
2,917
$
14,289
$
$ 509,846
(495,557)
(47,165)
$
purchased(e)
Other credit derivatives
Other protection
with identical
underlyings(c)
Protection sold
Protection purchased
Maximum payout/Notional amount
Total
(b)
Credit-related notes
Total credit derivatives
Net protection
(sold)/
purchased (d)
(a) Other credit derivatives predominantly consist of credit swap options and total return swaps.
(b) Represents Other protection purchased by CIB, primarily in its market-making businesses.
(c) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on
protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
(d) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of
protection pays to the buyer of protection in determining settlement value.
(e) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.
This revenue category includes debt and equity
Investment banking fees
The Firm records noninterest revenue from certain
contracts with customers in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income. The
related contracts are often terminable on demand and the
Firm has no remaining obligation to deliver future services.
For arrangements with a fixed term, the Firm may commit
to deliver services in the future. Revenue associated with
these remaining performance obligations typically depends
on the occurrence of future events or underlying asset
values, and is not recognized until the outcome of those
events or values are known.
Noninterest revenue
Note 6 - Noninterest revenue and noninterest expense
Notes to consolidated financial statements
207
JPMorgan Chase & Co./2022 Form 10-K
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance price
and quantity of the underlying instruments, and are
recognized as revenue typically upon execution of the
client's transaction. The Firm also manages and syndicates
loan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing and
yield criteria.
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements including cash collateral netting.
$ 3,649
$ 3,022
627
(623)
(2,003)
$ (2,626)
$
3,645
2,630
6,275
(499,611) $
$
$ (36,324)
$ (123,330) $ (339,957)
Total
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of the
client's transaction.
(in millions)
•
Principal transactions revenue is driven by many factors,
including:
Principal transactions
Total investment banking fees
Investment banking fees are earned primarily by CIB. Refer
to Note 32 for segment results.
$ 6,686 $ 13,216 $ 9,486
975 $ 3,969 $ 2,759
2,732 4,853
4,362
3,707
7,121
2,365
4,394
2,979
Year ended December 31,
8,822
2020
2021
2022
Advisory
Total underwriting
Debt
Equity
Underwriting
$
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
(124,315)
$ (29,035)
(7,289)
$ (416,097)
$ (30,822)
(6,370)
$ (37,192)
$ (294,791)
(87,011)
$ (381,802)
$ (123,728)
Total
$ (90,484)
(33,244)
Noninvestment-grade
Investment-grade
$
Risk rating of reference entity
Fair value of
payables(b)
Fair value of
receivables (b)
Total notional
amount
>5 years
1-5 years
<1 year
December 31, 2022
(in millions)
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
as of December 31, 2022 and 2021, where JPMorgan Chase is the seller of protection. The maturity profile is based on the
remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference
entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives where JPMorgan
Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold - credit derivatives ratings (a)/maturity profile
Net fair
value
$ (375,296) $
(126,625)
2,324
1,267
3,591
$ (255,106)
(84,851)
$ (91,155)
(32,175)
Noninvestment-grade
Investment-grade
Risk rating of reference entity
Net fair
value
$ 829
(1,942)
$ (1,113)
payables(b)
$ (542,722) $
Fair value of
Total notional
amount
>5 years
1-5 years
<1 year
(in millions)
December 31, 2021
$ (4,704)
$ (1,495)
(3,209)
Fair value of
(b)
receivables
Other card income(a)
$ 68
Long-term debt
Granted
116.62
3,369 $
126.32
45,405 $
Outstanding, January 1
value
intrinsic
23,729
Aggregate
price
exercise
Number of
awards
average
Weighted-
average grant
date fair value
Number of
units
(in thousands, except weighted-average data, and
where otherwise stated)
Weighted-
Weighted-average
remaining
contractual life
(in years)
Year ended December 31, 2022
147.17
Exercised or vested
NA
141.19
$
2,511
139.90
47,726 $
Exercisable, December 31
Outstanding, December 31
-
ΝΑ
141.74
(1,891)
Canceled
Forfeited
44.70
(858)
117.06
(19,517)
ΝΑ
SARS/Options
RSUS/PSUS
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for SARS and stock options, is measured at the grant date using the Black-Scholes valuation model.
Compensation expense for these awards is recognized in net income as described previously. The following table summarizes
JPMorgan Chase's RSUS, PSUS, SARS and stock options activity for 2022.
2027
2026
2025
2024
2023
$
Defined benefit
pension and OPEB
plans
Year ended December 31,
(in millions)
Years 2028-2032
The following table presents benefit payments expected to
be paid for the defined benefit pension and OPEB plans for
the years indicated.
Investments classified in level 3 of the fair value hierarchy
decreased in 2022 to $2.6 billion, due to $501 million in
unrealized losses and $54 million in settlements, and
increased in 2021 to $3.2 billion, predominantly due to
$332 million in unrealized gains, partially offset by
$94 million in settlements.
Changes in level 3 fair value measurements using
significant unobservable inputs
Notes to consolidated financial statements
213
25,692
$
(296)
3,960
Estimated future benefit payments
1,022
1,016
1,007
RSUS, PSUS, SARs and stock options activity
Notes to consolidated financial statements
215
JPMorgan Chase & Co./2022 Form 10-K
Refer to Note 23 for further information on the
classification of share-based awards for purposes of
calculating earnings per share.
The Firm's policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2022, 2021 and 2020, the Firm settled all of its employee
share-based awards by issuing treasury shares.
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
Once the PSUs and dividend equivalent share units have
vested, the shares of common stock that are delivered, after
applicable tax withholding, must be retained for an
additional holding period, for a total combined vesting and
holding period of approximately five to eight years from the
grant date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights ("SARS”) and
stock options have generally been granted with an exercise
price equal to the fair value of JPMorgan Chase's common
stock on the grant date. SARS and stock options generally
expire ten years after the grant date. In 2021, the Firm
awarded its Chairman and CEO and its President and Chief
Operating Officer 1.5 million and 750,000 SARS,
respectively. There were no grants of SARS or stock options
in 2022 and grants in 2020 were not material.
Performance share units ("PSUs") are granted annually,
and approved by the Firm's Board of Directors, to members
of the Firm's Operating Committee under the variable
compensation program. PSUs are subject to the Firm's
achievement of specified performance criteria over a three-
year period. The number of awards that vest can range
from zero to 150% of the grant amount. In addition,
dividends that accrue during the vesting period are
reinvested in dividend equivalent share units. PSUs and the
related dividend equivalent share units are converted into
shares of common stock after vesting.
RSUS are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age and/or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Predominantly all RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding.
In 2022, 2021 and 2020, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 15, 2018, and
subsequently amended effective May 18, 2021. Under the
terms of the LTIP, as of December 31, 2022, 69 million
shares of common stock were available for issuance
through May 2025. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the "LTI Plans," and such plans
constitute the Firm's share-based incentive plans.
Employee share-based awards
Note 9 Employee share-based incentives
-
JPMorgan Chase & Co./2022 Form 10-K
214
4,720
977
980
NA
261
46.58
7.8 $
1,466
111
1
1,576
U.S.
Residential:
$ 72,543
993
2,128
736 $
71,503
$
479 $ 6,170
$ 77,194 $
U.S. GSES and government agencies
Mortgage-backed securities:
Available-for-sale securities
December 31, (in millions)
$ 72,800 $
38
2
2,164
84,059
Total mortgage-backed securities
4,949
17
22
4,944
1,958
155
-
2,113
3,906
1
25
3,882
3,154
27
5
3,176
Non-U.S.
Commercial
Fair
value
JPMorgan Chase & Co./2022 Form 10-K
Gross
unrealized
losses
Amortized
+(b)(c)
cost
1,768
1,541
$ 1,101
$ 1,253 $ 1,161
Total noncash compensation expense
related to employee share-based
incentive plans
Year ended December 31, (in millions)
Cost of prior grants of RSUs, PSUS, SARS
and stock options that are amortized
over their applicable vesting periods
Accrual of estimated costs of share-
based awards to be granted in future
periods, predominantly those to full-
career eligible employees
incentive plans in its Consolidated statements of income.
Income tax benefits (including tax benefits from dividends
or dividend equivalents) related to share-based incentive
arrangements recognized in the Firm's Consolidated
statements of income for the years ended December 31,
2022, 2021 and 2020, were $901 million, $957 million
and $837 million, respectively.
1,350
Tax benefits
2021
2022
The Firm recognized the following noncash compensation
expense related to its various employee share-based
Compensation expense
The total fair value of RSUs that vested during the years ended December 31, 2022, 2021 and 2020, was $3.2 billion, $2.9
billion and $2.8 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2022,
2021 and 2020, was $75 million, $232 million and $182 million, respectively.
22,695
0.1
22,695
2020
$2,794 $2,929 $ 2,451
At December 31, 2022, approximately $1.0 billion
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.8 years. The Firm does not
capitalize any compensation expense related to share-
based compensation awards to employees.
216
Fair
value
Gross
unrealized
losses
Gross
unrealized
gains
Amortized
+(b)(c)
cost
2021
2022
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
Notes to consolidated financial statements
217
JPMorgan Chase & Co./2022 Form 10-K
Transfers of securities from AFS to HTM are non-cash
transactions and are recorded at fair value.
Unrealized gains or losses at the date of transfer of these
securities continue to be reported in AOCI and are amortized
into interest income on a level-yield basis over the
remaining life of the securities. This amortization will offset
the effect on interest income of the amortization of the
premium or discount resulting from the transfer recorded at
fair value.
During 2022 and 2021, the Firm transferred $78.3 billion
and $104.5 billion of investment securities, respectively,
from AFS to HTM for capital management purposes. AOCI
included pretax unrealized gains/(losses) of $(4.8) billion
and $425 million, respectively, on the securities at the
dates of transfer.
For both AFS and HTM securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, premiums on certain callable debt securities are
amortized to the earliest call date.
AFS securities are carried at fair value on the Consolidated
balance sheets. Unrealized gains and losses, after any
applicable hedge accounting adjustments or allowance for
credit losses, are reported in AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in
investment securities gains/(losses) on the Consolidated
statements of income. HTM securities, which the Firm has
the intent and ability to hold until maturity, are carried at
amortized cost, net of allowance for credit losses, on the
Consolidated balance sheets.
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm's AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities.
-
Note 10 Investment securities
JPMorgan Chase & Co./2022 Form 10-K
Gross
unrealized
gains
(a) Consists predominantly of equity securities, U.S. federal, state, and local and non-U.S. government debt securities, and cash equivalents.
(b) Consists predominantly of corporate debt securities and U.S. federal, state, and local and non-U.S. government debt securities.
(c) Consists of corporate-owned life insurance policies and participating annuity contracts.
19,890
(241)
The following table presents the components of interest
income and interest expense:
Year ended December 31,
(in millions)
Interest income
Loans (a)
Taxable securities
Non-taxable securities (b)
2022
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
2021
$ 52,736 $ 41,537 $ 43,758
7,843
10,372
6,460
975
1,063
1,184
Total investment securities(a)
11,347
2020
Note 7 - Interest income and Interest expense
JPMorgan Chase & Co./2022 Form 10-K
4,282
JPMorgan Chase & Co./2022 Form 10-K
(f) All other interest-bearing liabilities includes interest expense on
brokerage-related customer payables.
(d) Includes interest earned on brokerage-related held-for-investment
customer receivables, which are classified in accrued interest and
accounts receivable, and all other interest-earning assets, which are
classified in other assets on the Consolidated balance sheets.
(e) Includes commercial paper.
(c) Negative interest and rates reflect the net impact of interest earned
offset by fees paid on client-driven prime brokerage securities
borrowed transactions.
(b) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(a) Includes the amortization/accretion of unearned income (e.g.,
purchase premiums/discounts and net deferred fees/costs).
$ 60,321 $ 61,567 $ 37,083
Net interest income after provision
for credit losses
Provision for credit losses
$ 66,710 $ 52,311 $ 54,563
6,389 (9,256) 17,480
Net interest income
$ 26,097 $ 5,553 $ 9,960
Total interest expense
214
83
226
consolidated VIES
Beneficial interest issued by
5,764
7,523
211
9,027
9,053
Interest bearing deposits
Federal funds purchased and
securities loaned or sold under
$ 92,807 $ 57,864 $ 64,523
$ 10,082 $ 531 $
2,357
repurchase agreements
3,721
Interest expense
274
Short-term borrowings(e)
747
126
372
Trading liabilities - debt and all
other interest-bearing liabilities()
3,246
257
1,058
Total interest income
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
primarily reported in principal transactions revenue. For
financial instruments that are not measured at fair value,
the related interest is included within interest income or
interest expense, as applicable. Refer to Notes 12, 10, 11
and 20 for further information on accounting for interest
income and interest expense related to loans, investment
securities, securities financing activities (i.e., securities
purchased or sold under resale or repurchase agreements;
securities borrowed; and securities loaned) and long-term
debt, respectively.
1,023
6,825
7,832
Federal funds sold and securities
purchased under resale
agreements
4,632
958
2,436
Securities borrowed (c)
2,237
(385)
(302)
Deposits with banks
9,039
512
749
All other interest-earning assets (d)
3,763
894
Trading assets - debt instruments
485
Notes to consolidated financial statements
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. Substantially all the
defined benefit pension plans are closed to new
participants. The principal defined benefit pension plan in
the U.S., which covered substantially all U.S. employees,
was closed to new participants and frozen for existing
participants on January 1, 2020, (and January 1, 2019 for
new hires on or after December 2, 2017). Interest credits
continue to accrue to participants' accounts based on their
accumulated balances.
2.97 %
3.68 %
2.93 %
2.17 %
2.54 %
2020
2021
2022
3.91 %
Fair value measurement of the plans' assets and liabilities
The Firm's expected long-term rate of return is a blended
weighted average, by asset allocation of the projected long-
term returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns, with consideration given
to current market conditions and the portfolio mix of each
plan.
Plan assumptions
Expected long-term rate of return on plan assets
Discount rate
Year ended December 31,
Defined benefit pension and OPEB plans
The following table presents the weighted-average actuarial assumptions used to determine the net periodic benefit costs for
the defined benefit pension and OPEB plans.
JPMorgan Chase & Co./2022 Form 10-K
The discount rates used in determining the benefit
obligations are generally provided by the Firm's actuaries,
with the Firm's principal defined benefit pension plan using
a rate that was selected by reference to the yields on
portfolios of bonds with maturity dates and coupons that
closely match each of the plan's projected cash flows.
Investment strategy and asset allocation
The assets of the Firm's defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments. The Firm
regularly reviews the asset allocations and asset managers,
as well as other factors that could impact the portfolios,
which are rebalanced when deemed necessary. The
approved asset allocation ranges by asset class for the
Firm's principal defined benefit plan are 42-100% debt
securities, 0-40% equity securities, 0-3% real estate, and
0-12% alternatives as of December 31, 2022.
As of December 31, 2022, assets held by the Firm's defined
benefit pension and OPEB plans do not include securities
issued by JPMorgan Chase or its affiliates, except through
indirect exposures through investments in exchange traded
funds, mutual funds and collective investment funds
managed by third-parties. The defined benefit pension and
OPEB plans hold investments that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$1.7 billion and $2.5 billion, as of December 31, 2022 and
2021, respectively.
2,593
$
Total fair value of plan assets
Net defined benefit pension plan payables not
classified in fair value hierarchy
Assets measured at fair value using NAV as
practical expedient not classified in fair value
hierarchy
22,028
Level 2 (b) Level 3 (c) Total fair value
17,538 $ 6,541 $ 12,315 $ 3,172 $
9,617 $ 2,613 $
$ 5,308 $
Assets measured at fair value classified in fair
value hierarchy
Level 3 Total fair value Level 1(a)
Level 1 Level 2(b)
(in millions)
(a)
December 31,
2021
2022
Defined benefit pension and OPEB plans
Refer to Note 2 for information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value
hierarchy and the valuation methods employed by the Firm.
Pension plan assets and liabilities measured at fair value
212
Note 8 - Pension and other postretirement
employee benefit plans
(a) Includes pension settlement loss of $92 million and $33 million, respectively, for the years ended December 31, 2022 and 2021.
$ (1,129) $
(453)
(1,916)
7,646
(18,046)
25,692
(13,545) $
19,890
6,345
$
2021
Defined benefit
pension and OPEB plans
2022
The weighted-average discount rate used to value the benefit obligations as of December 31, 2022 and 2021, was 5.14% and
2.54%, respectively.
Accumulated other comprehensive income/(loss)
Fair value of plan assets
Projected benefit obligations
(in millions)
As of or for the year ended December 31,
The following table presents the pretax benefit obligations, plan assets, the net funded status, and the amounts recorded in
AOCI on the Consolidated balance sheets for the Firm's significant defined benefit pension and OPEB plans.
The Firm also provides a qualified defined contribution plan
in the U.S. and maintains other similar arrangements in
certain non-U.S. locations. The most significant of these
plans is the JPMorgan Chase 401(k) Savings Plan ("the
401(k) Savings Plan"), which covers substantially all U.S.
employees. Employees can contribute to the 401(k) Savings
Plan on a pretax and/or Roth 401(k) after-tax basis. The
Firm makes an annual matching contribution as well as an
annual profit-sharing contribution to the 401(k) Savings
Plan on behalf of eligible participants.
dependents covered under these programs. None of these
plans have a material impact on the Firm's Consolidated
Financial Statements.
The Firm maintains funded and unfunded postretirement
benefit plans that provide medical and life insurance for
certain eligible employees and retirees as well as their
Net funded status
Gains and losses
Gains or losses resulting from changes in the benefit
obligation and the fair value of plan assets are recorded in
OCI. Amortization of net gains or losses are recognized as
part of the net periodic benefit cost over subsequent
periods, if, as of the beginning of the year, the net gain or
loss exceeds 10% of the greater of the projected benefit
obligation or the fair value of the plan assets. Amortization
is generally over the average expected remaining lifetime of
plan participants, given the frozen status of most plans.
During the year ended December 31, 2022, a
remeasurement of the Firm's U.S. principal defined benefit
plan in the third quarter, was required as a result of a
pension settlement. The remeasurement resulted in a
reduction in the fair value of the Firm's U.S. principal
defined benefit plan assets, reflecting market conditions at
the time of remeasurement, and a reduction in the plan's
projected benefit obligation totaling $4.0 billion and $2.6
billion, respectively, resulting in a net decrease of $1.4
billion in pre-tax AOCI. For the year ended December 31,
2021, the net gain was predominantly attributable to
market-driven increases in the fair value of plan assets and
the discount rate.
1,459
$
Total recognized in other comprehensive (income)/loss
1,047
1,332
(285)
(201) $
1,333
1,132 $
$
(192) $
1,408
1,216
$
Total pension and OPEB cost included in noninterest expense
Total defined contribution plans
$
2020
Pension and OPEB plans
2021
2022
Total net periodic defined benefit plan cost/(credit)(a)
Year ended December 31, (in millions)
The following table presents the net periodic benefit costs reported in the Consolidated statements of income for the Firm's
defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the defined benefit
pension and OPEB plans.
(214)
195
6,463
83,754
746 $ 29,423 $
69
2,842
18
125
5,711
64
8,519 $
1,592
$
20,904 $
$
Total available-for-sale securities with gross
unrealized losses
256
51
2,586
Other
2,701
846
61
Total fair
value
December 31, 2021 (in millions)
2
348 $
133
1
133
Non-U.S.
1 $
45 $
$
Total gross
unrealized losses
1
$
U.S.
Residential:
Mortgage-backed securities:
Available-for-sale securities
Available-for-sale securities with gross unrealized losses
12 months or more
Gross
unrealized losses
Fair value
Less than 12 months
Gross
Fair value unrealized losses
303 $
3,010
Collateralized loan obligations
Asset-backed securities:
123
1,143
170
5,166
Total mortgage-backed securities
155
1,944
81
6,309
813
1,131
Commercial
27
2,918
2
70
25
2,848
74
293
Obligations of U.S. states and municipalities
3,051
24
357
22
207
2
150
Corporate debt securities
678
10,789
357
3,848
321
6,941
Non-U.S. government debt securities
403
3,415
162
364
241
1
Commercial
2,557
5
Allowance for credit losses
HTM securities - credit risk
When assessing securities issued in a securitization for
credit losses, the Firm estimates cash flows considering
relevant market and economic data, underlying loan-level
data, and structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
For beneficial interests in securitizations that are rated
below "AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm evaluates impairment for credit losses
when there is an adverse change in expected cash flows.
Factors considered in evaluating credit losses include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; and payment structure of
the security.
For impaired debt securities that the Firm has the intent
and ability to hold, the securities are evaluated to
determine if a credit loss exists. If it is determined that a
credit loss exists, that loss is recognized as an allowance for
credit losses through the provision for credit losses in the
Consolidated Statements of Income, limited by the amount
of impairment. Any impairment on debt securities that the
Firm has the intent and ability to hold not due to credit
losses is recorded in OCI.
The Firm recognizes impairment losses in earnings if the
Firm has the intent to sell the debt security, or if it is more
likely than not that the Firm will be required to sell the debt
security before recovery of its amortized cost. In these
circumstances the impairment loss is recognized in
investment securities gains/(losses) in the Consolidated
Statements of Income and is equal to the full difference
between the amortized cost (net of allowance if applicable)
and the fair value of the security.
AFS securities are considered impaired if the fair value is
less than the amortized cost.
Notes to consolidated financial statements
The allowance for credit losses represents expected credit
losses over the remaining expected life of HTM securities.
219
107
17,874 $
42 $
1,336 $
$
65
16,538 $
$
JPMorgan Chase & Co./2022 Form 10-K
The allowance for credit losses on HTM obligations of U.S.
states and municipalities and commercial mortgage-backed
securities is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the amortized cost. The
credit loss factors are derived using a weighted average of
five internally developed eight-quarter macroeconomic
scenarios, followed by a single year straight-line
interpolation to revert to long run historical information for
periods beyond the forecast period. Refer to Note 13 for
further information on the eight-quarter macroeconomic
forecast.
The allowance for credit losses on HTM collateralized loan
obligations and U.S. residential mortgage-backed securities
is calculated as the difference between the amortized cost
and the present value of the cash flows expected to be
collected, discounted at the security's effective interest
rate. These cash flow estimates are developed based on
expectations of underlying collateral performance derived
using the eight-quarter macroeconomic forecast and the
single year straight-line interpolation, as well as considering
the structural features of the security.
The application of different inputs and assumptions into the
calculation of the allowance for credit losses is subject to
significant management judgment, and emphasizing one
input or assumption over another, or considering other
inputs or assumptions, could affect the estimate of the
allowance for credit losses on HTM securities.
$ 802
$ (345)
$ (36)
$ 54
Provision for credit losses
$(2,380)
Investment securities gains/
(losses)
$ 3,080
(2,278)
2020
2022
2021
198 $ 595
(2,578) (940)
Realized losses
$
Realized gains
(in millions)
Year ended December 31,
220
Selected impacts of investment securities on the
Consolidated statements of income
Allowance for credit losses on investment securities
The allowance for credit losses on investment securities was
$96 million, $42 million and $78 million as of
December 31, 2022, 2021 and 2020, respectively.
The primary credit quality indicator for HTM securities is the
risk rating assigned to each security. At both December 31,
2022 and 2021, all HTM securities were rated investment
grade and were current and accruing, with approximately
98% rated at least AA+.
Credit quality indicator
Total available-for-sale securities with gross
unrealized losses
Non-U.S.
2
267
2
120
-
-
2
120
Obligations of U.S. states and municipalities
20
Non-U.S. government debt securities
3,387
394
7
2,993
Total mortgage-backed securities
17
2,906
12
349
13
5,060
37
510
2
8,318
208
178
18
89
8,110
Other
Collateralized loan obligations
Asset-backed securities:
19
212
18
46
1
166
Corporate debt securities
46
5,570
9
18
111
1,447 $
40 $
308,254
205,857
11,221
890
216,188
Total available-for-sale securities
5,448
2
2,614
47
3,085
69
2
3,152
Other
9,662
18
6
5,403
2,343
308,525
Held-to-maturity securities
10
10,361
Commercial
7,211
106
1
7,316
103,103
853
1,400
102,556
99,818
9,262
35 13,709
1,244
3
10,503
113,492
U.S. GSES and government agencies
U.S. Residential
Mortgage-backed securities:
(a)
9,674
734
5,792
1
14,890
6,786
403
86
7,103
Obligations of U.S. states and municipalities
177,463
1,243
972
668
92,060
3,459
302
95,217
U.S. Treasury and government agencies
83,562
1,013
821
178,038
2
15,860
Non-U.S.government debt securities
5,916
Collateralized loan obligations
Asset-backed securities:
321
19
8
332
357
24
381
Corporate debt securities
16,209
46
92
16,163
19,696
678
14
20,360
125
78,081
9,637
11
At December 31, 2022, the investment securities portfolio
consisted of debt securities with an average credit rating of
AA+ (based upon external ratings where available, and
where not available, based primarily upon internal risk
ratings). Risk ratings are used to identify the credit quality
of securities and differentiate risk within the portfolio. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
(c) Excludes $2.5 billion and $1.9 billion of accrued interest receivable at December 31, 2022 and 2021, respectively, included in accrued interest and
accounts receivable on the Consolidated balance sheets. The Firm generally does not recognize an allowance for credit losses on accrued interest
receivable, consistent with its policy to write them off no later than 90 days past due by reversing interest income. The Firm did not reverse through
interest income any accrued interest receivable for the years ended December 31, 2022 and 2021.
(b) The amortized cost of investment securities is reported net of allowance for credit losses of $96 million and $42 million at December 31, 2022 and 2021,
respectively.
(a) The Firm purchased $33.7 billion, $111.8 billion and $12.4 billion of HTM securities for the years ended December 31, 2022, 2021 and 2020,
respectively.
$ 671,153
4,724 $ 5,532
$ 594,505 $ 671,961 $
995 $ 47,983
however the quantitative characteristics (e.g., probability of
default ("PD") and loss given default (“LGD”)) may differ as
they reflect internal historical experiences and
assumptions. Risk ratings are assigned at acquisition,
reviewed on a regular and ongoing basis by Credit Risk
Management and adjusted as necessary over the life of the
investment for updated information affecting the issuer's
ability to fulfill its obligations.
$ 641,493 $
3,189
2,110
363,707
2,041
7
1
2,047
2,215
388,648
362,628
218
JPMorgan Chase & Co./2022 Form 10-K
AFS securities impairment
260 $
$
71
1,187 $
$
U.S.
Residential:
Mortgage-backed securities:
Available-for-sale securities
unrealized losses
Total gross
Total fair
value
Gross
unrealized losses
Fair value
12 months or more
Less than 12 months
Gross
Fair value unrealized losses
December 31, 2022 (in millions)
Available-for-sale securities with gross unrealized losses
The following tables present the fair value and gross unrealized losses by aging category for AFS securities at December 31,
2022 and 2021. The tables exclude U.S. Treasury and government agency securities and U.S. GSE and government agency
MBS with unrealized losses of $9.6 billion and $2.2 billion, at December 31, 2022 and 2021, respectively; changes in the
value of these securities are generally driven by changes in interest rates rather than changes in their credit profile given the
explicit or implicit guarantees provided by the U.S. government.
105 36,762
3,730
48,922
75
169
185,204
189,100
18,363
-
207,463
U.S. Treasury and government agencies
114,001
2,103
1,013
113,602
118,717
15,687
48
134,356
Total mortgage-backed securities
3,687
54
1,412
183,270
Obligations of U.S. states and municipalities
19,747
48,869
59,896
1,522
110
-
2,325
425,305
4
61,414
Total investment securities, net of
allowance for credit losses
Total held-to-maturity securities
Other
Collateralized loan obligations
Asset-backed securities:
14,394
44
453
13,985
18,720
1,080
53
22
8,075
Average yield(a)
Contractual maturities and yields
155,156
5
1,735
358
241,578
1,464
191,254
1,259
1,463
1,508
2,414
$
37,046
$
$
58,050
2,007
$
1,916
174,971
1,572
$
532,899
$
52,443
$
49,054
35,026
7
49,254
$
1,211
2,981
1,619
38,180
461
37,121
30,075
480,793
Securities loaned
and other
agreements
Securities sold
under repurchase
JPMorgan Chase & Co./2022 Form 10-K
(c) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2022 and 2021, included $6.0 billion and $13.9 billion, respectively, of securities
purchased under resale agreements; $49.0 billion and $46.4 billion, respectively, of securities borrowed; $29.1 billion and $21.6 billion, respectively, of
securities sold under repurchase agreements. At December 31, 2021 included $198 million of securities loaned and other, and the amount was not
material at December 31, 2022.
(b) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
(a) Includes securities-for-securities lending agreements of $7.0 billion and $5.6 billion at December 31, 2022 and 2021, respectively, accounted for at fair
value, where the Firm is acting as lender.
215
23,350
$
223
189,806 $ (166,456)
8,348
(8,133)
532,899 $
52,610
Securities loaned and other (a)
$
Securities sold under repurchase agreements
Liabilities
16,043
51,472
$
(343,093) $
(44,262)
Notes to consolidated financial statements
The tables below present as of December 31, 2022 and 2021 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
December 31, (in millions)
Securities loaned
and other
2021
Gross liability balance
2022
agreements
Securities sold
under repurchase
Total
Equity securities
Asset-backed securities
Corporate debt securities
Non-U.S. government debt
Obligations of U.S. states and municipalities
U.S. Treasury, GSES and government agencies
Commercial nonagency
Residential nonagency
U.S. GSES and government agencies
Mortgage-backed securities:
52,610
Remaining contractual maturity of the agreements
December 31, 2022
(in millions)
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Nonaccrual loans
The Firm classifies accrued interest on loans, including
accrued but unbilled interest on credit card loans, in
accrued interest and accounts receivables on the
Consolidated balance sheets. For credit card loans, accrued
interest once billed is then recognized in the loan balances,
with the related allowance recorded in the allowance for
credit losses. Changes in the allowance for credit losses on
accrued interest on credit card loans are recognized in the
provision for credit losses and charge-offs are recognized
by reversing interest income. For other loans, the Firm
generally does not recognize an allowance for credit losses
on accrued interest receivables, consistent with its policy to
write them off no later than 90 days past due by reversing
interest income.
Interest income on performing loans held-for-investment is
accrued and recognized as interest income at the
contractual rate of interest. Purchase price discounts or
premiums, as well as net deferred loan fees or costs, are
amortized into interest income over the contractual life of
the loan as an adjustment of yield.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full.
Interest income
29,368
The following provides a detailed accounting discussion of
the Firm's loans by category:
Loans at fair value
•
Loans held-for-sale
Originated or purchased loans held-for-investment (i.e.,
"retained")
•
Originated or purchased loans held-for-investment,
including PCD, are recorded at amortized cost, reflecting
the principal amount outstanding, net of the following:
unamortized deferred loan fees, costs, premiums or
discounts; charge-offs; collection of cash; and foreign
exchange. Credit card loans also include billed finance
charges and fees.
Allowance for loan losses
The allowance for loan losses represents the estimated
expected credit losses in the held-for-investment loan
portfolio at the balance sheet date and is recognized on the
balance sheet as a contra asset, which brings the amortized
cost to the net carrying value. Changes in the allowance for
loan losses are recorded in the provision for credit losses on
the Firm's Consolidated statements of income. Refer to
Note 13 for further information on the Firm's accounting
policies for the allowance for loan losses.
Charge-offs
Loans held-for-sale are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Loans held-for-sale
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm utilizes a broker's price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation ("exterior opinions"), which is then
updated at least every 12 months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home (“interior appraisals”).
Exterior opinions and interior appraisals are discounted
based upon the Firm's experience with actual liquidation
values as compared with the estimated values provided by
exterior opinions and interior appraisals, considering state-
specific factors.
Wholesale loans are charged off when it is highly certain
that a loss has been realized. The determination of whether
to recognize a charge-off includes many factors, including
the prioritization of the Firm's claim in bankruptcy,
expectations of the workout/restructuring of the loan and
valuation of the borrower's equity or the loan collateral.
When a loan is charged down to the lower of its amortized
cost or the estimated net realizable value of the underlying
collateral, the determination of the fair value of the
collateral depends on the type of collateral (e.g., securities,
real estate). In cases where the collateral is in the form of
liquid securities, the fair value is based on quoted market
prices or broker quotes. For illiquid securities or other
financial assets, the fair value of the collateral is generally
estimated using a discounted cash flow model.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on the government-
guaranteed portion of loans.
Auto loans upon repossession of the automobile.
residential real estate and auto loans are charged off or
charged down within 60 days of receiving notification of
a bankruptcy filing).
Notes to consolidated financial statements
•
225
JPMorgan Chase & Co./2022 Form 10-K
Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
Loans modified in a TDR that are determined to be
collateral-dependent.
Certain consumer loans are charged off or charged down to
their net realizable value earlier than the FFIEC charge-off
standards in the following circumstances:
Consumer loans are generally charged off or charged down
to the lower of the amortized cost or the net realizable
value of the underlying collateral (i.e., fair value less
estimated costs to sell), with an offset to the allowance for
loan losses, upon reaching specified stages of delinquency
in accordance with standards established by the FFIEC.
Residential real estate loans, unmodified credit card loans
and scored business banking loans are generally charged
off no later than 180 days past due. Scored auto and
modified credit card loans are charged off no later than 120
days past due.
•
(245,588)
(154,599)
The accounting for a loan depends on management's
strategy for the loan. The Firm accounts for loans based on
the following categories:
Note 12 - Loans
480,793
52,443
67,742
1,017
3
1,285
$
Total
Greater than
90 days
Remaining contractual maturity of the agreements
30 - 90 days
37,120
170,696
Up to 30 days
$
205,235
50,138
Total securities loaned and other
$
Total securities sold under repurchase agreements
Overnight and
continuous
$
December 31, 2021
(in millions)
Overnight and
continuous
JPMorgan Chase & Co./2022 Form 10-K
224
At December 31, 2022 and 2021, the Firm held $692 million and $440 million, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets.
Transfers not qualifying for sale accounting
52,610
532,899
$
Total
Greater than
90 days
59,492
875
$
30 - 90 days
47,201
$
Up to 30 days
$ 231,171
1,701
195,035
50,034
Total securities loaned and other
$
Total securities sold under repurchase agreements
Loan accounting framework
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
261,631 $
206,071
604,724 $
250,333
19,798
$
16,951
$
2,741
$
106
Fair value
$
Obligations of U.S. states and municipalities
0.87 %
189,100
207,463
$
%
1.27 %
Amortized cost
$
100
15,910
29
$
30
%
Average yield(a)
Fair value
$
2,710
Amortized cost
4.21 %
4.24 %
4.03 %
3.39 %
- %
Average yield(a)
18,720
Asset-backed securities
66,981
56,322
$
106,325
99,345
0.71 %
1,718
1,584
96
$
98
$
Average yield (a)
Fair value
$
Amortized cost
Held-to-maturity securities
3.49 %
205,857
86,410
4.01 %
3.94 %
3.05 %
2.34 %
Mortgage-backed securities
12,350
$
10,909
0.57 %
Average yield(a)
33,433
Fair value
$
34,157
$
Amortized cost
U.S. Treasury and government agencies
2.89 %
2.93 %
2.56 %
2.23 %
5.54 %
134,372
118,717
$
120,206
106,128
5.69 %
19,398
19,085
4.80 %
$
44,311
$
(304,120)
(131,578)
315,501 $
185,369
(282,411) $
(42,910)
597,912 $
228,279
$
Securities purchased under resale agreements
Securities borrowed
11,381
53,791
Assets
(in millions)
(c)
Net amounts
Amounts not
nettable on the
Consolidated
balance sheets (b)
Amounts
presented on the
Consolidated
balance sheets
December 31, 2022
Amounts netted
on the
Consolidated
balance sheets
Gross amounts
Liabilities
Securities sold under repurchase agreements
Securities loaned and other (a)
$
$
Securities purchased under resale agreements
Securities borrowed
Assets
(in millions)
Net amounts"
(c)
(b)
Amounts not
nettable on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets
Amounts netted
on the
Consolidated
balance sheets
Gross amounts
December 31, 2021
30,955
$
198,382 $ (167,427)
9,533
(9,527)
(282,411) $
(42,910)
480,793 $
52,443
relevant netting criteria under U.S. GAAP, is presented in
the table below as “Amounts not nettable on the
Consolidated balance sheets," and reduces the "Net
amounts" presented. Where a legal opinion has not been
either sought or obtained, the securities financing balances
are presented gross in the "Net amounts" below. In
transactions where the Firm is acting as the lender in a
securities-for-securities lending agreement and receives
securities that can be pledged or sold as collateral, the Firm
recognizes the securities received at fair value within other
assets and the obligation to return those securities within
accounts payable and other liabilities on the Consolidated
balance sheets.
(343,093) $
(44,262)
securities financing balances that do not meet all these
The table below summarizes the gross and net amounts of
the Firm's securities financing agreements, as of
$
108,179
101,058
0.74 %
0.58 %
Average yield (a)
33,529
Fair value
$
101,470
89,026
2.18 %
34,255
Amortized cost
Total held-to-maturity securities
4.76 %
62,111
42,997
4.74 %
63,739
$
$
$
181,468
165,035
$
JPMorgan Chase & Co./2022 Form 10-K
222
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements.
Refer to Note 29 for further information regarding assets
pledged and collateral received in securities financing
agreements.
Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and U.S. GSEs and government
agencies MBS) that it has received from or provided to its
counterparties compared to the value of cash proceeds and
exchanged collateral, and either requests additional
collateral or returns securities or collateral when
appropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
Credit risk mitigation practices
The Firm has elected the fair value option for certain
securities financing agreements. Refer to Note 3 for further
information regarding the fair value option. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
Securities financing agreements not elected under the fair
value option are measured at amortized cost. As a result of
the Firm's credit risk mitigation practices described below,
the Firm did not hold any allowance for credit losses with
respect to resale and securities borrowed arrangements as
of December 31, 2022 and 2021.
collateralized financings on the Firm's Consolidated balance
sheets. Where appropriate under applicable accounting
guidance, securities financing agreements with the same
counterparty are reported on a net basis. Refer to Note 1
for further discussion of the offsetting of assets and
liabilities. Fees received and paid in connection with
securities financing agreements are recorded over the life
of the agreement in interest income and interest expense
on the Consolidated statements of income.
Securities financing agreements are treated as
Note 11 - Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
“securities financing agreements”) primarily to finance the
Firm's inventory positions, acquire securities to cover short
sales, accommodate customers' financing needs, settle
other securities obligations and to deploy the Firm's excess
cash.
Notes to consolidated financial statements
221
JPMorgan Chase & Co./2022 Form 10-K
(b) Substantially all of the Firm's U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The
estimated weighted-average life, which reflects anticipated future prepayments, is approximately eight years for agency residential MBS, and six years for
both agency residential collateralized mortgage obligations and nonagency residential collateralized mortgage obligations.
(a) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security.
The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives.
Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual
maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. However, for certain callable debt
securities, the average yield is calculated to the earliest call date.
2.25 %
3.50 %
425,372
388,648
December 31, 2022 and 2021. When the Firm has obtained
an appropriate legal opinion with respect to a master
netting agreement with a counterparty and where other
relevant netting criteria under U.S. GAAP are met, the Firm
nets, on the Consolidated balance sheets, the balances
outstanding under its securities financing agreements with
the same counterparty. In addition, the Firm exchanges
securities and/or cash collateral with its counterparty to
reduce the economic exposure with the counterparty, but
such collateral is not eligible for net Consolidated balance
sheet presentation. Where the Firm has obtained an
appropriate legal opinion with respect to the counterparty
master netting agreement, such collateral, along with
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Because these loans are recognized at the lower of cost or
fair value, the Firm's allowance for loan losses and charge-
off policies do not apply to these loans. However, loans
held-for-sale are subject to the nonaccrual policies
described above.
Loans held-for-investment
Loans for which the fair value option has been elected are
measured at fair value, with changes in fair value recorded
in noninterest revenue.
Asset-backed securities
Amortized cost
Fair value
Average yield (a)
$
125
$
Average yield (a)
272
13
$
76
268
13
16.22 %
12.07 %
$
5.78 %
Fair value
Corporate debt securities
3,228
$
4,329
$
$
20,360
Fair value
Amortized cost
12,795
3.54 %
3,107
2.59 %
3,794
19,696
1.37 %
- %
2.93 %
Average yield(a)
- %
$
410
4.76 %
Total available-for-sale securities
Amortized cost
29,394
$
63,634
$
5.19 %
30,505
92,684
$
216,217
Fair value
29,009
61,070
JPMorgan Chase & Co./2022 Form 10-K
$
4.98 %
3.11%
5.11 %
357
13.14 %
99
$
1,517
$
3,665
Loans at fair value
$
3,787
$
9,068
95
1,487
3,605
3,690
8,877
$
230
12,803
Amortized cost
2.21 %
3,459
3.58%
4,534
4,573
$
75,877
70,035
$
84,059
78,081
14
5.25 %
3.71 %
U.S. Treasury and government agencies
Amortized cost
$
16,335
$
54,936
3.62 %
$
$
$
The following table presents the amortized cost and estimated fair value at December 31, 2022, of JPMorgan Chase's investment
securities portfolio by contractual maturity.
By remaining maturity
December 31, 2022 (in millions)
Available-for-sale securities
Mortgage-backed securities
Due in one
year or less
Due after one year
through five years
3,634
Due after five years
through 10 years
10 years (b)
Total
Amortized cost
Fair value
Average yield(a)
$
14
Due after
17,749
$
6,197
$
Fair value
18
46
216
6,823
6,506
$
215
7,103
Average yield (a)
5.03 %
3.96 %
5.24 %
5.85 %
5.81 %
Non-U.S. government debt securities
6,786
$
47
$
$
95,217
Fair value
16,011
52,703
17,167
Average yield(a)
1.27 %
3.00 %
3.99 %
6,179
6.01 %
92,060
3.08 %
Obligations of U.S. states and municipalities
Amortized cost
$
18
$
For scored auto and business banking loans, geographic
distribution is an indicator of the credit performance of
the portfolio. Similar to residential real estate loans,
geographic distribution provides insights into the
portfolio performance based on regional economic
activity and events.
$
Delinquency rates are the primary credit quality indicator
for consumer loans. Loans that are more than 30 days past
due provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is likely
to be unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
Total
At fair value
Held-for-sale
Retained
$ 1,135,647
42,079
$ 639,097
Consumer, excluding
185,175
$ 311,375
Total(a)(b)
$ 1,089,598
3,970
$ 603,670
3,352
32,075
10,004
618
Wholesale
Credit card
185,175
$
credit card
$ 295,556
$
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Loans that were reclassified to held-for-sale and sold in a subsequent period are
excluded from the sales line of this table.
(b) Loans (other than those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net deferred loan
fees or costs. These amounts were not material as of December 31, 2022 and 2021.
(a) Excludes $5.2 billion and $2.7 billion of accrued interest receivable at December 31, 2022 and 2021, respectively. The Firm wrote off accrued interest
receivable of $39 million and $56 million for the years ended December 31, 2022 and 2021, respectively.
$ 1,077,714
58,820
8,688
$ 1,010,206
Total(a)(b)
32,357
7,401
$ 600,112
154,296
$
For residential real estate loans, the current estimated
LTV ratio, or the combined LTV ratio in the case of junior
lien loans, is an indicator of the potential loss severity in
the event of default. Additionally, LTV or combined LTV
ratios can provide insight into a borrower's continued
willingness to pay, as the delinquency rate of high-LTV
loans tends to be greater than that for loans where the
borrower has equity in the collateral. The geographic
distribution of the loan collateral also provides insight as
to the credit quality of the portfolio, as factors such as
the regional economy, home price changes and specific
events such as natural disasters, will affect credit
quality. The borrower's current or "refreshed" FICO
score is a secondary credit quality indicator for certain
loans, as FICO scores are an indication of the borrower's
credit payment history. Thus, a loan to a borrower with a
low FICO score (less than 660) is considered to be of
higher risk than a loan to a borrower with a higher FICO
score. Further, a loan to a borrower with a high LTV
ratio and a low FICO score is at greater risk of default
than a loan to a borrower that has both a high LTV ratio
and a high FICO score.
1,287
26,463
Wholesale
$ 560,354
Credit card
154,296
$
Year ended December 31,
$ 300,753
(in millions)
Notes to consolidated financial statements
227
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
estimated costs to sell. Each quarter the fair value of the
acquired property is reviewed and adjusted, if necessary, to
the lower of cost or fair value. Subsequent adjustments to
fair value are charged/credited to noninterest revenue.
Operating expense, such as real estate taxes and
maintenance, are charged to other expense.
Foreclosed property
JPMorgan Chase & Co./2022 Form 10-K
Loans modified in TDRs are generally measured for
impairment using the Firm's established asset-specific
allowance methodology, which considers the expected re-
default rates for the modified loans. A loan modified in a
TDR generally remains subject to the asset-specific
component of the allowance throughout its remaining life,
regardless of whether the loan is performing and has been
returned to accrual status. Refer to Note 13 for further
discussion of the methodology used to estimate the Firm's
asset-specific allowance.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
Loan portfolio
The Firm seeks to modify certain loans in conjunction with
its loss mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment delays, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments. Such modifications are accounted for and
reported as TDRS. Loans with short-term and other
insignificant modifications that are not considered
concessions are not TDRs.
management decides to sell are transferred to the held-for-
sale portfolio at the lower of cost or fair value on the date
of transfer. Credit-related losses are charged against the
allowance for loan losses; non-credit related losses such as
those due to changes in interest rates or foreign currency
exchange rates are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at amortized cost on the date
of transfer. These loans are subsequently assessed for
impairment based on the Firm's allowance methodology.
Refer to Note 13 for a further discussion of the
methodologies used in establishing the Firm's allowance for
loan losses.
Loans in the held-for-investment portfolio that
Loan classification changes
JPMorgan Chase & Co./2022 Form 10-K
226
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value are
subject to the nonaccrual policies described above.
Refer to Note 3 for further information on the Firm's
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Loan modifications
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card
• Residential real estate (a)
• Auto and other (b)
December 31, 2021
Total
At fair value
Held-for-sale
Retained
(in millions)
December 31, 2022
The following tables summarize the Firm's loan balances by portfolio segment.
(e) Includes loans to financial institutions, states and political subdivisions, SPES, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB). Refer to Note
14 for more information on SPES.
(d) The wholesale portfolio segment's classes align with loan classifications as defined by the bank regulatory agencies, based on the loan's collateral,
purpose, and type of borrower.
(c) Includes loans held in CIB, CB, AWM, Corporate, as well as risk-rated BWM and auto dealer loans held in CCB, for which the wholesale methodology is
applied when determining the allowance for loan losses.
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in CIB and Corporate.
(b) Includes scored auto and business banking loans and overdrafts.
• Commercial and industrial
Other(e)
Secured by real estate
Wholesale (c)(d)
• Credit card loans
Credit card
Consumer, excluding
credit card
(in millions)
$ 323,306
Sales
1,580
787
Purchases
4,633
$
1,159
17,916
$
4,451
$
$
(b)(c)
Total
Wholesale
Credit card
credit card
Consumer, excluding
3,474
352
2,084
2020
(a) Reclassifications of loans to held-for-sale are non-cash transactions.
(c) Excludes purchases of retained loans of $12.4 billion, $25.8 billion and $16.3 billion for the years ended December 31, 2022, 2021 and 2020,
respectively, which are predominantly sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
The amount of purchases of retained loans at December 31, 2020 has been revised to conform with the current presentation.
(a) At December 31, 2022 and 2021, included $350 million and $5.4
billion of loans, respectively, in Business Banking under the PPP.
$ 300,753 $ 295,556
$ 237,561 $ 224,795
63,192 70,761
2021
2022
Total retained loans
Auto and other(a)
(b) Predominantly includes purchases of residential real estate loans, including the Firm's voluntary repurchases of certain delinquent loans from loan pools
as permitted by Government National Mortgage Association (“Ginnie Mae”) guidelines for the years ended December 31, 2022, 2021 and 2020. The Firm
typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable
requirements of Ginnie Mae, FHA, RHS, and/or VA.
Residential real estate
The following table provides information about retained
consumer loans, excluding credit card, by class.
Consumer, excluding credit card loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of scored residential mortgages, home equity
loans and lines of credit, auto and business banking loans,
with a focus on serving the prime consumer credit market.
The portfolio also includes home equity loans secured by
junior liens, prime mortgage loans with an interest-only
payment period, and certain payment-option loans that may
result in negative amortization.
Notes to consolidated financial statements
229
JPMorgan Chase & Co./2022 Form 10-K
Net gains/(losses) on sales of loans and lending-related commitments (including adjustments to record loans and lending-
related commitments held-for-sale at the lower of cost or fair value) recognized in noninterest revenue was $(186) million for
the year ended December 31, 2022 of which $(48) million was related to loans. Net gains/(losses) on sales of loans and
lending-related commitments was $261 million for the year ended December 31, 2021 of which $253 million was related to
loans. Net losses on sales of loans was $(36) million for the year ended December 31, 2020. In addition, the sale of loans may
also result in write downs, recoveries or changes in the allowance recognized in the provision for credit losses.
Gains and losses on sales of loans
December 31, (in millions)
Retained loans reclassified to held-for-sale (a)
18,268
Purchases
1,088
41,934
1,055
1,625
2,884
229
$
(b)(c)
Total
Wholesale
Credit card
$
Consumer, excluding
credit card
228
Retained loans reclassified to held-for-sale (a)
Sales
Sales
(in millions)
Year ended December 31,
Retained loans reclassified to held-for-sale (a)
2022
2,713
44,818
1,284
Purchases
Consumer, excluding
2021
(in millions)
Year ended December 31,
3,403
1,637
31,821
$
1,122
31,022
2,178
1,225
799
JPMorgan Chase & Co./2022 Form 10-K
$
515 (b)(c)
$
Total
Wholesale
Credit card
$
credit card
4,529 $
699
5,228 $
2,159 $
7,251
$
451
2,610 $
475
171,049 $
32,240
203,289 $
$
3,597 $
82
3,679 $
249,585
59,693
309,278
13,015 $
1,821
14,836 $
Other(a)
7,726
15,864 $
7,096
22,960 $
(in millions)
$
Total retained loans
Noninvestment-grade
32,121 $
$
Investment-grade
Loans by risk ratings
Total
Converted to
term loans
revolving
period
Prior to 2018
2018
2019
December 31, 2021
16,829
48,950 $
Term loans by origination year
2020
Revolving loans
JPMorgan Chase & Co./2022 Form 10-K
240
(a) Includes loans to financial institutions, states and political subdivisions, SPES, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB). Refer to Note
14 for more information on SPES.
$ 295,828
606
241,859
53,969
$
601
5
7,651
176,118 $
467
31,585
8,118 $ 207,703 $
$
3,868 $
218
4,086 $
2,885 $
935
3,820 $
7,580 $
6,125 $
1,455
17,829 $
2,399
20,228 $
26,782 $
16,905
43,687 $
$
2021
2020
2019
2018
2017
Prior to 2017
(in millions)
Within the
revolving
period
Total
Loans by risk ratings
Investment-grade
$
Noninvestment-grade
Total retained loans
Converted to
term loans
2021
(in millions)
Within the
$
153,309
$
987
$
154,296
0.99 %
0.48
8.71 %
1.04 %
2.74
0.50
236
JPMorgan Chase & Co./2022 Form 10-K
Other credit quality indicators
The following table provides information on other credit quality indicators for retained credit card loans.
(in millions, except ratios)
Geographic region (a)
December 31, 2022
December 31, 2021
California
Texas
$
28,154
768
$
27
59
1,356
1,230
184,379
64
182,489
1,420
36
1,266
$
796 $
185,175
1.40 %
0.67
12.56 %
4.52
Within the revolving period
December 31, 2021
Converted to term loans
(a)
Total
1.45 %
0.68
$
151,798
$
901
$
152,699
770
741
23,030
19,171
15,879
$
185,175
$
154,296
Percentage of portfolio based on carrying value with estimated refreshed FICO scores
Equal to or greater than 660
Less than 660
No FICO available
86.8 %
13.0
88.5 %
11.3
0.2
0.2
(a) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2022.
Loan modifications
The Firm may offer loan modification programs granting
concessions to credit card borrowers who are experiencing
financial difficulty. The Firm grants concessions for most of
the credit card loans under long-term programs. These
modifications involve placing the customer on a fixed
payment plan, generally for 60 months, and typically
include reducing the interest rate on the credit card.
Substantially all modifications under the Firm's long-term
programs are considered to be TDRs. Loans with short-term
or other insignificant modifications that are not considered
concessions are not TDRs.
If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm's standard charge-off policy. In most cases, the Firm
does not reinstate the borrower's line of credit.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
Year ended December 31,
(in millions, except
weighted-average data)
Balance of new TDRs (a)
Weighted-average interest rate of
loans - before TDR
Weighted-average interest rate of
loans after TDR
Total retained loans
59,554
70,878
All other
New York
Florida
15,046
12,652
12,905
10,412
Illinois
New Jersey
Ohio
Pennsylvania
Colorado
$
10,089
7,643
6,367
5,792
4,923
5,517
4,708
5,493
4,573
Arizona
4,487
3,668
8,530
$
696
$
December
31, 2021
(a)(b)(c)
Nonaccrual loans
$
129 $
Geographic region(d)
California
$
9,689 $
11,163
Texas
7,216
7,859
Florida
4,847
4,901
New York
4,345
5,848
Illinois
2,839
2,930
New Jersey
31, 2022
(in millions)
119
Total Auto and other
December
688
$ 2,259
$
133
$70,761
% of 30+ days past due to total
retained loans (a)
0.54 %
0.47 %
1.17 %
1.42 %
1.75 %
2,219
3.20 %
9.77 %
0.71 %
(a) At December 31, 2022 and 2021, auto and other loans excluded $153 million and $667 million, respectively, of PPP loans guaranteed by the SBA that
are 30 or more days past due. These amounts have been excluded based upon the SBA guarantee.
(d)
(b) Includes $252 million of loans originated in 2021 and $98 million of loans originated in 2020 in Business Banking under the PPP. PPP loans are
guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an
allowance for loan losses on these loans.
(c) Includes $4.4 billion of loans originated in 2021 and $1.0 billion of loans originated in 2020 in Business Banking under the PPP.
(d) Prior-period amount has been revised to conform with the current presentation.
234
JPMorgan Chase & Co./2022 Form 10-K
Nonaccrual and other credit quality indicators
The following table provides information on nonaccrual and
other credit quality indicators for retained auto and other
consumer loans.
0.75 %
2022
2,355
1,822
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.
The Firm generally originates new credit card accounts to
prime consumer borrowers. However, certain cardholders'
FICO scores may decrease over time, depending on the
performance of the cardholder and changes in the credit
score calculation.
The following tables provide information on delinquency, which is the primary credit quality indicator for retained credit card
loans.
(in millions, except ratios)
Loan delinquency
Current and less than 30 days past due
and still accruing
30-89 days past due and still accruing
90 or more days past due and still accruing
Total retained loans
Loan delinquency ratios
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
(in millions, except ratios)
Loan delinquency
Current and less than 30 days past due
and still accruing
30-89 days past due and still accruing
90 or more days past due and still accruing
Total retained loans
Loan delinquency ratios
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
(a) Represents TDRs.
Within the revolving period
December 31, 2022
Converted to term loans (a)
Total
$
181,793
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator. The
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
Credit card loan portfolio
Notes to consolidated financial statements
2,004
Georgia
1,708
1,748
Ohio
Louisiana
1,603
1,843
1,576
1,801
All other
Pennsylvania
Total retained loans
28,309
$
63,192 $
70,761
Loan modifications
Certain auto and other loan modifications are considered
to be TDRS as they provide various concessions to
borrowers who are experiencing financial difficulty. Loans
with short-term or other insignificant modifications that
are not considered concessions are not TDRS.
The impact of these modifications, as well as new TDRs,
were not material to the Firm for the years ended
December 31, 2022, 2021 and 2020. Additional
commitments to lend to borrowers whose loans have been
modified in TDRS as of December 31, 2022 and 2021
were not material.
(a) At December 31, 2022 and 2021, nonaccrual loans excluded $101
million and $506 million, respectively, of PPP loans 90 or more days
past due and guaranteed by the SBA, of which $76 million and $35
million, respectively, were no longer accruing interest based on the
guidelines set by the SBA. Typically the principal balance of the loans is
insured and interest is guaranteed at a specified reimbursement rate
subject to meeting the guidelines set by the SBA. There were no loans
that were not guaranteed by the SBA that are 90 or more days past
due and still accruing interest at December 31, 2022 and 2021.
(b) Generally, all consumer nonaccrual loans have an allowance. In
accordance with regulatory guidance, certain nonaccrual loans that
are considered collateral-dependent have been charged down to the
lower of amortized cost or the fair value of their underlying collateral
less costs to sell. If the value of the underlying collateral improves
subsequent to charge down, the related allowance may be negative.
(c) Interest income on nonaccrual loans recognized on a cash basis was
not material for the years ended December 31, 2022 and 2021.
(d) The geographic regions presented in this table are ordered based on
the magnitude of the corresponding loan balances at December 31,
2022.
JPMorgan Chase & Co./2022 Form 10-K
235
25,328
$
$
$
$
24,134 $
6,072
30,206 $
22,407 $ 14,773 $
5,602
3,032
28,009 $ 17,805 $
14,666 $
3,498
18,164 $
5,277 $
2,395
7,672 $
17,289
5,659
22,948
$
$
1,006 $
920
1,926 $
$
2
99,552
27,180
2
$
126,732
Secured by real estate
December 31, 2021
(in millions)
Term loans by origination year
Revolving loans
2021
2020
2019
Total retained loans
2018
Noninvestment-grade
Investment-grade
0.27
0.61
0.67
0.23
0.26
0.33
0.37
(a) At December 31, 2021 nonaccrual loans excluded $127 million of PPP loans 90 or more days past due and guaranteed by the SBA, predominantly in
commercial and industrial. At December 31, 2022 the amount excluded was not material.
(b) Includes loans to financial institutions, states and political subdivisions, SPES, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB). Refer to Note
14 for more information on SPES.
Secured by real estate
December 31, 2022
Term loans by origination year
Revolving loans
2022
2021
2020
2019
2018
Prior to 2018
Within the
revolving
period
Converted to
term loans
Total
Loans by risk ratings
$
2017
Prior to 2017
Within the
revolving
period
(in millions)
Commercial and industrial
December 31, 2022
Term loans by origination year
Within the
Revolving loans
Converted
revolving
2022
2021
2020
2019
2018
Prior to 2018
period
to term
loans
Total
Loans by risk ratings
Investment-grade
Noninvestment-grade
$
21,072 $
24,088
Notes to consolidated financial statements
239
JPMorgan Chase & Co./2022 Form 10-K
118,835
Converted to
term loans
Total
Loans by risk ratings
Investment-grade
$
Noninvestment-grade
Total retained loans
$
23,346 $
5,364
28,710 $
16,030 $
3,826
19,856 $
17,265 $
4,564
21,829 $
0.19
8,103 $
3,806
11,909 $
19,066 $
5,613
24,679 $
1,226 $
8
$
92,369
458
1
26,466
1,684 $
9
$
7,325 $
2,834
10,159 $
% of criticized nonaccrual to
total retained loans
2.39
2.60
2022
2021
Loans by risk ratings
Investment-grade
Commercial and industrial
2022
2021
Other (b)
2022
2021
Total retained loans
2022
2021
$
99,552 $ 92,369
$
76,275
$ 75,783
$ 249,585
$ 241,859
$ 425,412 $ 410,011
Noninvestment-grade:
Noncriticized
(in millions, except ratios)
December 31,
Secured by real estate
The following tables provide information on internal risk rating, which is the primary credit quality indicator for retained
wholesale loans.
2021
393 $
2020
818
19.86 %
17.75 %
18.04 %
Balance of loans that redefaulted
within one year of modification (b) $
4.13
5.14
4.64
34 $ 57 $ 110
(a) Represents the outstanding balance prior to modification.
(b) Represents loans modified in TDRs that experienced a payment default
in the periods presented, and for which the payment default occurred
within one year of the modification. The amounts presented represent
the balance of such loans as of the end of the quarter in which they
defaulted.
Criticized performing
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. Defaulted modified
credit card loans remain in the modification program and
continue to be charged off in accordance with the Firm's
standard charge-off policy.
237
Notes to consolidated financial statements
Wholesale loan portfolio
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the internal risk rating assigned to each loan. Risk ratings
are used to identify the credit quality of loans and
differentiate risk within the portfolio. Risk ratings on loans
consider the PD and the LGD. The PD is the likelihood that a
loan will default. The LGD is the estimated loss on the loan
that would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Management considers several factors to determine an
appropriate internal risk rating, including the obligor's debt
capacity and financial flexibility, the level of the obligor's
earnings, the amount and sources for repayment, the level
and nature of contingencies, management strength, and the
industry and geography in which the obligor operates. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., PD and LGD)
may differ as they reflect internal historical experiences and
assumptions. The Firm generally considers internal ratings
with qualitative characteristics equivalent to BBB-/Baa3 or
higher as investment grade, and these ratings have a lower
PD and/or lower LGD than non-investment grade ratings.
Noninvestment-grade ratings are further classified as
noncriticized and criticized, and the criticized portion is
further subdivided into performing and nonaccrual loans,
representing management's assessment of the collectibility
of principal and interest. Criticized loans have a higher PD
than noncriticized loans. The Firm's definition of criticized
aligns with the U.S. banking regulatory definition of
criticized exposures, which consist of special mention,
substandard and doubtful categories.
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with an actual or potential credit concern.
Refer to Note 4 for further detail on industry
concentrations.
238
JPMorgan Chase & Co./2022 Form 10-K
JPMorgan Chase & Co./2022 Form 10-K
418
Criticized nonaccrual(a)
23,272
53,969
1,963
178,258
2,054
150,343
$ 295,828
$ 603,670
$ 560,354
% of investment-grade to
total retained loans
78.55 %
77.73 %
45.49 %
52.02 %
80.70 %
81.76 %
70.47 %
73.17 %
% of total criticized to total
retained loans
3.08
3.34
5.96
5.40
0.58
0.52
59,693
$ 309,278
$ 145,691
$ 167,660
69,908
22,495
81,393
62,039
3,662
3,645
8,974
6,900
246
326
1,018
969
Total noninvestment-grade
57,888
1,106
699
162,553
136,974
770
13,742
11,315
759
27,180
Total retained loans
$ 126,732
26,466
$ 118,835
91,385
52,440
$ 1,832
$ 3,724
$ 7,531
Current estimated LTV ratios (f)(g)(h)
$
December 31, 2022
3,745 $
December 31, 2021
4,759
Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Less than 80% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
NO FICO/LTV available
U.S. government-guaranteed
Total retained loans
Weighted average LTV ratio (f) (i)
Weighted average FICO (g) (i)
Geographic region()
(in millions, except weighted-average data)
Nonaccrual loans (a)(b)(c)(d)(e)
California
The following table provides information on nonaccrual and other credit quality indicators for retained residential real estate
loans.
Notes to consolidated financial statements
182
284
883
1,449
$
6,409
$ 12,273
$ 224,795
(c)
0.02 %
0.07 %
0.26 %
0.65 %
0.47 %
3.18 %
0.27 %
3.80 %
1.02 %
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies which were not material at December 31, 2022 and
2021.
(b) At December 31, 2022 and 2021, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their
deferral period and performing according to their modified terms are generally not considered delinquent.
(c) Excludes mortgage loans that are 30 or more days past due insured by U.S. government agencies which were not material at December 31, 2022 and
2021. These amounts have been excluded based upon the government guarantee.
(d) Purchased loans are included in the year in which they were originated.
Approximately 37% of the total revolving loans are senior lien loans; the remaining balance are junior lien loans. The lien
position the Firm holds is considered in the Firm's allowance for credit losses. Revolving loans that have been converted to
term loans have higher delinquency rates than those that are still within the revolving period. That is primarily because the
fully-amortizing payment that is generally required for those products is higher than the minimum payment options available
for revolving loans within the revolving period.
JPMorgan Chase & Co./2022 Form 10-K
231
Nonaccrual loans and other credit quality indicators
New York
Florida
Texas
237,561
$
224,795
51 %
50 %
769
765
$
73,111
$
71,383
34,469
32,545
18,868
16,182
14,961
13,865
11,293
11,565
9,968
8,885
9,059
8,292
$
66
46
2,930
Illinois
Colorado
Washington
New Jersey
Massachusetts
Connecticut
All other
Total retained loans
2 $
174
2
6
~ 2
355
6
15
12,034
184
2,701
89
215,096
209,295
8,659
9,658
1,360
37
11
578
1,069
$50,794
$ 11,739
150 or more days past due
29
1
11
14
20
20
597
15
9,685
208
$ 235,963
914
1
6
10
7
480
4
175
684
Total retained loans
$ 39,964
$ 66,084
$ 43,335
30-149 days past due
$
5,589
$
2022
Residential real estate
The following tables provide information on delinquency, which is the primary credit quality indicator for retained residential
real estate loans.
December 31, 2022
Term loans by origination year(d)
(in millions, except ratios)
Loan delinquency(a)(b)
2022
2021
2020
2019
2018
$ 15,427
Prior to
2018
period
Converted to
term loans
Total
Current
$ 39,934
$ 66,072
$ 43,315
$ 15,397
$
6,339
$49,632
Revolving loans
Within the
revolving
7,106
$
$ 50,709
$ 68,742 $ 48,334
$ 18,428
$
30-149 days past due
150 or more days past due
Total retained loans
% of 30+ days past due to
total retained loans
13
23
27
-
11
21
7,929
27
25
$ 11,684
$ 49,147
$ 6,392
$ 11,807
$ 222,463
22
33
$ 68,755
$ 48,368
$ 18,476
$
7,981
Total
Converted to
term loans
revolving
period
Prior to
2017
$
5,608
$ 10,068
$ 237,561
% of 30+ days past due to
total retained loans (c)
0.08 %
0.02 %
0.05 %
0.19 %
0.42 %
2.07 %
6,366
0.34 %
0.66 %
December 31, 2021
Term loans by origination year (d)
Revolving loans
Within the
(in millions, except ratios)
(a)(b)
Loan delinquency
Current
2021
2020
2019
2018
2017
3.80 %
6,832
6,379
6,105
17
12
10
811
1
2
5
85
Total retained loans
$22,450
$ 20,573
$
11,525
$ 4,059
$ 1,500
$
596
$ 2,356
$
133
$ 63,192
% of 30+ days past due to total
retained loans (a)
1.17 %
33
68
100
24
53
2018
Prior to
2018
Within the
revolving
period
Revolving loans
Converted
to term
loans
Total
(b)
Current
$ 22,187
$ 20,212
$ 11,401
1.15 %
(b)
$ 1,467
$
578
$ 2,342
$
118
$62,296
30-119 days past due
263
308
120 or more days past due
$ 3,991
2019
0.83 %
2.20 %
720
35
88
$ 3,671
53
$ 1,800
$
666
$ 2,242
$
120
$69,589
31
21
12
6
1,123
1
1
5
7
49
Total retained loans
$ 35,515
$ 19,079
120 or more days past due
192
30-119 days past due
$ 7,443
3.02 %
0.59 %
11.28 %
1.18 %
(in millions, except ratios)
2021
2020
December 31, 2021
Term loans by origination year
2019
2018
1.68 %
2017
Revolving loans
Within the
revolving
period
Converted
to term
loans
Total
Loan delinquency
(c)
(c)
Current
$ 35,323
$ 18,324
Prior to
2017
Total retained loans
2020
December 31, 2022
3,902
Number of loans permanently modified
4,182
Concession granted:(a)
Interest rate reduction
Term or payment extension
Principal and/or interest deferred
Principal forgiveness
Other(b)
2021
6,246
4,588
2020
5,522
6,850
54 %
74 %
50 %
67
53
49
10
23
14
1
Number of loans approved for a trial modification
2022
Year ended December 31,
The Firm's proprietary modification programs as well as
government programs, including U.S. GSE programs,
generally provide various concessions to financially
troubled borrowers including, but not limited to, interest
rate reductions, term or payment extensions and delays of
principal and/or interest payments that would otherwise
have been required under the terms of the original
agreement. The following table provides information about
how residential real estate loans were modified in TDRS
under the Firm's loss mitigation programs described above
during the periods presented. This table excludes Chapter 7
loans where the sole concession granted is the discharge of
debt and loans with short-term or other insignificant
modifications that are not considered concessions.
5,432
5,242
46,915
43,899
$
237,561
$
224,795
(a) Includes collateral-dependent residential real estate loans that are charged down to the fair value of the underlying collateral less costs to sell. The Firm
reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed
by the borrower ("Chapter 7 loans") as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2022,
approximately 5% of Chapter 7 residential real estate loans were 30 days or more past due.
(b) Nonaccrual loans exclude mortgage loans insured by U.S. government agencies which were not material at December 31, 2022 and 2021.
(c) Generally, all consumer nonaccrual loans have an allowance. In accordance with regulatory guidance, certain nonaccrual loans that are considered
37
collateral-dependent have been charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of
the underlying collateral improves subsequent to charge down, the related allowance may be negative.
(e) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic.
(f) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a
minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the
extent available and forecasted data where actual data is not available. Current estimated combined LTV for junior lien home equity loans considers all
available lien positions, as well as unused lines, related to the property.
(g) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(h) Includes residential real estate loans, primarily held in LLCS in AWM that did not have a refreshed FICO score. These loans have been included in a FICO
band based on management's estimation of the borrower's credit quality.
(i) Excludes loans with no FICO and/or LTV data available.
(j) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2022.
232
JPMorgan Chase & Co./2022 Form 10-K
Loan modifications
Modifications of residential real estate loans, where the
Firm grants concessions to borrowers who are experiencing
financial difficulty are generally accounted for and reported
as TDRs. Loans with short-term or other insignificant
modifications that are not considered concessions are not
TDRs. The carrying value of new TDRs was $362 million,
$866 million and $819 million for the years ended
December 31, 2022, 2021 and 2020, respectively. There
were no additional commitments to lend to borrowers
whose residential real estate loans have been modified in
TDRS.
Nature and extent of modifications
(d) Interest income on nonaccrual loans recognized on a cash basis was $175 million and $172 million for the years ended December 31, 2022 and 2021,
respectively.
Term loans by origination year
2
36
66
Principal forgiven
2
1
5
Balance of loans that redefaulted within one year of permanent modification (a)
$
147
$
160 $
199
(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such
loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it will generally be liquidated through foreclosure or another similar type of liquidation transaction.
Redefaults of loans modified within the last twelve months may not be representative of ultimate redefault levels.
At December 31, 2022, the weighted-average estimated remaining lives of residential real estate loans permanently modified
in TDRs were six years. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and
involuntary (i.e., foreclosures and other forced liquidations).
JPMorgan Chase & Co./2022 Form 10-K
233
Notes to consolidated financial statements
Active and suspended foreclosure
At December 31, 2022 and 2021, the Firm had residential real estate loans, excluding those insured by U.S. government
agencies, with a carrying value of $565 million and $619 million, respectively, that were not included in REO, but were in the
process of active or suspended foreclosure.
Auto and other
The following tables provide information on delinquency, which is the primary credit quality indicator for retained auto and
other consumer loans.
(in millions, except ratios)
Loan delinquency
2022
2021
16
28
16
Principal deferred
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
(b) Includes variable interest rate to fixed interest rate modifications and payment delays that meet the definition of a TDR.
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans under the loss mitigation programs described above and about redefaults of certain loans
modified in TDRs for the periods presented. The following table presents only the financial effects of permanent modifications
and do not include temporary concessions offered through trial modifications. This table also excludes Chapter 7 loans where
the sole concession granted is the discharge of debt and loans with short-term or other insignificant modifications that are not
considered concessions.
Year ended December 31,
(in millions, except weighted average data)
2022
Weighted-average interest rate of loans with interest rate reductions - before TDR
Weighted-average interest rate of loans with interest rate reductions - after TDR
4.75 %
3.35
2021
4.54 %
2.92
2
2020
5.09 %
3.28
22
23
22
38
38
39
$
1
$
$
5
Weighted-average remaining contractual term (in years) of loans with term or payment extensions - before TDR
Weighted-average remaining contractual term (in years) of loans with term or payment extensions - after TDR
Charge-offs recognized upon permanent modification
$
829
40,087 $
47,267
Converted to
term loans
revolving
period
Prior to
2017
2017
2018
2019
2020
2021
Within the
Term loans by origination year
December 31, 2021
Commercial and industrial
(in millions)
$ 167,660
83
87,354 $
91,385
82
76,275
$
1
$
989
1,014
2,003 $
(a)
748 $
525
1,273 $
1,995 $
2,506
4,501 $
3,045 $
3,459
6,504 $
8,338 $
12,444
20,782 $
45,160 $
Total
Loans by risk ratings
Revolving loans
Investment-grade
Revolving loans
Term loans by origination year
December 31, 2022
Other (a)
(b) At December 31, 2021, $1.1 billion of the $1.3 billion total PPP loans in the wholesale portfolio were commercial and industrial. Of the $1.1 billion,
$698 million were originated in 2021 and $396 million were originated in 2020.
(b)
145,691
75 $
76,679 $
$
1,249
2,038 $
3,446 $
69,908
74
(a) At December 31, 2022, $139 million of the $140 million total PPP loans in the wholesale portfolio were commercial and industrial. Of the $139 million,
$58 million were originated in 2021, and $81 million were originated in 2020. PPP loans are guaranteed by the SBA and considered investment-grade.
Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan
losses on these loans.
$
75,783
$
Noninvestment-grade
Total retained loans
21,342 $
19,314
40,656 $
6,268 $
7,112
13,380 $
3,609 $
4,559
8,168 $
$
1,108 $
930
819
430
$
41,367 $
35,312
1,269 $
2,177
1
22,204
$
2,116
$
11,200
8,792
$
Allowance for loan losses by impairment methodology
Total allowance for credit losses (b)
$
96
$
NA
NA
NA
Total allowance for investment securities
2,382
2,306
$
-
$
Asset-specific (c)
$
$
(f)
223
76
Total retained loans
Portfolio-based
Loans by impairment methodology
Asset-specific (c)
19,726
$
6,486
$
11,200
$
(624) $
2,040
Total allowance for loan losses
19,660
6,019
10,977
2,664
Portfolio-based
66
$
467
$
$
$
1
1
2,040
$
4
3
Collateral-dependent loans
Other
6,189
2,293
3,353
543
2,853
181
2,403
269
Provision for loan losses
Net charge-offs
(1,473)
(141)
(789)
(543)
Gross recoveries collected
$
11,200
$
6,486
1
Other
120
7) - 157
(37)
Provision for lending-related commitments
NA
2,261
$
2,148
NA
Ending balance at December 31,
NA
Cumulative effect of a change in accounting principle (a)
$
$
113
$
Beginning balance at January 1,
Allowance for lending-related commitments
Ending balance at December 31,
19,726
$
ΝΑ
Net charge-offs
2,216
11,978
2020
Credit card
Consumer,
excluding
credit card
Total
Wholesale
2021
Credit card
excluding
credit card
Consumer,
(table continued from previous page)
related commitments. Prior-period amount for wholesale lending-related commitments, including the amount not subject to allowance, has been revised
to conform with the current presentation.
JPMorgan Chase & Co./2022 Form 10-K
244
(e) At December 31, 2022, 2021 and 2020, lending-related commitments excluded $13.1 billion, $15.7 billion and $19.5 billion, respectively, for the
consumer, excluding credit card portfolio segment; $821.3 billion, $730.5 billion and $658.5 billion, respectively, for the credit card portfolio segment;
and $9.8 billion, $32.1 billion and $25.3 billion, respectively, for the wholesale portfolio segment, which were not subject to the allowance for lending-
(a) Represents the impact to allowance for credit losses upon the adoption of CECL on January 1, 2020. Refer to Note 1 for further information.
(b) At December 31, 2022 excludes an allowance for credit losses associated with certain accounts receivable in CIB of $21 million.
(c) Includes collateral dependent loans, including those considered TDRs and those for which foreclosure is deemed probable, modified PCD loans and non-
collateral dependent loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that have been
placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loans modified, or reasonably expected to be
modified, in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(d) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
$ 482,566
462,143
$
$
20,423
$
Wholesale
Total
$
3,636
5,077
805
4,564
283
3,651
630
5,517
$
5,683
$
Total lending-related commitments
2,538
297
ΝΑ
ΝΑ
ΝΑ
$
28,328
$
6,892
$
17,800
$
NA
$
482,111
455
(17)
4,049
$
16
464
3,585
$
(33)
$
Loans measured at fair value of collateral less cost to sell
$
14,963
1,074,635
603,670 $ 1,089,598
$
601,481
184,379
185,175
$
300,753
$
288,775
2,189
$
796
$
Allowance for lending-related commitments by impairment methodology
Asset-specific
$
- $ - $ 9
$
455
- $ - $ 4
20,423
Portfolio-based (e)
$
Asset-specific
Lending-related commitments by impairment methodology
2,382
$
2,306
461,688
$
76
$
Total allowance for lending-related commitments(d)
2,292
4,326
76
Portfolio-based
90
$
90
$
322
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry, portfolio, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors. All of these
estimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
812
70
942 $
27
15
1
90 or more days past due and still accruing (b)
3,114
$ 599,009 $ 554,980
2,544
1,590
1,015
1,193
1,127
331
Current and less than 30 days past due and still accruing $ 126,083 $ 118,163 $ 165,415 $ 143,459 $ 307,511 $ 293,358
30-89 days past due and still accruing
402
Loan delinquency
Total retained loans
$ 603,670 $ 560,354
$ 479,589 $ 437,931
124,081 122,423
$ 126,732 $ 118,835 $ 167,660 $ 145,691 $ 309,278 $ 295,828
42,336
3,103
53
121
154
206
Commercial
and industrial
2021
2022
Secured by real estate
(in millions)
December 31,
The following table provides information on retained wholesale nonaccrual loans.
Nonaccrual loans
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) Represents loans that are considered well-collateralized and therefore still accruing interest.
(c) At December 31, 2021 nonaccrual loans excluded $127 million of PPP loans 90 or more days past due and guaranteed by the SBA, predominantly in
commercial and industrial. At December 31, 2022 the amount excluded was not material.
$ 603,670 $ 560,354
$ 123,740 $ 115,732 $ 125,324 $ 106,449 $ 230,525 $ 215,750
2,992
39,242
78,753
80,078
$ 167,660 $ 145,691 $ 309,278 $ 295,828
Total retained loans
2,054
1,963
759
699
969
1,018
326
246
Criticized nonaccrual (c)
$ 126,732 $ 118,835
2022
2022
2021
2022
2021
2022
$ 47,593
1,992
4.19 %
195 $
0.41 %
$
$ 79,139 $ 73,801
1,671
2.26 %
91
0.12 %
51 $
0.06 %
% of criticized nonaccrual loans to total retained loans secured by real estate
$
Criticized nonaccrual
1,916
2.42 %
% of criticized to total retained loans secured by real estate
2021
2022
Criticized
Retained loans secured by real estate
(in millions, except ratios)
December 31,
Total retained loans secured
by real estate
Other Commercial
Multifamily
The following table presents additional information on retained loans secured by real estate within the Wholesale portfolio,
which consists of loans secured wholly or substantially by a lien or liens on real property at origination. Multifamily lending
includes financing for acquisition, leasing and construction of apartment buildings. Other commercial lending largely includes
financing for acquisition, leasing and construction, largely for office, retail and industrial real estate. Included in secured by
real estate loans is $6.4 billion and $5.7 billion as of December 31, 2022 and 2021, respectively, of construction and
development loans made to finance land development and on-site construction of commercial, industrial, residential, or farm
buildings.
$ 45,034
2,300
5.11 %
235
0.52 %
$ 126,732
3,908
2021
$ 118,835
3.08 %
Total
retained loans
Other
2022
2021
2022
2021
2022
Secured by real estate
Commercial
and industrial
Total non-U.S.
2021
Total U.S.
(in millions)
December 31,
The following table provides information on the geographic distribution and delinquency for retained wholesale loans.
Geographic distribution and delinquency
0.27 %
0.19 %
326
246 $
$
3,971
3.34 %
Loans by geographic distribution (a)
3,192
2021
2022
Allowance for credit losses and related information
Notes to consolidated financial statements
243
JPMorgan Chase & Co./2022 Form 10-K
4,902
(1,642)
954
The asset-specific component of the allowance for loans
that have been or are expected to be modified in TDRS
incorporates the effect of the modification on the loan's
expected cash flows (including forgone interest, principal
forgiveness, as well as other concessions), and also the
potential for redefault. For residential real estate loans
modified in or expected to be modified in TDRs, the Firm
develops product-specific probability of default estimates,
which are applied at a loan level to compute expected
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about housing prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in or expected to be modified in TDRs, expected losses
incorporate projected delinquencies and charge-offs based
on the Firm's historical experience by type of modification
program. For wholesale loans modified or expected to be
modified in TDRs, expected losses incorporate
management's expectation of the borrower's ability to
repay under the modified terms.
recognized (for recoveries of prior charge-offs associated
with improvements in the fair value of collateral).
The Firm generally measures the asset-specific allowance as
the difference between the amortized cost of the loan and
the present value of the cash flows expected to be collected,
discounted at the loan's original effective interest rate.
Subsequent changes in impairment are generally
recognized as an adjustment to the allowance for loan
losses. For collateral-dependent loans, the fair value of
collateral less estimated costs to sell is used to determine
the charge-off amount for declines in value (to reduce the
amortized cost of the loan to the fair value of collateral) or
the amount of negative allowance that should be
To determine the asset-specific component of the
allowance, collateral-dependent loans (including those
loans for which foreclosure is probable) and larger,
nonaccrual risk-rated loans in the wholesale portfolio
segment are generally evaluated individually, while smaller
loans (both scored and risk-rated) are aggregated for
evaluation using factors relevant for the respective class of
assets.
Asset-specific component
The quantitative calculation is adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet reflected in the calculation. These adjustments are
accomplished in part by analyzing the historical loss
experience, including during stressed periods, for each
major product or model. Management applies judgment in
making this adjustment, including taking into account
uncertainties associated with the economic and political
conditions, quality of underwriting standards, borrower
behavior, credit concentrations or deterioration within an
industry, product or portfolio, as well as other relevant
internal and external factors affecting the credit quality of
the portfolio. In certain instances, the interrelationships
between these factors create further uncertainties.
The application of different inputs into the quantitative
calculation, and the assumptions used by management to
adjust the quantitative calculation, are subject to significant
management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
loan losses and the allowance for lending-related
commitments.
macroeconomic scenarios over an eight-quarter forecast
period, followed by a single year straight-line interpolation
to revert to long run historical information for periods
beyond the eight-quarter forecast period. The five
macroeconomic scenarios consist of a central, relative
adverse, extreme adverse, relative upside and extreme
upside scenario, and are updated by the Firm's central
forecasting team. The scenarios take into consideration the
Firm's macroeconomic outlook, internal perspectives from
subject matter experts across the Firm, and market
consensus and involve a governed process that incorporates
feedback from senior management across LOBS, Corporate
Finance and Risk Management.
a weighted average of five internally developed
JPMorgan Chase & Co./2022 Form 10-K
242
The portfolio-based component begins with a quantitative
calculation that considers the likelihood of the borrower
changing delinquency status or moving from one risk rating
to another. The quantitative calculation covers expected
credit losses over an instrument's expected life and is
estimated by applying credit loss factors to the Firm's
estimated exposure at default. The credit loss factors
incorporate the probability of borrower default as well as
loss severity in the event of default. They are derived using
Portfolio-based component
If an exposure does not share risk characteristics with other
exposures, the Firm generally estimates expected credit
losses on an individual basis, considering expected
repayment and conditions impacting that individual
exposure ("asset-specific component"). The asset-specific
component covers modified PCD loans, loans modified or
reasonably expected to be modified in a TDR, collateral-
dependent loans, as well as, risk-rated loans that have been
placed on nonaccrual status.
The majority of the Firm's credit exposures share risk
characteristics with other similar exposures, and as a result
are collectively assessed for impairment (“portfolio-based
component"). The portfolio-based component covers
consumer loans, performing risk-rated loans and certain
lending-related commitments.
Relevant risk characteristics for the wholesale portfolio
include risk rating, delinquency status, tenor, level and
type of collateral, LOB, geography, industry, credit
enhancement, product type, facility purpose, and
payment terms.
Relevant risk characteristics for the consumer portfolio
include product type, delinquency status, current FICO
scores, geographic distribution, and, for collateralized
loans, current LTV ratios.
The table below summarizes information about the allowances for credit losses, and includes a breakdown of loans and
lending-related commitments by impairment methodology. Refer to Note 10 for further information on the allowance for
credit losses on investment securities.
(Table continued on next page)
Year ended December 31,
(in millions)
Gross charge-offs
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Cumulative effect of a change in accounting principle (a)
16,386
$
4,371
$
•
10,250
1,765
$
Total
Wholesale
2022
Credit card
credit card
Consumer,
excluding
Beginning balance at January 1,
Allowance for loan losses
$
Other
•
Collective and Individual Assessments
1,345 $
286 $
473
212
487 $
604 $
365
686 $
332
1,018 $
326 $
72
$
254
172 $
74
246 $
$
Total nonaccrual loans (b)
Without an allowance (a)
$
With an allowance
Nonaccrual loans
2021
2022
Total
retained loans
2021
618
1,144
910
969 $
699 $
The estimate of expected credit losses includes expected
recoveries of amounts previously charged off or expected to
be charged off, even if such recoveries result in a negative
allowance.
versus other account activity. This allocation is made using
an approach that incorporates the payment application
requirements of the Credit Card Accountability
Responsibility and Disclosure Act of 2009, generally paying
down the highest interest rate balances first.
The expected life of each instrument is determined by
considering its contractual term, expected prepayments,
cancellation features, and certain extension and call
options. The expected life of funded credit card loans is
generally estimated by considering expected future
payments on the credit card account, and determining how
much of those amounts should be allocated to repayments
of the funded loan balance (as of the balance sheet date)
The allowance for loan losses and allowance for lending-
related commitments represents expected credit losses
over the remaining expected life of retained loans and
lending-related commitments that are not unconditionally
cancellable. The Firm does not record an allowance for
future draws on unconditionally cancellable lending-related
commitments (e.g., credit cards). Expected losses related to
accrued interest on credit card loans are considered in the
Firm's allowance for loan losses. However, the Firm does
not record an allowance on other accrued interest
receivables, due to its policy to write these receivables off
no later than 90 days past due by reversing interest
income.
Methodology for allowances for loan losses and lending-
related commitments
Determining the appropriateness of the allowance for credit
losses is complex and requires significant judgment by
management about the effect of matters that are inherently
uncertain. At least quarterly, the allowance for credit losses
is reviewed by the CRO, the CFO and the Controller of the
Firm. Subsequent evaluations of credit exposures,
considering the macroeconomic conditions, forecasts and
other factors then prevailing, may result in significant
changes in the allowance for credit losses in future periods.
The Firm's policies used to determine its allowance for loan
losses and its allowance for lending-related commitments
are described in the following paragraphs. Refer to Note 10
for a description of the policies used to determine the
allowance for credit losses on investment securities.
The income statement effect of all changes in the allowance
for credit losses is recognized in the provision for credit
losses.
the allowance for credit losses on investment securities,
which is reflected in investment securities on the
Consolidated balance sheets.
the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
⚫ the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
•
When calculating the allowance for loan losses and the
allowance for lending-related commitments, the Firm
assesses whether exposures share similar risk
characteristics. If similar risk characteristics exist, the Firm
estimates expected credit losses collectively, considering
the risk associated with a particular pool and the probability
that the exposures within the pool will deteriorate or
default. The assessment of risk characteristics is subject to
significant management judgment. Emphasizing one
characteristic over another or considering additional
characteristics could affect the allowance.
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses comprises:
Notes to consolidated financial statements
241
JPMorgan Chase & Co./2022 Form 10-K
The carrying value of TDRS was $936 million and $607 million as of December 31, 2022 and 2021, respectively.
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing
financial difficulty. Loans with short-term or other insignificant modifications that are not considered concessions are not TDRS
nor are loans for which the Firm has elected to suspend TDR accounting guidance under the option provided by the CARES Act.
New TDRs during the years ended December 31, 2022, 2021 and 2020 were $801 million, $881 million and $734 million,
respectively. New TDRS during the years ended December 31, 2022, 2021 and 2020 reflected the extension of maturity dates,
covenant waivers, receipt of assets in partial satisfaction of the loan and deferral of principal and interest payments,
predominantly in the Commercial and Industrial and Other loan classes. The impact of these modifications resulting in new
TDRS was not material to the Firm for the years ended December 31, 2022, 2021 and 2020.
Loan modifications
(a) When the discounted cash flows or collateral value equals or exceeds the amortized cost of the loan, the loan does not require an allowance. This typically
occurs when the loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(b) Interest income on nonaccrual loans recognized on a cash basis were not material for the years ended December 31, 2022 and 2021.
2,054
1,963 $
759 $
Note 13 - Allowance for credit losses
$
100
4,172
•
•
•
The Firm's other business segments are also involved with VIES (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
pages 250-251
page 250
pages 248-250
pages 248-250
pages 247-248
2022 Form 10-K
page references
Financing of municipal bond investments
Assisting clients in accessing the financial markets in
a cost-efficient manner and structuring transactions
to meet investor needs
Securitization of both originated and purchased
residential and commercial mortgages, and other
consumer loans
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
Activity
Municipal bond vehicles
Multi-seller conduits
Mortgage and other securitization trusts
Mortgage securitization trusts
CIB
CCB
Credit card securitization trusts
Line of Business
Transaction Type
Refer to Note 1 on page 164 for a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES.
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"Firm-sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE
is used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name;
or (4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB's maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIES (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm's investment securities portfolio.
In addition, CIB also invests in and provides financing and other services to VIES sponsored by third parties. Refer to pages
251-252 of this Note for more information on consolidated VIE assets and liabilities as well as the VIES sponsored by third
parties.
Chase
Total
interests
held by
JPMorgan
Other
Investment financial
securities assets
Trading
assets
securitization
VIES with
continuing
involvement
VIES
VIES
Assets held in
nonconsolidated
Assets
Total assets
held in
held by
consolidated
securitization securitization
JPMorgan Chase interest in securitized assets in
(c)(d)(e)
nonconsolidated VIES
Principal amount outstanding
Securitization-related (a)
Note 14 - Variable interest entities
December 31, 2022
(in millions)
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
receivables owned by those trusts of approximately 62%
and 57% for the years ended December 31, 2022 and
2021, respectively. The Firm did not retain any senior
securities and retained $1.5 billion of subordinated
securities in certain of its credit card securitization trusts at
both December 31, 2022 and 2021. The Firm's undivided
interests in the credit card trusts and securities retained are
eliminated in consolidation.
Notes to consolidated financial statements
247
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of
December 31, 2022 and 2021, the Firm held undivided
interests in Firm-sponsored credit card securitization trusts
of $6.1 billion and $7.1 billion, respectively. The Firm
maintained an average undivided interest in principal
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
JPMorgan Chase & Co./2022 Form 10-K
The Firm consolidates the assets and liabilities of its
sponsored credit card trusts as it is considered to be the
primary beneficiary of these securitization trusts based on
the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
CCB's Card Services business may securitize originated
credit card loans, primarily through the Chase Issuance
Trust (the “Trust”). The Firm's continuing involvement in
credit card securitizations includes servicing the
receivables, retaining an undivided seller's interest in the
receivables, retaining certain senior and subordinated
securities and maintaining escrow accounts.
Credit card securitizations
Significant Firm-sponsored variable interest entities
The following tables present the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm's only continuing involvement is servicing the loans. The Firm's maximum loss exposure from retained and
purchased interests is the carrying value of these interests.
Residential mortgage:
JPMorgan Chase & Co./2022 Form 10-K
Refer to Critical Accounting Estimates Used by the Firm on
pages 149-152 for further information on the allowance for
credit losses and related management judgments.
Refer to Consumer Credit Portfolio on pages 110-115,
Wholesale Credit Portfolio on pages 116-126 for additional
information on the consumer and wholesale credit
portfolios.
Discussion of changes in the allowance
Notes to consolidated financial statements
245
JPMorgan Chase & Co./2022 Form 10-K
462,353
$
424,570
$
$
461,776
423,993
37,783
37,783
483,923 $
$
$ 454,335
$
29,588
$
483,159
453,571
29,588
577
$
577
$
The allowance for credit losses as of December 31, 2022
was $22.2 billion, reflecting a net addition of $3.5 billion
from December 31, 2021, consisting of:
•
$2.3 billion in wholesale, driven by deterioration in the
Firm's macroeconomic outlook and loan growth,
predominantly in CB and CIB, and
• $1.2 billion in consumer, predominantly driven by Card
Services, reflecting higher outstanding balances and
deterioration in the Firm's macroeconomic outlook,
partially offset by a reduction in the allowance related to
a decrease in uncertainty associated with borrower
behavior as the effects of the pandemic gradually recede.
Deterioration in the Firm's macroeconomic outlook included
both updates to the central scenario in the fourth quarter of
2022, which now reflects a mild recession, as well as the
impact of the increased weight placed on the adverse
scenarios beginning in the first quarter of 2022 due to the
effects associated with higher inflation, changes in
monetary policy, and geopolitical risks, including the war in
Ukraine.
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) The year over year growth in U.S. real GDP in the forecast horizon of
the central scenario is calculated as the percentage change in U.S. real
GDP levels from the prior year.
2.1 %
2.8 %
3.1 %
YoY growth in U.S. real GDP (b)
3.9 %
4.0 %
4.2 %
2Q23
4Q22
2022
246
Assumptions at December 31, 2021
0.4 %
5.0 %
4.3 %
3.8 %
1.5 %
2Q24
4Q23
2Q23
Assumptions at December 31, 2022
U.S. unemployment rate (a)
U.S. unemployment rate (a)
YoY growth in U.S. real GDP(b)
The Firm's central case assumptions reflected U.S.
unemployment rates and U.S. real GDP as follows:
The Firm's allowance for credit losses is estimated using a
weighted average of five internally developed
macroeconomic scenarios. The adverse scenarios
incorporate more punitive macroeconomic factors than the
central case assumptions provided in the table below,
resulting in a weighted average U.S. unemployment rate
peaking at 5.6% in the second quarter of 2024, and a
1.2% lower U.S. real GDP exiting the second quarter of
2024.
- %
Prime/Alt-A and option ARMS
$
55,362 $
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by Treasury and CIO or CCB, when
considered together with the servicing arrangements
entered into by CCB, the Firm is deemed to be the primary
beneficiary of certain securitization trusts.
The Firm does not consolidate residential mortgage
securitizations (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. Treasury and CIO
may choose to invest in these securitizations as well. For
commercial mortgage securitizations the power to direct
the significant activities of the VIE generally is held by the
servicer or investors in a specified class of securities
("controlling class"). The Firm generally does not retain an
interest in the controlling class in its sponsored commercial
mortgage securitization transactions.
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both U.S. GSES and government agency
sponsored VIES, which are backed by residential mortgages.
The Firm's consolidation analysis is largely dependent on
the Firm's role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIES.
Year ended December 31,
(in millions)
Transfers of securities to VIES
U.S. GSES and government
agencies
2022
2021
2020
$ 16,128 $ 53,923 $ 46,123
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
The Firm did not transfer any private label securities to re-
securitization VIES during 2022, 2021 and 2020, and
retained interests in any such Firm-sponsored VIES as of
December 31, 2022 and 2021 were not material.
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored re-securitizations and generally
purchases these interests in the secondary market. In these
circumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the re-
securitization trust, either because it was not involved in
the initial design of the trust, or the Firm was involved with
an independent third-party sponsor and demonstrated
shared power over the creation of the trust; therefore, the
Firm does not consolidate the re-securitization VIE.
JPMorgan Chase & Co./2022 Form 10-K
249
Notes to consolidated financial statements
The following table presents information on the Firm's
interests in nonconsolidated re-securitization VIES.
Nonconsolidated
re-securitization VIES
2022
December 31,
(in millions)
U.S. GSES and government agencies
Interest in VIES
$
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
Residential mortgage
JPMorgan Chase & Co./2022 Form 10-K
248
42,522
13,123
$
10,115
974 $
2
684 $
95 $
1,753
2
93,698
671
Total
2,580 $
$ 216,745 $
146,335
$
1,647 $
3,274
3,958 $
506
4,451
601 $
6,206
(a) Excludes U.S. GSES and government agency securitizations and re-securitizations, which are not Firm-sponsored.
(b) Consists of securities backed by commercial real estate loans and non-mortgage-related consumer receivables.
(c) Excludes the following: retained servicing; securities retained from loan sales and securitization activity related to U.S. GSES and government agencies;
interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities; senior securities
of $134 million and $145 million at December 31, 2022 and 2021, respectively, and subordinated securities which were not material at both
December 31, 2022 and 2021, which the Firm purchased in connection with CIB's secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2022 and 2021, 84% and 79%, respectively, of the Firm's retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated "A" or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $2.6 billion and $1.6 billion of investment-grade retained interests at December 31, 2022
and 2021, respectively, and $131 million of noninvestment-grade retained interests at December 31, 2021; noninvestment-grade retained interests were
not material at December 31, 2022. The retained interests in commercial and other securitization trusts consisted of $5.8 billion and $3.5 billion of
investment-grade retained interests, and $1.1 billion and $929 million of noninvestment-grade retained interests at December 31, 2022 and 2021,
respectively.
(f) Prior-period amount has been revised to conform with the current presentation.
969 $
2021
1,947
As of December 31, 2022 and 2021, the Firm did not
consolidate any U.S. GSE and government agency re-
securitization VIES or any Firm-sponsored private-label re-
securitization VIES.
670 $
7,291 $
1,642 $
$
6,931
670
5,373
888
10
-
-
10
9,603
2,662
1,918 $
744 $
$
37,058
1,743
127,037
165,838
754 $
$ 229,986 $
Total
164,915
Commercial and other (b)
9,709
Subprime
754 $
$
$
December 31, 2021
Securitization-related (a)
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIEs include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits.
250
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$13.8 billion and $13.7 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2022 and 2021, respectively, which have
been eliminated in consolidation. The Firm's investments
reflect the Firm's funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$10.6 billion and $13.4 billion at December 31, 2022 and
2021, respectively, and are reported as off-balance sheet
lending-related commitments in other unfunded
commitments to extend credit. Refer to Note 28 for more
information on off-balance sheet lending-related
commitments.
Municipal bond vehicles
Municipal bond vehicles or tender option bond ("TOB")
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("floaters") and (2) inverse floating-rate
residual interests (“residuals”). The floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the residual is held by a third-party
investor are typically known as customer TOB trusts, and
non-customer TOB trusts are transactions where the
Residual is retained by the Firm. Customer TOB trusts are
sponsored by a third party. The Firm serves as sponsor for
all non-customer TOB transactions. The Firm may provide
various services to a TOB trust, including remarketing
agent, liquidity or tender option provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the floaters, conducting the initial placement and
remarketing tendered floaters. The remarketing agent may,
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2022 and 2021.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
perform is conditional and is limited by certain events
JPMorgan Chase & Co./2022 Form 10-K
Commercial and other (b)
$
Prime/Alt-A and option ARMS
Subprime
(in millions)
Residential mortgage:
Other
Investment financial
securities assets
Trading
assets
securitization
VIES with
continuing
involvement
Total
interests
nonconsolidated
Assets held in
nonconsolidated VIES
JPMorgan Chase interest in securitized assets in
(c)(d)(e)
VIES
VIES
Assets
Total assets
held in
held by
consolidated
securitization securitization
Principal amount outstanding
held by
JPMorgan
Chase
$
55,085 $
10,966
150,694
$
$
187
$
2,261
$
2,148
$
$
113
$
(1)
(1)
1
1
1,121
1,079
42
(149)
(74)
(75)
98
(35)
133
ΝΑ
ΝΑ
$
2,222
$
2,409
$
30,815
$
9,114
$
17,800
$
3,823
18,689 $
$
6,519
$
ΝΑ
10,250
1,878
$
78
$
ΝΑ
ΝΑ
ΝΑ
42
$
ΝΑ
ΝΑ
ΝΑ
$
(665)
ΝΑ
$
4,431
10,886
974
(9,071)
(2,375)
(4,838)
(1,858)
5,259
799
4,286
174
2,865
142
2,712
11
(1,577)
(155)
(791)
(631)
(1,699)
(141)
(939)
764
(619)
6,836
16,291
(2)
(4)
(6)
1,179
12
2 $ - $
2,409 $
$
2,222
$
$
187
$
28,328
$
6,892
1,191
$
$
3,636
$
16,386
$
$
10,250
$
1,765
$
1
1
17,800
$
4,371
$
$
167
$
- $ - $ 167
$
5,144
188
209
$
76
$
$
- $
133
4,956
617
$
38
$
$
33
4,472
$
960,506
$
514,947
143,432 $
$
71 $
5,089
302,127
- $
114
$
764
$
313
$
2,409
$
2,222
2
- $
$
187
.
$
$
2,148
13 $ - $ 2,
113
$
2,295
187
2,094
1,981
113
114
$
2,261
$ 1,010,206 $
2,108
511,341
16,386 $
$
4,371
$
10,250
$
1,765
$
27,020
6,210
17,167
3,643
3,636
16,475
2,430
1,308
$
682
$
633
$
938,877
263
$
(7)
(89) $
9,937
$
4,108
$
3,606
21,629
285,479
17,800
142,057
$
1,375
$
$
17,161 $
993,045
$
2,255
558,099
560,354
$
16,648
154,296
$
295,556
$
153,309
6,892
281,637
$
28,328
$ 13,919 $
987 $
1.8
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and
expected prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a
short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right
to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if
they were not made in accordance with applicable rules and agreements.
JPMorgan Chase & Co./2022 Form 10-K
Notes to consolidated financial statements
Net mortgage servicing revenue:
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2022, 2021 and 2020.
Year ended December 31,
(in millions)
2022
Operating revenue:
CCB mortgage fees and related
income
Production revenue
257
1.6
$
1,325
Total changes in valuation due to inputs and assumptions
2,039
98
2021
28
Fair value at December 31,
$
7,973
448
$
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
Third-party mortgage loans serviced at December 31, (in billions)
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)
(a) Includes excess MSRS transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS") for the years ended December
31, 2022 and 2020. In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining
balance of those SMBS as trading securities.
2,039 $
1,535
584
0.8
98
$
(1,540)
3,276
(1,540)
1,298
520
5,494 $
$ 497
28
2020
Change in derivative fair value
and other
(1,946)
(623)
1,522
Total risk management
93
(525)
(18)
Total net mortgage servicing
revenue
739
(56)
450
2,159
(306)
Total CCB mortgage fees and related
income
1,236
(306)
17
value due to other inputs and
assumptions in model(b)
Other changes in MSR asset fair
$ 2,629
Loan servicing revenue
1,582
1,257
1,367
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
$ 2,215
(936)
646
(788)
469
(899)
468
Risk management:
Changes in MSR asset fair value
due to market interest rates
and other(a)
2,022
404 (1,568)
Total operating revenue
17
Notes to consolidated financial statements
(117)
The Firm's goodwill was not impaired at December 31,
2022, 2021 and 2020.
The goodwill impairment test is generally performed by
comparing the current fair value of each reporting unit with
its carrying value. If the fair value is in excess of the
carrying value, then the reporting unit's goodwill is
considered not to be impaired. If the fair value is less than
the carrying value, then an impairment charge is recognized
for the amount by which the reporting unit's carrying value
exceeds its fair value, up to the amount of goodwill
allocated to that reporting unit.
The Firm uses the reporting units' allocated capital plus
goodwill and other intangible assets as a proxy for the
carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the LOBS which takes into consideration a variety of factors
including capital levels of similarly rated peers and
applicable regulatory capital requirements. Proposed LOB
capital levels are incorporated into the Firm's annual
budget process, which is reviewed by the Firm's Board of
Directors and Operating Committee. Allocated capital is
further reviewed at least annually and updated as needed.
The primary method the Firm uses to estimate the fair value
of its reporting units is the income approach. This approach
projects cash flows for the forecast period and uses the
perpetuity growth method to calculate terminal values.
These cash flows and terminal values, which are based on
the reporting units' annual budgets and forecasts are then
discounted using an appropriate discount rate. The discount
rate used for each reporting unit represents an estimate of
the cost of equity for that reporting unit and is determined
considering the Firm's overall estimated cost of equity
(estimated using the Capital Asset Pricing Model), as
adjusted for the risk characteristics specific to each
reporting unit (for example, for higher levels of risk or
uncertainty associated with the business or management's
forecasts and assumptions). To assess the reasonableness
of the discount rates used for each reporting unit,
management compares the discount rate to the estimated
cost of equity for publicly traded institutions with similar
businesses and risk characteristics. In addition, the
weighted average cost of equity (aggregating the various
reporting units) is compared with the Firm's overall
estimated cost of equity to ensure reasonableness. The
valuations derived from the discounted cash flow analysis
are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the overall reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
The Firm also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, the Firm considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the Firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
JPMorgan Chase & Co./2022 Form 10-K
255
Unanticipated declines in business performance, increases
in credit losses, increases in capital requirements, as well as
deterioration in economic or market conditions, adverse
regulatory or legislative changes or increases in the
estimated market cost of equity, could cause the estimated
fair values of the Firm's reporting units to decline in the
future, which could result in a material impairment charge
to earnings in a future period related to some portion of the
associated goodwill.
Mortgage servicing rights
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRS are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread (“OAS")
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
256
JPMorgan Chase & Co./2022 Form 10-K
The fair value of MSRs is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRS
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
and certain derivatives (e.g., those for which the Firm
receives fixed-rate interest payments) increase in value
when interest rates decline. JPMorgan Chase uses
combinations of derivatives and securities to manage the
risk of changes in the fair value of MSRs. The intent is to
offset any interest-rate related changes in the fair value of
MSRs with changes in the fair value of the related risk
management instruments.
The following table summarizes MSR activity for the years ended December 31, 2022, 2021 and 2020.
2022
Goodwill impairment testing
2021
(c) Prior-period amounts have been revised to conform with the current
presentation.
(a) For 2022, represents estimated goodwill associated with the
acquisitions of Global Shares PLC in AWM, Frosch Travel Group, LLC
and Figg, Inc. in CCB, and Renovite Technologies, Inc. and Volkswagen
Payments S.A. in CIB. For 2021, represents goodwill associated with
the acquisitions of Nutmeg in Corporate, OpenInvest and Campbell
Global in AWM, and Frank and The Infatuation in CCB. For 2020,
represents goodwill associated with the acquisitions of cxLoyalty in
CCB and 55ip in AWM.
Other (b)
Balance at December 31,
3,079
2022
2021
$ 50,315
$ 49,248
2020
$ 47,823
(c)
1,426
(79)
1,073
1,412
(c)
$ 51,662
(6)
$ 50,315
13
$ 49,248
(b) Predominantly foreign currency adjustments.
2020
$
5,494 $ 3,276 $
(936)
(788)
(899)
2,022
404
(1,568)
Changes in valuation due to other inputs and assumptions:
Projected cash flows (e.g., cost to service)
Discount rates
Prepayment model changes and other (c)
14
109
(54)
-
199
3
(415)
1,016
2,908
1,376
(176)
4,699
As of or for the year ended December 31, (in millions, except where otherwise noted)
Fair value at beginning of period
MSR activity:
Originations of MSRs
Purchase of MSRS
Disposition of MSRs (a)
Net additions/(dispositions)
Changes due to collection/realization of expected cash flows
Total changes in valuation due to other inputs and assumptions
Changes in valuation due to inputs and assumptions:
798
1,659
944
1,400
1,363
248
(822)
(114)
Changes due to market interest rates and other (b)
All other
Supplemental cash flow information
11
At December 31, 2022, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancellable leases, predominantly operating leases for
premises and equipment used primarily for business
purposes. These leases generally have terms of 20 years or
less, determined based on the contractual maturity of the
lease, and include periods covered by options to extend or
terminate the lease when the Firm is reasonably certain
that it will exercise those options. All leases with lease
terms greater than twelve months are reported as a lease
liability with a corresponding right-of-use ("ROU") asset.
None of these lease agreements impose restrictions on the
Firm's ability to pay dividends, engage in debt or equity
financing transactions or enter into further lease
agreements. Certain of these leases contain escalation
clauses that will increase rental payments based on
maintenance, utility and tax increases, which are non-lease
components. The Firm elected not to separate lease and
non-lease components of a contract for its real estate
leases. As such, real estate lease payments represent
payments on both lease and non-lease components.
Operating lease liabilities and ROU assets are recognized at
the lease commencement date based on the present value
of the future minimum lease payments over the lease term.
The future lease payments are discounted at a rate that
estimates the Firm's collateralized borrowing rate for
financing instruments of a similar term and are included in
accounts payable and other liabilities. The operating lease
ROU asset, included in premises and equipment, also
includes any lease prepayments made, plus initial direct
costs incurred, less any lease incentives received. Rental
expense associated with operating leases is recognized on a
straight-line basis over the lease term, and generally
included in occupancy expense in the Consolidated
statements of income.
The following tables provide information related to the
Firm's operating leases:
December 31,
(in millions, except where otherwise noted)
Right-of-use assets
Lease liabilities
Weighted average remaining lease term (in
years)
Weighted average discount rate
Cash paid for amounts included in the
measurement of lease liabilities - operating
cash flows
2022
2021
$
7,782 $ 7,888
8,183
8,328
8.4
3.55 %
8.5
3.40 %
$
Firm as lessee
1,613 $
Note 18 - Leases
259
317
2026
178
30
208
2027
131
897
1,028
After 5 years
572
109
681
Total
$ 78,122
$ 76,499
$ 154,621
Notes to consolidated financial statements
1,656
Supplemental non-cash information
Right-of-use assets obtained in exchange
for operating lease obligations
Total future minimum lease payments
Less: Imputed interest
Total
$
1.572
1,433
1,273
1,034
887
3,382
9,581
(1,398)
$
8,183
In addition to the table above, as of December 31, 2022,
the Firm had additional future operating lease
commitments of $588 million that were signed but had not
yet commenced. These operating leases will commence
between 2023 and 2026 with lease terms up to 21 years.
Business combinations (a)
260
After 2027
2027
2026
2025
$ 1,435 $
1,167
Year ended December 31,
(in millions)
Rental expense
2022
2021
Gross rental expense
17
$
$
2,079 $
(119)
1,960 $
2,086
(129)
1,957
The following table presents future payments under
operating leases as of December 31, 2022:
Year ended December 31, (in millions)
2023
2024
Sublease rental income
Net rental expense
14
300
1,693
(a) Includes the impact of operational risk and regulatory capital.
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
258
JPMorgan Chase & Co./2022 Form 10-K
Note 16 - Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remainder of the lease
term, or estimated useful life of the improvements.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life.
Impairment is assessed periodically when events or changes
in circumstances indicate that the carrying value of an asset
may not be fully recoverable.
Note 17 Deposits
At December 31, 2022 and 2021, noninterest-bearing and
interest-bearing deposits were as follows.
December 31, (in millions)
U.S. offices
Total deposits in U.S. offices
Non-U.S. offices
2022
2021
Noninterest-bearing (included $26,363
and $8,115 at fair value)(a)
$ 644,902
$ 711,525 (b)
(433)
Interest-bearing (included $586 and
$629 at fair value)(a)
(655)
$ (341)
12
Mortgage fees and related income
$ 1,250 $ 2,170
$ 3,091
Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In the following table, the effect that a change in a
particular assumption may have on the fair value is
calculated without changing any other assumption. In
reality, changes in one factor may result in changes in
another, which would either magnify or counteract the
impact of the initial change.
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2022 and 2021, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
December 31,
(in millions, except rates)
Weighted-average prepayment speed
assumption (constant prepayment rate)
Impact on fair value of 10% adverse change
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread (a)
Impact on fair value of 100 basis points
adverse change
Impact on fair value of 200 basis points
adverse change
6.12 %
2022
2021
$ (183)
9.90 %
$ (210)
(356)
5.77 %
(404)
6.44 %
$ (225)
1,276,346
1,359,932 (b)
1,921,248
$ 64,622
77,907
$142,529
$ 38,970
54,535
$ 93,505
(a) Represents all time deposits in non-U.S. offices as these deposits
typically exceed the insured limit.
At December 31, 2022, the remaining maturities of
interest-bearing time deposits were as follows.
December 31, 2022
(in millions)
U.S.
Non-U.S.
Total
2023
$ 75,606
$ 75,088
$ 150,694
2024
1,335
358
2021
2022
Total
Non-U.S. offices (a)
2,071,457
Noninterest-bearing (included $1,398
and $2,420 at fair value) (a)
27,005
26,229
Interest-bearing (included $273 and
(a)
$169 at fair value)"
391,926
364,617
Total deposits in non-U.S. offices
2025
418,931
Total deposits
$2,340,179 $2,462,303
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. Refer to Note 3 for further discussion.
(b) Prior-period amounts have been revised to conform with the current
presentation.
At December 31, 2022 and 2021, time deposits in
denominations that met or exceeded the insured limit were
as follows.
December 31, (in millions)
JPMorgan Chase & Co./2022 Form 10-K
U.S. offices
390,846
Balance at beginning of period
Changes during the period from:
Total
The following table presents changes in the carrying
amount of goodwill.
283
987
1,361
179
85
264
118
118
$
490 $ 35,524 $
10,750 $
245 $
10,995
(a) Includes residential mortgage securitizations.
(b) Primarily includes purchased supply chain finance receivables and purchased auto loan securitizations in CIB.
(c) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(d) The assets of the consolidated VIES included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIES and exclude intercompany balances that eliminate in consolidation.
(e) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated VIES". The holders of these beneficial interests generally do not have recourse to the general credit of
JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $2.1 billion and $2.6 billion at December 31, 2022 and
2021, respectively.
(f) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
1,078
33,024
JPMorgan Chase & Co./2022 Form 10-K
2,010 $
(b)
71
11,210
19,955
$
2,397 $
6,198
1 $
2,398
41
6,239
2
2,011
1,976
-
1,976
Mortgage securitization entities (a)
955
32
Other
$
102 $
251
VIES sponsored by third parties
(e)
(d)
Residential Commercial
mortgage and other
r(e)
Residential
mortgage
(d)
$
10,218 $
9,036
$
23,876 $
14,917
$
7,103 $
Commercial
and other
6,624
(e)
Proceeds received from loan sales as financial
Residential Commercial
mortgage and other
Notes to consolidated financial statements
(d)
Principal securitized
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that own and operate affordable housing, energy, and other
projects. These entities are primarily considered VIES. A
third party is typically the general partner or managing
member and has control over the significant activities of the
tax credit vehicles, and accordingly the Firm does not
consolidate tax credit vehicles. The Firm generally invests in
these partnerships as a limited partner and earns a return
primarily through the receipt of tax credits allocated to the
projects. The maximum loss exposure, represented by
equity investments and funding commitments, was $30.2
billion and $26.8 billion, of which $10.6 billion and $9.4
billion was unfunded at December 31, 2022 and 2021,
respectively. The Firm assesses each project and to reduce
the risk of loss, may withhold varying amounts of its capital
investment until the project qualifies for tax credits. Refer
to Note 25 for further information on affordable housing
tax credits and Note 28 for more information on off-balance
sheet lending-related commitments.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third-party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle.
The Firm's maximum exposure as a liquidity provider to
customer TOB trusts at December 31, 2022 and 2021, was
$5.8 billion and $6.8 billion, respectively. The fair value of
assets held by such VIES at December 31, 2022 and 2021
was $8.2 billion and $10.5 billion respectively.
Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgages, credit card receivables,
commercial mortgages and other consumer loans. The
purposes of these securitization transactions were to satisfy
investor demand and to generate liquidity for the Firm.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
252
JPMorgan Chase & Co./2022 Form 10-K
Securitization activity
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2022,
2021 and 2020, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
2022
2021
2020
Year ended December 31,
(in millions)
All cash flows during the period: (a)
$
11,108
19,883
1
1,999 $
9,236
$
9,799
22,989
170
100 $
$
9,699
22,819
Firm-administered multi-seller conduits
$
Firm-sponsored credit card trusts
VIE program type
Total
liabilities
Other(f)
(e)
Beneficial
interests in
VIE assets"
(d)
assets"
2 $
Other(c)
2,001
9,275
JPMorgan Chase & Co./2022 Form 10-K
(b)
Other
210
67
143
791
10
781
Mortgage securitization entities (a)
1,242
10
1,232
2,096
7
2,089
Municipal bond vehicles
39
Total
Loans
Trading
assets
Liabilities
December 31, 2021
(in millions)
VIE program type
Trading assets Loans
Other(c)
Total
(d)
assets
Beneficial
interests in
VIE assets
(e)
Other (f)
Total
liabilities
Municipal bond vehicles
Firm-sponsored credit card trusts
Firm-administered multi-seller conduits
2,009
-
$
Assets
12,889
279 $
12,610 $
(in millions)
December 31, 2022
Liabilities
Assets
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2022 and 2021.
TOB trusts are considered to be variable interest entities.
The Firm consolidates non-customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the floaters, or it directly
purchases the tendered floaters.
Consolidated VIE assets and liabilities
instruments
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Holders of the floaters may “put," or tender, their floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the floaters to another investor, the
1,112
2,151 $ 34,411
263
1,437
161
161
$
550 $
37,112 $
$
Year ended December 31, (in
millions)
(b)(c)
Servicing fees collected
2021
2022
2021
Securitized loans
Residential mortgage:
Prime/Alt-A & option ARMS
$
Subprime
Commercial and other
37,058 $
1,743
127,037
(a)
42,522
$
511 $
(a)
1,937
$
Net liquidation losses /
(recoveries)
(29) $
90 days past due
2022
2022
2022
2021
Loans repurchased or option to repurchase (a)
$
839 $
10
1,022
5
Foreclosed government-guaranteed residential
mortgage loans (b)
Real estate owned
27
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
36
The table below includes information about components of and delinquencies related to nonconsolidated securitized financial
assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement as of
December 31, 2022 and 2021.
As of or for the year ended December 31,
(in millions)
Securitized assets
2021
(in millions)
(a)
10,115
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired, and can be
adjusted up to one year from the acquisition date as more
information is obtained about the fair value of assets
acquired and liabilities assumed. Subsequent to initial
recognition, goodwill is not amortized but is tested for
impairment during the fourth quarter of each fiscal year, or
more often if events or circumstances, such as adverse
changes in the business climate, indicate that there may be
an impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are generally
determined based on how the Firm's businesses are
managed and how they are reviewed. The following table
presents goodwill attributed to the reportable business
segments and Corporate.
December 31, (in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate (a)
Total goodwill
2022
2021
2020
$ 32,121 $31,474 $31,311
7,906 7,913
2,986 2,985
7,222 7,039
727
8,008
2,985
7,902
646
$ 51,662 $50,315 $49,248
(a) For goodwill in Corporate acquired in the third quarter of 2021, the
Firm elected to perform a qualitative impairment assessment, as
permitted under U.S. GAAP.
Note 15 - Goodwill and Mortgage servicing rights
16
JPMorgan Chase & Co./2022 Form 10-K
(a) Prior-period amounts have been revised to conform with the current presentation.
212
1,609
(1)
16
93,698
Total loans securitized
$ 165,838 $
146,335
$
948
1,671 $
1,456
50
288
5,002
$
20 $
320
254
December 31,
Loan delinquencies and liquidation losses
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 28, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) Represents prime mortgages. Excludes loan securitization activity related to U.S. GSES and government agencies.
(e) Includes commercial mortgage and other consumer loans.
Key assumptions used to value retained interests originated
during the year are shown in the table below.
4.7
8.2 %
Year ended December 31,
2022
2021
2020
Residential mortgage retained interest:
Weighted-average life (in years)
10.8
3.9
Weighted-average discount rate
4.0 %
3.3 %
Commercial mortgage retained interest:
Weighted-average life (in years)
(b) Predominantly includes Level 2 assets.
5.9
239
273
9,783 $
62
8,921
$
2
24,450 $
153
15,044
$
7,321 $
6,865
1
211
1
Cash flows received on interests
(a) Excludes re-securitization transactions.
489
285
578
801
6.0
Weighted-average discount rate
2.9 %
Proceeds from loan sales as
securities (a)(b)
48,096
103,286
80,186
Total proceeds received from
loan sales"
$
Gains/(losses) on loan sales" $
(d)(e)
48,118 $ 103,447 $ 80,231
(25) $
9 $
6
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. Refer to Note 12 for additional information.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm's Consolidated balance sheets
as of December 31, 2022 and 2021. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies.
(a) Includes securities from U.S. GSES and Ginnie Mae that are generally
sold shortly after receipt or retained as part of the Firm's investment
securities portfolio.
(b) Included in level 2 assets.
(c) Excludes the value of MSRS retained upon the sale of loans.
(d) Gains/(losses) on loan sales include the value of MSRs.
(e) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
Options to repurchase delinquent loans
45
161 $
22 $
$
1.2 %
6.9
3.0 %
Loans and excess MSRS sold to U.S. government-
sponsored enterprises and loans in securitization
transactions pursuant to Ginnie Mae guidelines
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRS on a nonrecourse basis,
predominantly to U.S. GSES. These loans and excess MSRs
are sold primarily for the purpose of securitization by the
U.S. GSES, who provide certain guarantee provisions (e.g.,
credit enhancement of the loans). The Firm also sells loans
into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 28 for additional
information about the Firm's loan sales- and securitization-
related indemnifications and Note 15 for additional
information about the impact of the Firm's sale of certain
excess MSRs.
JPMorgan Chase & Co./2022 Form 10-K
253
Notes to consolidated financial statements
$
The following table summarizes the activities related to
loans sold to the U.S. GSES, and loans in securitization
transactions pursuant to Ginnie Mae guidelines.
2022
2021
2020
Carrying value of loans sold
$
48,891 $ 105,035 $ 81,153
Proceeds received from loan
sales as cash
Year ended December 31,
(in millions)
62
Total
3,654 $
185,000
Series EE
169,625
169,625
Series DD
615.00
307.50
ΝΑ
9/1/2020
610.00
185,000
305.00
9/1/2020
1 $ - $ - $ 153.13
ΝΑ
- % 3/1/2020
2/12/2015
6/4/2015
7/29/2015
Series BB
Series AA
-- $ - $ -
Fixed-rate:
Series Y
2020
ΝΑ
2021
1,696
1,850
90,000
ΝΑ
3/1/2024
575.00
575.00
575.00
NA
12/1/2023
5.750
6.000
1,696 9/21/2018
1,850 1/24/2019
900 11/7/2019
3/17/2021
5/20/2021
7/29/2021
1,500
1,850
2,000
Series GG
2,000
1,850
185,000
185,000
Series LL
1,500
150,000
150,000
Series JJ
900
90,000
Series MM 200,000 200,000
600.00
2022
Floating
annualized
rate
(b) Included $72.3 billion and $74.9 billion of long-term debt accounted for at fair value at December 31, 2022 and 2021, respectively.
(a) Included long-term debt of $13.8 billion and $14.1 billion secured by assets totaling $208.3 billion and $170.6 billion at December 31, 2022 and 2021,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
2,576
$
2,142
$
143
$
999
$
(c) Included $10.3 billion and $15.8 billion of outstanding zero-coupon notes at December 31, 2022 and 2021, respectively. The aggregate principal amount
of these notes at their respective maturities is $45.3 billion and $46.4 billion, respectively. The aggregate principal amount reflects the contractual
principal payment at maturity, which may exceed the contractual principal payment at the Firm's next call date, if applicable.
1,000
Total long-term beneficial
interests(d)
1.57 %
1,747
829
$
1,999
143
2.81 %
143
3.60 %
3.97 %
1.53 %
Interest ratese
(e)
$
Year ended December 31,
(d) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $5 million and $12 million accounted for at
fair value at December 31, 2022 and 2021, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $10.5 billion
and $8.2 billion at December 31, 2022 and 2021, respectively.
(f) At December 31, 2022, long-term debt in the aggregate of $194.9 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to
maturity, based on the terms specified in the respective instruments.
Earliest
redemption
date
Contractual rate
in effect at
December 31,
2022
Issue date
December 31,
2021
2022
2021
2022
December 31,
Dividend declared per share(d)
Carrying value
(in millions)
(e) The interest rates shown are the weighted average of contractual rates in effect at December 31, 2022 and 2021, respectively, including non-U.S. dollar
fixed- and variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if
applicable. The interest rates shown exclude structured notes accounted for at fair value.
Shares (a)
At December 31, 2022 and 2021, JPMorgan Chase was authorized to issue 200 million shares of preferred stock, in one or
more series, with a par value of $1 per share. In the event of a liquidation or dissolution of the Firm, JPMorgan Chase's
preferred stock then outstanding takes precedence over the Firm's common stock with respect to the payment of dividends
and the distribution of assets.
Note 21 - Preferred stock
JPMorgan Chase & Co./2022 Form 10-K
264
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's
credit ratings, financial ratios, earnings or stock price.
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 3.26% and 2.67% as of December 31,
2022 and 2021, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm's interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 4.89% and 1.43%
as of December 31, 2022 and 2021, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including structured notes. These
guarantees rank on parity with the Firm's other unsecured
and unsubordinated indebtedness. The amount of such
guaranteed long-term debt and structured notes was $28.2
billion and $16.4 billion at December 31, 2022 and 2021,
respectively.
Notes to consolidated financial statements
263
JPMorgan Chase & Co./2022 Form 10-K
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2022 is $32.2 billion in 2023, $40.1 billion in 2024, $34.3
billion in 2025, $32.5 billion in 2026 and $22.8 billion in 2027.
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2022 and
2021, and the quarterly dividend declarations for the years ended December 31, 2022, 2021 and 2020.
Variable rate
600.00
(e)
Series HH
5.000
6.100
1,600 9/23/2014
2,000 4/21/2015
1,258
10/20/2017
2,250 7/31/2019
2,250
225,000
225,000
Series FF
1,258
125,750
300,000 300,000
125,750
200,000
Series Z
1,600
160,000
160,000
Series X
2,500 6/9/2014
250,000
Series V
6.125
Series CC
1,000 3/10/2014
3,000
150,000
610.00
LIBOR + 3.33
LIBOR + 3.80
LIBOR + 2.58
436.85
353.65
340.91
612.50
612.50
612.50
LIBOR + 3.33
LIBOR + 3.32
675.00
Series II
675.00
LIBOR + 3.78
2/1/2024
4/30/2024
7/1/2019
10/1/2024
5/1/2020
LIBOR + 2.58 11/1/2022
8/1/2024
2/1/2025
4/1/2025
6/1/2026
4.600
4.000
3.650
3,000 1/23/2020
1,500 2/24/2020
5/12/2021
2,000
2,000
200,000 200,000
Series KK
1,500
150,000
675.00
600.00
1,000
100,000
$ 2,934 4/23/2008
293,375 $
Series I
Fixed-to-floating-rate:
NA (e)
142.33
420.00
ΝΑ
NA (e)
245.39
Series Q
462.52
(e)
ΝΑ
321.03
455.00
ΝΑ
506.67
475.00
475.00
ΝΑ
4.750 12/1/2024
4.550 6/1/2026
4.625 6/1/2026
4.200 9/1/2026
NA
100,000
150,000 150,000
Series R
Series U
600.00
600.00
600.00
LIBOR + 3.30
8/1/2023
515.00
515.00
515.00
370.38 $ 428.03
1,500
375.03 $
5.150
6.000
6.750
2,000 1/22/2014
2,000
200,000
200,000
Series S
1,500 4/23/2013
1,500 7/29/2013
1,500
150,000
150,000
4/30/2018 LIBOR + 3.47% $
5/1/2023 LIBOR + 3.25
$
$
999
18,269
$
19,693
$
2.67 %
3.06 %
3.41 %
8,902
$
8,809
$
Variable rate
1,982
Fixed rate
Subordinated debt:
2.67 %
2.64 %
13,343
11,565
2,908
202,370
$
$ 194,515
$
$ 108,924
(e)
3.38%
93
$
46
$
43
$
4
Fixed rate
Federal Home Loan Banks
advances:
Subsidiaries
Interest rates"
233,982
$ 225,773
$ 120,734
95,683
$
9,356
Subtotal $
4.24 %
4.50 %
4.69 %
4.54 %
$
110
78,821
8,053
6,770
604
The Firm provides auto and equipment lease financing to its
customers through lease arrangements with lease terms
that may contain renewal, termination and/or purchase
options. The Firm's lease financings are predominantly auto
operating leases. These assets subject to operating leases
are recognized in other assets on the Firm's Consolidated
balance sheets and are depreciated on a straight-line basis
over the lease term to reduce the asset to its estimated
residual value. Depreciation expense is included in
technology, communications and equipment expense in the
Consolidated statements of income. The Firm's lease
income is generally recognized on a straight-line basis over
the lease term and is included in other income in the
Consolidated statements of income.
On a periodic basis, the Firm assesses leased assets for
impairment, and if the carrying amount of the leased asset
exceeds the undiscounted cash flows from the lease
payments and the estimated residual value upon disposition
of the leased asset, an impairment loss is recognized.
The risk of loss on auto and equipment leased assets
relating to the residual value of the leased assets is
monitored through projections of the asset residual values
at lease origination and periodic review of residual values,
and is mitigated through arrangements with certain
manufacturers or lessees.
The following table presents the carrying value of assets
subject to leases reported on the Consolidated balance
sheets:
December 31,
(in millions)
Carrying value of assets subject to
operating leases, net of accumulated
depreciation
Accumulated depreciation
Firm as lessor
2022
$
12,302 $
17,553
4,282
5,737
The following table presents the Firm's operating lease
income and the related depreciation expense on the
Consolidated statements of income:
Year ended December 31,
(in millions)
2022
2021
$
Total accounts payable and other
liabilities
2021
Variable rate
Interest rates (e)
$
Fixed rate
After 5 years
1-5 years
Under 1 year
2022
Total
2021
Total
2022
Senior debt:
(in millions, except rates)
By remaining maturity at
December 31,
2022.
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
Note 20 - Long-term debt
JPMorgan Chase & Co./2022 Form 10-K
262
(a) Includes credit card rewards liability of $11.3 billion and $9.8 billion
at December 31, 2022 and 2021, respectively.
$ 300,141 $ 262,755
$ 188,692 $ 169,172
111,449
93,583
Parent company
Variable rate
7,000
4,000
Interest rates
(e)
1,297
1,298
925
373
678
$
550
$
%
550
$
65,048
$
68,244
$
11,827
$
33,610
$
22,807
$
Subtotal $
$
5.03 %
6.33 %
$
1,000
$
Fixed rate
Long-term beneficial
interests:
1,975
301,005
(f)(g)
$
1,848
$ 295,865
$ 134,036
6.67 %
$ 129,666
$
Total long-term debt (a)(b)(c)
$
1,475
$
373
$
-
Subtotal $
3.20 %
32,163
Fixed rate
Variable rate
Junior subordinated debt:
8.25 %
Variable rate
Interest rates (e)
15,504
$
15,383
$
6,282
$
6,743
$
2,358
13,445
$
Senior debt:
0.23 %
4.32 %
6.08 %
4.22 %
4.36 %
(e)
Interest rates
11,000
11,000
Fixed rate
22,562
5,499
41,506
8.25 %
%
8.25 %
%
-
(e)
Interest ratese
Variable rate
287
$
262
$
$
262
$
$
Fixed rate
Subordinated debt:
2.09 %
2.02 %
1.63 %
4.85%
4.12 %
38,147
610.00
610.00
401.44
453.52
Net change
420
Reclassification adjustment for realized (gains)/losses
included in net income (d)
2,753
(870)
3,623
(1,750)
553
(2,303)
(5,679)
Defined benefit pension and OPEB plans, net change (e)
DVA on fair value option elected liabilities, net
change
1,794
Net unrealized gains/(losses) arising during the period
Cash flow hedges
Fair value hedges, net change(c)
Net change
19
(6)
25
(19)
7
(26)
(7,473)
98
(7,053)
(1,459)
319
$ (8,070) $ 8,066 $ (1,649) $ 6,417
(491)
157
(648)
(293)
(393)
100
$(10,099) $ 2,029
1,621
$(17,257)
2,141
(520)
$(21,744) $ 4,487
Total other comprehensive income/(loss)
212
(101)
1,693
218
(2)
2,320
(733)
3,053
(2,679)
922
(433)
137
(570)
(929)
293
846
(207)
(1,222)
(5,360) (3,525)
(1,241)
1,129
214
(a) The pre-tax amount is reported in Investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the
Consolidated statements of income. During the year ended December 31, 2022, the Firm reclassified a net pre-tax loss of $8 million to other expense and
other revenue related to the liquidation of certain legal entities, $38 million related to the net investment hedge gains and $46 million loss related to
cumulative translation adjustment. During the year ended December 31, 2021, the Firm reclassified a net pre-tax loss of $7 million. During the year
ended December 31, 2020, the Firm reclassified net pre-tax gain of $6 million.
(32)
234
Hedges
Translation
Translation adjustments (b)
Net change
$ (1,495) $ 4,733
$ (5,802) $ 6,228
$(17,862) $ 4,290 $(13,572) $ (7,634) $ 1,832
Year ended December 31, (in millions)
Unrealized gains/(losses) on investment securities
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income (a)
Tax
effect After-tax
effect After-tax Pre-tax
2,380 (572) 1,808
(15,482) 3,718 (11,764)
Pre-tax
Pre-tax
2020
2021
Tax
2022
Tax
(a) Includes after-tax net unamortized unrealized gains/(losses) of $(1.3) billion, $2.4 billion, and $3.3 billion related to AFS securities that have been
transferred to HTM for the years ended 2022, 2021 and 2020, respectively. Refer to Note 10 for further information.
The following table presents the pre-tax and after-tax changes in the components of OCI.
(17,341)
$
468
$
(1,451)
effect After-tax
130
345
(7,289)
(83)
(802)
1,749 (5,540) 5,426 (1,303)
$
(4)
(461)
(466)
5
(611)
(590)
(21)
(1,070)
341
262
1,304
1,407
(2,322)
1,861 (1,411)
125
(591)
(2,447)
2,452
(3,309)
2,698
265
(855)
3,553
(3,574)
(610)
4,123
192
(103)
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swap.
(d) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of
income.
(e) During the year ended December 31, 2022, a remeasurement of the Firm's U.S. principal defined benefit plan in the third quarter, was required as a result
of a pension settlement. The remeasurement resulted in a net decrease of $1.4 billion in pre-tax AOCI. Refer to Note 8 for further information.
0.1
0.4
Non-U.S. earnings
2022
Year ended December 31,
(in millions)
(1.6)
(0.9)
(0.9)
Tax-exempt income
2.5
1.4
3.0
income tax benefit
Results from U.S. and non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense.
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity. The tax effect of all items recorded
directly to stockholders' equity resulted in a decrease of
$4.5 billion in 2022, an increase of $2.0 billion in 2021,
and a decrease of $827 million in 2020.
Total income tax expense includes $331 million of tax
benefits in 2022, $69 million of tax expenses in 2021, and
$72 million of tax benefits in 2020, resulting from the
resolution of tax audits.
Total income tax expense
Total deferred income tax
expense/(benefit)
U.S. state and local
Non-U.S.
U.S. federal
3,748 (3,573)
8,490 $ 11,228 $ 6,684
3.5
$
U.S.
(5.4)
JPMorgan Chase & Co./2022 Form 10-K
The Firm will recognize any U.S. income tax expense it may
incur on global intangible low tax income as income tax
expense in the period in which the tax is incurred. At
December 31, 2022 the income tax expense incurred was
not material.
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
270
$ 59,562 $ 35,815
$ 46,166
Income before income tax
expense
18.9 % 18.7 %
18.4 %
Effective tax rate
Business tax credits
0.8
(0.2)
Other, net
8,503
9,436
2020
$27,312
2021
$ 50,126
$ 34,626
11,540
Non-U.S. (a)
(5.4)
(4.2)
(0.1)
(2,738)
(671)
389
Year ended December 31,
Income tax expense/(benefit)
The following table reflects the components of income tax
expense/(benefit) included in the Consolidated statements
of income.
21.0 % 21.0 %
21.0 %
2020
2021
2022
taxes, net of U.S. federal
U.S. state and local income
(in millions)
Increase/(decrease) in tax rate
resulting from:
Year ended December 31,
Effective tax rate
The following table presents a reconciliation of the
applicable statutory U.S. federal income tax rate to the
effective tax rate.
Effective tax rate and expense
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide for
income taxes on all transactions recorded in the
Consolidated Financial Statements. This method requires
that income taxes reflect the expected future tax
consequences of temporary differences between the
carrying amounts of assets or liabilities for book and tax
purposes. Accordingly, a deferred tax asset or liability for
each temporary difference is determined based on the tax
rates that the Firm expects to be in effect when the
underlying items of income and expense are realized.
JPMorgan Chase's expense for income taxes includes the
current and deferred portions of that expense. A valuation
allowance is established to reduce deferred tax assets to
the amount the Firm expects to realize.
Note 25 - Income taxes
Notes to consolidated financial statements
269
JPMorgan Chase & Co./2022 Form 10-K
Statutory U.S. federal tax rate
U.S. federal
Non-U.S.
U.S. state and local
(580)
(126)
(101)
(154)
3,460 (2,776)
(2,004)
(benefit)
Deferred income tax expense/
7,480 10,257
11,228
Total current income tax expense/
(benefit)
1,793
1,897
2,630
2,705
$ 5,759
5,606 $ 2,865
2,718
2,992
$
Current income tax expense/
(benefit)
2020
2021
2022
$
2021
(33) $ (5,656)
(a)
13.5
12.0
compensation plans
Employee benefits and
Reissuance:
(50.0)
4,104.9
(1,055.5) (1,020.9)
(23.1) (119.7)
Repurchase
(1,160.8)
Treasury - balance at January 1
14.2
4,104.9
January 1
Total issued - balance at
2020
2021
2022
(in millions)
Year ended December 31,
$18,448 $6,397
$3,122
Aggregate purchase price of
common stock repurchases
4,104.9
119.7 50.0
Employee stock purchase
plans
0.9
Year ended December 31,
(in millions,
The following table presents the calculation of net income
applicable to common stockholders and basic and diluted
EPS for the years ended December 31, 2022, 2021 and
2020.
Diluted EPS incorporates the potential impact of
contingently issuable shares, including awards which
require future service as a condition of delivery of the
underlying common stock. Diluted EPS is calculated under
both the two-class and treasury stock methods, and the
more dilutive amount is reported. For each of the periods
presented in the table below, diluted EPS calculated under
the two-class method was more dilutive.
Basic earnings per share ("EPS") is calculated using the
two-class method. Under the two-class method, all earnings
(distributed and undistributed) are allocated to common
stock and participating securities. JPMorgan Chase grants
RSUS under its share-based compensation programs,
predominantly all of which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to dividends paid to holders of the Firm's
common stock. These unvested RSUs meet the definition of
participating securities based on their respective rights to
receive nonforfeitable dividends, and they are treated as a
separate class of securities in computing basic EPS.
Participating securities are not included as incremental
shares in computing diluted EPS; refer to Note 9 for
additional information.
Note 23 - Earnings per share
Notes to consolidated financial statements
267
JPMorgan Chase & Co./2022 Form 10-K
As of December 31, 2022, approximately 58.9 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and
stock purchase plans, and directors' compensation plans.
-
1.2
The Board of Directors' authorization to repurchase
common shares is utilized at management's discretion, and
the timing of purchases and the exact amount of common
shares that may be repurchased is subject to various
factors, including market conditions; legal and regulatory
considerations affecting the amount and timing of
repurchase activity; the Firm's capital position (taking into
account goodwill and intangibles); internal capital
generation; and alternative investment opportunities. The
$30 billion common share repurchase program approved
by the Board does not establish specific price targets or
timetables. The repurchase program may be suspended by
management at any time; and may be executed through
open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans, which are
written trading plans that the Firm may enter into from
time to time under Rule 10b5-1 of the Securities Exchange
Act of 1934 and which allow the Firm to repurchase its
common shares during periods when it may otherwise not
be repurchasing common shares – for example, during
internal trading blackout periods.
(a) As directed by the Federal Reserve, total net repurchases and common
stock dividends in the first and second quarter of 2021 were restricted
and could not exceed the average of the Firm's net income for the four
preceding calendar quarters. Effective July 1, 2021, the Firm became
subject to the normal capital distribution restrictions provided under
the regulatory capital framework.
Effective May 1, 2022, the Firm is authorized to purchase
up to $30 billion of common shares under its common
share repurchase program, which superseded the
previously approved repurchase program under which the
Firm was authorized to purchase up to $30 billion of
common shares. In the second half of 2022, as a result of
the expected increases in regulatory capital requirements,
the Firm temporarily suspended share repurchases. In the
first quarter of 2023, the Firm resumed repurchasing
shares under its common share repurchase program.
(1,170.7) (1,160.8) (1,055.5)
2,934.2 2,944.1 3,049.4
Outstanding at December 31
Total treasury - balance at
December 31
15.4
14.4
13.2
Total reissuance
1.2
(b) On March 15, 2020, in response to the economic disruptions caused
by the COVID-19 pandemic, the Firm temporarily suspended
repurchases of its common stock. Subsequently, the Federal Reserve
directed all large banks, including the Firm, to discontinue net share
repurchases through the end of 2020.
except per share amounts)
23.1
Total number of shares of common
stock
Total
preferred
(e)
ΝΑ
201.76
341.11
400.00
400.00
365.00
SOFR + 2.745
CMT + 2.85
(e)
2,740,375 3,483,750 $ 27,404 $ 34,838
470.22
460.00
(e)
500.00
500.00
500.00
SOFR + 3.38
SOFR + 3.125
462.50
462.50
526.27
(f)
460.00
stock repurchased
(a) Represented by depositary shares.
(c) Floating annualized rate includes three-month LIBOR, three-month term SOFR or five-year Constant Maturity Treasury ("CMT") rate, as applicable, plus the
spreads noted above.
2020(b)
2021 (a)
2022
Year ended December 31,
(in millions)
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2022,
2021 and 2020.
Common shares issued (reissuances from treasury) by
JPMorgan Chase during the years ended December 31,
2022, 2021 and 2020 were as follows.
At December 31, 2022 and 2021, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Note 22 - Common stock
JPMorgan Chase & Co./2022 Form 10-K
266
(b) Fixed-to-floating rate notes convert to a floating rate at the earliest redemption date.
Each series of the Firm's preferred stock may be redeemed on any dividend payment date on or after the earliest redemption
date for that series. All outstanding preferred stock series may also be redeemed following a "capital treatment event,” as
described in the terms of each series. Any redemption of the Firm's preferred stock is subject to non-objection from the Board
of Governors of the Federal Reserve System (the "Federal Reserve").
On October 3, 2022, the Firm redeemed all $2.5 billion of its fixed-to-floating rate non-cumulative preferred stock, Series V.
On February 1, 2022, the Firm redeemed all $2.0 billion of its fixed-to-floating rate non-cumulative preferred stock, Series Z.
On June 1, 2021, the Firm redeemed all $1.43 billion of its 6.10% non-cumulative preferred stock, Series AA and all
$1.15 billion of its 6.15% non-cumulative preferred stock, Series BB.
On October 31, 2022, the Firm redeemed all $2.93 billion of its fixed to floating rate non-cumulative perpetual preferred
stock, Series I.
Redemptions
Notes to consolidated financial statements
265
JPMorgan Chase & Co./2022 Form 10-K
Each series of preferred stock has a liquidation value and redemption price per share of $10,000, plus accrued but unpaid
dividends. The aggregate liquidation value was $27.7 billion at December 31, 2022.
(f) The dividend rate for Series CC preferred stock became floating and payable quarterly starting on November 1, 2022; prior to which the dividend rate was
fixed at 4.625% or $231.25 per share payable semiannually.
(e) The initial dividend declared is prorated based on the number of days outstanding for the period. Dividends were declared quarterly thereafter at the
contractual rate.
(d) Dividends on preferred stock are discretionary and non-cumulative. When declared, dividends are declared quarterly. Dividends are payable quarterly on
fixed-rate preferred stock. Dividends are payable semiannually on fixed-to-floating-rate preferred stock while at a fixed rate, and payable quarterly after
converting to a floating rate.
Redemption rights
2022
2021
2020
7,986
$
(860)
$
(1,132)
$
(112) $ 2,383
(473) $
$
(a)
(5,540)
$ 8,180
6,417
(491)
212
2,320
19
234
4,123
1,569
$
(369)
Balance at December 31, 2020
Net change
$
(461)
(a)
$ (9,124)
Balance at December 31, 2022
(17,257)
1,621
(1,241)
(5,360)
98
(611)
(11,764)
(84)
Balance at December 31, 2021
Net change
(1,153) $
(210)
$
(8,070)
(293)
922
(2,679)
(19)
(131) $ (296)
(934) $
$
$ 2,640
$
Accumulated
other
comprehensive
income/(loss)
liabilities
DVA on fair value
option elected
3,021.5 3,082.4
2,965.8
$ 35,892 $ 46,503 $ 27,410
138
231
189
27,548
36,081 46,734
1,583
$ 37,676 $ 48,334 $ 29,131
1,595 1,600
$ 12.10 $ 15.39 $ 8.89
Total weighted-average diluted
shares outstanding
Net income per share
Total weighted-average basic shares
outstanding
Net income applicable to common
stockholders
Diluted earnings per share
Net income per share
Total weighted-average basic shares
outstanding
Net income applicable to common
stockholders
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
equity
Less: Preferred stock dividends
Basic earnings per share
Net income
Add: Dilutive impact of SARS and
employee stock options, unvested
PSUs and nondividend-earning
RSUS
$ 35,892 $ 46,503 $ 27,410
2,965.8 3,021.5 3,082.4
4.2
Defined benefit
pension and OPEB
plans
$ (1,344)
63
(131) $
(707) $
$
$ 4,057
Balance at December 31, 2019
Net change
Cash flow
hedges
Fair value
hedges
Translation
adjustments
net of
hedges
on investment
securities
Year ended December 31,
(in millions)
Unrealized
gains/(losses)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges,
cash flow hedging activities, net gain/(loss) related to the Firm's defined benefit pension and OPEB plans, and fair value
option-elected liabilities arising from changes in the Firm's own credit risk (DVA).
Note 24 - Accumulated other comprehensive income/(loss)
JPMorgan Chase & Co./2022 Form 10-K
268
$ 12.09 $ 15.36 $ 8.88
3,087.4
3,026.6
2,970.0
5.0
5.1
$ (1,545) $
2020
238
Other payables and liabilities (a)
Operating lease income
Brokerage payables
4,914 $
5,539
Depreciation expense
3,380
4,257
The following table presents future receipts under
operating leases as of December 31, 2022:
Year ended December 31, (in millions)
2023
$ 2,172
2024
1,181
2025
389
2,475
39
2026
December 31, (in millions)
The following table details the components of accounts
payable and other liabilities.
Notes to consolidated financial statements
261
JPMorgan Chase & Co./2022 Form 10-K
Note 19 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which include payables to customers and
payables related to security purchases that did not settle, as
well as other accrued expenses, such as compensation
accruals, credit card rewards liability, operating lease
liabilities, income tax payables, and litigation reserves.
$
Total future minimum lease receipts
15
After 2027
10
3,806
2027
7.3
11.2
6.0
1996
Shadow banks
$ 5.2
4.2
3.0
U.S. private equity-backed companies (K)7
U.S. publicly listed companies (K)
4.6
75%
2000
9%
62%
54%
82%
Sources: FactSet, S&P Global Market Intelligence, Assets and Liabilities of Commercial Banks in the United States H.8 data, Financial Accounts of the United States Z.1 data, World Federation of
Exchanges, Pitchbook, Preqin and World Bank
AUM Assets under management
GDP Gross domestic product
U.S. money market funds
Nonbank share of mortgage originations'
Nonbank share of leveraged lending
$ 22.0
7.5
Total private direct credit
$
1.2
6.6
$ 12.1
$
2.8
$
G-SIB = Global systemically important banks
2.4
$
8.6
$ <0.1
$
2.6
Hedge fund and private equity AUM³
2.8
$ 9.0
Top 50 sovereign wealth fund AUM4
$
3.6
$ 10.3
$ 14.0
RRP Reverse repurchase agreements
4. We are exploring new capital optimization
strategies, which could include partnerships
and perhaps one day more securitizations,
among other opportunities.
For footnoted information, refer to page 43 in this Annual Report.
BUILDING TRUE FRANCHISE VALUE
Accounting can distort actual economic
reality.
Increasingly in the modern world, many valuable
things are not reflected on our balance sheet in
generally accepted accounting principles - for
example, previously expensed intellectual prop-
erty or extraordinary human capital. At the end of
the day, human capital is the most valuable asset.
Think of a great athlete, a great lawyer or a great
artist. It's not simply the equipment – it's the
extraordinary training and talent of those
involved, as we've also seen with the U.S. military.
And sometimes it's not the individual but the
highly coordinated activities of the team that
deliver the championship.
-
Finally, if any value is based upon models, one
must really test the sensitivity of the outcome
against changes in assumptions. Understanding
the range of potential outcomes may be far more
important than the point estimate created by a
model. In some cases, you can have an excellent
average outcome but with a chance of death.
The point is: Accounting can distort economic real-
ity and can lead one to make the wrong decisions.
Building true franchise value requires an
outcomes-based outlook.
In banking, specific examples illustrate how merely
following accounting and capital rules - without
thinking through the outcomes- can lead one
astray. I'm going to describe just two examples,
but there are hundreds more.
If you buy or create a loan at par and put it on your
balance sheet at par (think of a mortgage) and
internally finance it, even match-funded with 10%
capital, you might believe you have a 12% return.
Many companies subscribe to this interpretation
and simply continue to borrow money to invest in
such a thing. But I would tell you this product has
MANAGEMENT LESSONS
27
22
no franchise value because it is only worth par,
and, in fact, a small change in that value (because
of interest rates and credit spread) could mean
that you have made a huge mistake. If, on the
other hand, you create a loan and sell it at more
than par at a profit, you have created value -
whether or not you keep it on your balance sheet.
And far more important, if you create a loan and at
the same time forge a client relationship - and you
add additional capital-light revenue, such as asset
management and cash management - you have
created something of long-term value that you can
nurture and grow. This is franchise value.
Simply taking interest rate risk (which contributed
to the downfall of SVB) is not a business. Nor is
simply taking credit risk. One person and a com-
puter will suffice – you do not need 290,000
people circling the globe to do that.
Another example relates to any branch-based
business. Let's say I build a system with well-
designed and well-located branches, staffed by
well-trained personnel who can offer customers
great products and services and who strive to do
every task a little bit better. Then you build a
branch system with outdated sites in poor loca-
tions (often to save money) that have undertrained
and underpaid staff and lower-quality products
and services. Between the two, my branch system
will win every time. One system will have high
franchise value and be self-perpetuating with high
returns. The other enterprise is probably on the
road to eventual failure. If you study the history
of business, you can see this phenomenon play
out in grocery stores, car companies, restaurants,
retailers and various other enterprises.
LEARNING FROM INVESTOR DAY
In February 2021, we did not hold our annual Inves-
tor Day for the obvious reason - COVID-19. When
February 2022 came around, we were somewhat
happy to be relieved of that responsibility again.
Investor Day is a tremendous amount of work. But
from 2020 to 2022, we did a lot of investment
spending and made several acquisitions. Some of
our analysts questioned whether we were being
transparent enough in terms of what we were doing
and why we were doing it. While sometimes we get
frustrated with investor demands - and not all
investors are created equally - all investors should
be treated fairly and with respect. So, in 2022, we
gave it more thought and reversed course with an
extensive Investor Day. Our senior management
team explained in detail our acquisitions and our
investments, answering every question to the best
of their ability. Having to explain your business to
investors, comparing yourself with competitors and
looking at the business as a whole
across sales,
marketing, returns, growth, risks and strategic
opportunities - was a terrific exercise for us.
We learned our lesson!
-
This also raises another issue. Of course, it is criti-
cally important to analyze your business at the
right disaggregated level - right down to the
branch
-
inside the company. But it is also import-
ant to have the proper segments reported exter-
nally to the company, properly accounted for and
generally aligned to their relevant competitors.
This actually helps hold managers accountable by
forcing them to accurately assess performance -
the good, the bad and the ugly - without any
attempts to avoid reality through an external
obfuscation of results.
In the rest of this section, I talk about some
management lessons - I always enjoy sharing
what I have learned over time by watching others
and through my own successes and failures.
K Thousands
As recent countries and companies have demon-
strated, great management and leadership are
critical to any large organization's long-term
success. While providing strong management is a
disciplined and rigorous process - facts, analysis,
detail, rinse and repeat - creating an exceptional
management team is an art, not a science.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Banks will play a smaller role in the global
financial system.
The chart above shows both the decreasing role
and size of U.S. banks relative to the global econ-
omy alongside the increasing role and size of
shadow banks. The data illustrates this dynamic.
We expect this trend to continue for all the reasons
I've discussed.
Banks will continue to be guardians of the
financial system.
Properly regulated banks are meant to protect and
enhance the financial system. They are transpar-
ent with regulators, and they strive mightily to
protect the system from terrorism financing and
tax evasion as they implement know your cus-
tomer guidelines and anti-money laundering laws.
They protect clients' assets and clients' money in
movement. Banks also help customers - from
protecting their data and minimizing fraud and
cyber risk to providing financial education - and
must abide by social requirements, such as the
Community Reinvestment Act, which requires
banks to extend their services into lower-income
communities. As mentioned previously, unlike the
private market, banks do not always choose when
to provide a product or service but need to be
there for their clients when they need credit or
liquidity the most.
Looking forward, we constantly modify our
strategies to adjust to our market realities.
It's always best to adjust to new reality quickly. We
really don't like crying over spilled milk, although
we sometimes do. The new reality is that some
things - for example, holding certain types of
credit - are more efficiently done by a nonbank.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
25
Here are some actions we are taking to help our
business succeed in the current and future
environments:
-
1. First and foremost, we must conclude that hold-
ing certain types of credit, loans or otherwise
has generally become less profitable because
of the high levels of capital that need to be held
against it generally more than the market
demands. What this means is that some credit
is better held in a nonbank. Increasingly, for a
credit relationship to make sense, banks need
a lot of noncredit-related revenue.
2. Because of various capital requirements, we try
to reduce clients' nonoperating cash deposits.
3. We are seeking to implement much tighter man-
agement and execution of business strategies.
This includes repricing certain businesses, run-
ning off certain unprofitable products, changing
the mix of business for a client, and more rigor-
ously evaluating client selection and resource
optimization applied to clients.
0.8
5. Unfortunately, it is becoming increasingly diffi-
cult for banks to stay in the mortgage business,
which ultimately hurts everyday Americans. The
high costs of origination and servicing along with
the complexity of regulations create a costly
business with significant legal, reputational and
operational challenges. In addition, given capital
requirements and the lack of a healthy securiti-
zation market, it barely makes sense for banks
to hold mortgages or mortgage-servicing rights.
Many banks have already reduced much of this
business. We are hanging on, continuing to hope
for meaningful change.
6. We have the ability to add low-capital or
no-capital revenue streams, like providing valu-
able data and analytics in trading, travel and
other relevant offers in the consumer bank,
wealth management and payment services
businesses, among others.
If you review our CEO letters, you will see that we
have many growth opportunities in front of us and
our plans to attack them. We face the future and
the new competition, large and small, with confi-
dence, strength and a dash of humility.
KEEPING AN EYE ON ALL OF OUR
COMPETITORS
The growing competition to banks from each other,
as well as shadow banks, fintechs and large tech-
nology companies, is intense and clearly contribut-
ing to the diminishing role of banks and public
companies in the United States and the global
financial system. The pace of change and the size
of the competition are extraordinary, and activity
is accelerating. Walmart, for example (with over
200 million in-store customers each week), can
use new digital technologies to efficiently bring
banking-type services to their customers. Apple,
already a strong presence in banking-type services
with Apple Pay and the Apple Card, is actively
moving into other similar services such as payment
processing, credit risk assessment, person-to-
person payment systems, merchant acquiring and
buy-now-pay-later offers. Large tech companies,
already 100% digital, have hundreds of millions of
customers, as well as enormous resources, in data
and proprietary systems - all of which give them
an extraordinary competitive advantage.
We remain confident that as long as we stay
vigilant, hungry, adaptable, fast and disciplined,
we will continue to succeed in building this great
company.
26
Management Lessons
$
Global GDP¹
$
will ultimately come from the huge capabilities and
capital of America's largest companies) will find the
additional technologies that are desperately
needed. There is a downside - massive, inefficient
and malinvestment of capital. I talk more about this
in the last section on public policy.
Polarization, paralysis and basic lack of analysis
cannot keep us from addressing one of the most
complex challenges of our time. Diverse stakehold-
ers need to come together, seeking the best
answers through engagement around our common
interest. Bolstering growth must go hand in hand
with both securing an energy future and meeting
science-based climate targets for future
generations.
AI, DATA AND OUR JOURNEY TO THE
CLOUD
Artificial intelligence (AI) is an extraordinary and
groundbreaking technology. Al and the raw
material that feeds it, data, will be critical to our
company's future success – the importance of
implementing new technologies simply cannot be
overstated. We already have more than 300 AI
use cases in production today for risk, prospect-
ing, marketing, customer experience and fraud
prevention, and Al runs throughout our payments
processing and money movement systems across
the globe. Al has already added significant value
to our company. For example, in the last few
years, Al has helped us to significantly decrease
risk in our retail business (by reducing fraud and
illicit activity) and improve trading optimization
and portfolio construction (by providing optimal
execution strategies, automating forecasting and
analytics, and improving client intelligence).
We currently have over 1,000 people involved in
data management, more than 900 data scientists
(Al and machine learning (ML) experts who create
new models) and 600 ML engineers (who write the
code to put models in production). This group is
20
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
focused on Al and ML across natural language
processing, time series analysis and reinforcement
learning to name a few. We're imagining new ways
to augment and empower employees with Al
through human-centered collaborative tools and
workflow, leveraging tools like large language
models, including ChatGPT.
We also have a 200-person, top-notch Al research
group looking at the hardest problems and new
frontiers in finance. We were recently ranked #1 on
the Evident Al Index, the first public benchmark of
major banks on their Al maturity. We take the
responsible use of Al very seriously and have an
interdisciplinary team of ethicists helping us prevent
unintended misuse, anticipate regulation, and pro-
mote trust with our clients, customers and commu-
nities. Al and data use is complex; it must be done
following the laws of the land. But it is an absolute
necessity that we do it both for the benefits I just
described and, equally, for the protection of the
company and the financial system - because you
can be certain that the bad guys will be using it, too.
At the same time, permitting reforms are desper-
ately needed to allow investment to be done in any
kind of timely way. We may even need to evoke
eminent domain - we simply are not getting the
adequate investments fast enough for grid, solar,
wind and pipeline initiatives. Policies like the
Bipartisan Infrastructure Law, the Creating Helpful
Incentives to Produce Semiconductors (CHIPS) and
Science Act, and the Inflation Reduction Act (IRA) -
that hold the potential to unlock over $1 trillion in
clean technology development - need to be imple-
mented effectively. The upside is undeniable: Wide-
spread investing across the private sector will aid
domestic manufacturing, invigorate research and
development in green innovation, help create resil-
ient supply chains, lift up local economies and build
the U.S. clean energy workforce by up to 9 million
jobs over the next decade. While major advances
have been made in the last few years on technology
to help this cause, we are hopeful that the great
American innovation machine (most advancements
All of our technology groups firmwide work
together in a flywheel of innovation and deliver
state-of-the-art improvements. We are proud that
our Al teams have contributed top-quality novel
research and compelling solutions that are trans-
forming more and more business cases every day.
We have spent over $2 billion building new, cloud-
based data centers and are working to modernize
a significant portion of our applications (and their
related databases) to run in both our public and
private cloud environments. To date, we have
migrated approximately 38% of our applications
to the cloud, meaning over 50% of our application
portfolio (this includes third-party, cloud-based
applications) is running on modern environments.
This journey to the cloud is hard work but neces-
sary. Unlocking the full potential of the cloud and
nearly 550 petabytes of data will require replat-
forming (putting data in a cloud-eligible format)
and refactoring (i.e., rewriting) approximately
4,000 applications. This effort will involve not just
the 57,000 employees we have in technology but
the dedicated time of firmwide management teams
to help in the process.
BANKING TURMOIL AND REGULATORY
GOALS
The recent failures of Silicon Valley Bank (SVB) in
the United States and Credit Suisse in Europe, and
the related stress in the banking system, under-
score that simply satisfying regulatory require-
ments is not sufficient. Risks are abundant, and
managing those risks requires constant and vigi-
lant scrutiny as the world evolves. Regarding the
current disruption in the U.S. banking system, most
of the risks were hiding in plain sight. Interest rate
exposure, the fair value of held-to-maturity (HTM)
portfolios and the amount of SVB's uninsured
deposits were always known - both to regulators
and the marketplace. The unknown risk was that
SVB's over 35,000 corporate clients – and activity
within them – were controlled by a small number
of venture capital companies that moved their
deposits in lockstep.
It is unlikely that any recent change in regulatory
requirements would have made a difference in
what followed. Instead, the recent rapid rise of
interest rates placed heightened focus on the
potential for rapid deterioration of the fair value of
HTM portfolios and, in this case, the lack of sticki-
ness of certain uninsured deposits. Ironically,
banks were incented to own very safe government
securities because they were considered highly liq-
uid by regulators and carried very low capital
requirements. Even worse, the stress testing based
on the scenario devised by the Federal Reserve
Board (the Fed) never incorporated interest rates
at higher levels. This is not to absolve bank man-
agement - it's just to make clear that this wasn't
the finest hour for many players. All of these col-
liding factors became critically important when the
marketplace, rating agencies and depositors
focused on them.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
21
As I write this letter, the current crisis is not yet
over, and even when it is behind us, there will be
repercussions from it for years to come. But
importantly, recent events are nothing like what
occurred during the 2008 global financial crisis
(which barely affected regional banks). In 2008,
the trigger was a growing recognition that $1 trillion
of consumer mortgages were about to go bad
and they were owned by various types of entities
around the world. At that time, there was enor-
mous leverage virtually everywhere in the finan-
cial system. Major investment banks, Fannie Mae
and Freddie Mac, nearly all savings and loan insti-
tutions, off-balance sheet vehicles, AIG and banks
around the world - all of them failed. This current
banking crisis involves far fewer financial players
and fewer issues that need to be resolved.
These failures were not good for banks of
any size.
Al is inextricably linked with cloud-based systems,
whether public or private, and digital capabilities.
Our company needs the cloud for its on-demand
compute capacity, flexibility, extensibility and
speed. Native cloud-based approaches will ulti-
mately be faster, cheaper and aligned with the
newest Al techniques, and they will give us easy
access to constantly evolving developer tools.
To expedite progress, governments, businesses
and non-governmental organizations need to align
across a series of practical policy changes that
comprehensively address fundamental issues that
are holding us back. Massive global investment in
clean energy technologies must be done and must
continue to grow year-over-year.
The window for action to avert the costliest
impacts of global climate change is closing. At the
same time, the ongoing war in Ukraine is roiling
trade relations across Europe and Asia and rede-
fining the way countries and companies plan for
energy security. The need to provide energy
affordably and reliably for today, as well as make
the necessary investments to decarbonize for
tomorrow, underscores the inextricable links
between economic growth, energy security and
climate change. We need to do more, and we need
to do so immediately.
CLIMATE COMPLEXITY AND PLANNING
Our business and community investments:
The firm's national $30 billion racial equity
commitment takes place very specifically on
the ground. Since the program began, we have
committed more than $260 million across the
state, including:
- Over $163 million in loans for Black, Hispanic
and Latino households to purchase or refi-
nance a home
- $54 million financed through investments and
loans for the construction and rehabilitation
of affordable housing
- $14 million in New Markets Tax Credit invest-
ments to support the Ronald McDonald House
Charities in central Ohio
Over $12 million spent with Black, Hispanic
and Latino suppliers
• We've committed $45 million in philanthropic
support across the state since 2018 such as:
- $5 million to support The 614 for Linden, a
CDFI and nonprofit collaborative, in Columbus,
which helped catalyze a $20 million fund for
affordable housing; create or preserve nearly
750 affordable housing units; provide 57
microloans to local entrepreneurs; support
technical assistance for over 100 small busi-
nesses; and increase wraparound services for
prenatal care, as well as facilitate access to
healthy food
.
Our impact as a proud employer in Ohio:
•
Today, as the largest private employer in
Columbus, JPMorgan Chase employs over
20,000 Ohioans throughout the state,
including more than 2,000 veterans and
500 people with a criminal background
who deserve a second chance.
We also support an additional 3,200 jobs for
contractors in our branches and corporate
offices across the state.
• In Ohio, our average salary is $96,000, not
including benefits. Our lowest starting wage is
$41,000 (plus a comprehensive annual benefits
package worth nearly $15,000) compared with
Ohio's average salary of $35,000¹.
1 Ohio per capita income of
$35,000 sourced from 2021
U.S. Census Bureau American
Community Survey data
released December 2022.
WHY WE ARE PROUD OF JPMORGAN CHASE
199
19
Update on Specific Issues Facing
Our Company
Any crisis that damages Americans' trust in their
banks damages all banks - a fact that was known
even before this crisis. While it is true that this
bank crisis "benefited" larger banks due to the
inflow of deposits they received from smaller insti-
tutions, the notion that this meltdown was good
for them in any way is absurd.
Let's be very thoughtful in our reaction to
recent events.
While this crisis will pass, lessons will be learned,
which will result in some changes to the regulatory
system. However, it is extremely important that we
avoid knee-jerk, whack-a-mole or politically moti-
vated responses that often result in achieving the
opposite of what people intended. Now is the time
to deeply think through and coordinate complex
regulations to accomplish the goals we want,
eliminating costly inefficiencies and contradictory
policies. Very often, rules are put in place in one
part of the framework without appreciating their
consequences in combination with other regula-
tions. America has had, and continues to have,
the best and most dynamic financial system in
the world - from various types of investors to its
banks, rule of law, investor protections, transpar-
ency, exchanges and other features. We do not
want to throw the baby out with the bath water.
We should have common goals on how we
want the banking system to work.
Rules are constantly changing and/or being
enhanced and are sometimes, unfortunately,
driven by political motivations. Relationships with
regulators can often be intense, and, recently, we
have lost some terrific people in our firm because
of this. Regulators know that when banks disagree,
we essentially have no choice - there is no one to
appeal to, and even the act of appealing can make
them angry. We simply ask respectfully to be
heard, but at the end of the day, we will do what
they ask us to do.
24
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Size of the Financial Sector/Industry
($ in trillions)
Size of banks
in the financial
system
28
Total U.S. debt and equity market
Total U.S. broker-dealer inventories
U.S. G-SIB market capitalization
U.S. bank loans
U.S. bank liquid assets²
Federal Reserve total assets
Federal Reserve RRP volume
2010
$ 64.9
2022
$ 89.5
$ 123.2
$ 57.5
$
4.1
We must satisfy all of our regulators, and, remem-
ber, we have regulators all around the world,
including more than 10 in the United States alone.
Regulations include stress testing, reporting, com-
pliance, legal obligations and trading surveillance,
among others. While the business is the first line of
defense on all these issues, we also have 3,700
people in compliance, 7,100 in risk and 1,400
lawyers actively working every day to meet the
letter and the spirit of these rules along with the
final line of defense - audit.
4.4
First and foremost, banks must satisfy all of
their regulators.
ADJUSTING OUR STRATEGY TO THE NEW
REGULATORY REALITY (BASEL III
ENDGAME)
We want to strengthen regional, midsized and
community banks, which are essential to the
American economic system. They fill a critical
role in small communities, offering local knowl-
edge and local relationships that some large
banks simply can't provide or can't provide
cost-effectively. Overall, we want to maintain
the extraordinary strength this tiered system
affords. JPMorgan Chase directly supports this
goal as we are one of the largest bankers in
America to regional and community banks. We
bank approximately 350 of America's 4,000+
banks across the country. This means we make
loans to them or raise capital for them. In addi-
tion, we process payments for them, finance
some of their mortgage activities, advise them
on acquisitions, provide them with interest rate
swaps and foreign exchange, and buy and sell
securities for them. And we also finance their
local communities (think hospitals, schools and
larger companies) in ways they cannot.
• We need large, complex banks to continue
to play a critical role in the U.S. and global
financial system. And we need to recognize that
they do so in a way regional banks can't. Large
banks are complex not because they want to be
but because they operate in complex global
markets. Regional banks simply cannot manage
the scale and complexity of transactions in 50 or
60 countries around the world to help some of
America's best and largest companies accom-
plish their goals. Think of equity, debt, M&A,
research, swaps, foreign exchange, large pay-
ments systems, global custody and so on. It
takes a global workforce with deep expertise
and significant capabilities to provide these ser-
vices. These large global banks finance not just
the world's largest companies but the world's
development institutions and even countries.
Having some of the best large, complex banks in
the world is essential to the success of America's
biggest companies, its economic system and its
global competitiveness, which says nothing
against the importance of having great midsized
and community banks as well. And contrary to
222
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
what some say - to be safe, a global bank needs
both huge economies of scale and the strength
of diversified earnings streams.
• We should want a system in which a bank
failure does not cause undue panic and finan-
cial harm. While you don't want banks to fail all
the time, it should be allowed to happen, and the
resolution should follow a completely prescribed
process. In almost all bank failures, uninsured
deposits never resulted in lost money - but
the very fear of loss can cause a run on any bank
having characteristics similar to a bank that has
failed. Resolution and recovery regulations did
not work particularly well during the recent
crisis - we should bring clarity and reassurance
to both the unwinding process and measures to
reduce the risk of additional bank runs. It should
also be noted that banks pay for any bank failure
(through fees paid to the Federal Deposit Insur-
ance Corporation) as they pay for the whole
financial regulatory system. And yes, while these
costs are ultimately passed on to their customers
- that is true for all industries the cost is just
the price of implementing proper regulations.
-
• We want proper transparency and strong regu-
lations. However, it should be noted that regula-
tions, the supervisory regime and the resolution
regime currently in place did not stop SVB and
Signature Bank from failing - and from causing
systemwide issues. We should not aim for a reg-
ulatory regime that eliminates all failure but one
that reduces the chance of failure and the odds
of contagion. We should carefully study why this
particular situation happened but not overreact.
Strong regulations should not only minimize
bank failures but also help to maintain the
strength of banks as both the guardians of the
financial system and engines that finance the
great American economic machine.
• We should want market makers to have the
ability to effectively intermediate, particularly
in difficult markets, with central banks only step-
ping in during exceptional situations. In the last
few years, we have had many situations in which
disruptions in the market were, in my opinion,
largely caused by certain regulations that did
•
not improve the safety of the market maker but,
instead, damaged the safety of the whole sys-
tem. In addition, many of the new “shadow
bank" market makers are fair-weather friends
they do not step in to help clients in tough times.
• We need banks to be there for their clients in
tough times. And they have been. Banks can
flex their capital and provide their clients with
a lot of loans and liquidity when they really need
it. For example, at the beginning of the COVID-19
crisis in March 2020, banks deployed over $500
billion in liquidity for clients and $500 billion in
PPP loans - and this does not include banks'
share of the nearly $2 trillion in loans that
entered forbearance. Banks also play a unique
and fundamental role in the transmission of
monetary policy because deposits in banks can
be loaned out, effectively "creating" money.
Some regulations and some accounting rules
have become too procyclical and make it harder
to do this.
Regulation, particularly stress testing, should
be more thoughtful and forward looking. It has
become an enormous, mind-numbingly complex
task about crossing t's and dotting i's. For exam-
ple, the Fed's stress test focuses on only one sce-
nario, which is unlikely to happen. In fact, this
may lull risk committee members at any institu-
tion into a false sense of security that the risks
they are taking are properly vetted and can be
easily handled. A less academic, more collabora-
tive reflection of possible risks that a bank faces
would better inform institutions and their regula-
tors about the full landscape of potential risks.
⚫ We should decide a priori what should stay in
the regulatory system and what shouldn't.
There are reasons for certain choices, and they
should not be the accidental outcome of uncoor-
dinated decision making. Regulatory arbitrage is
already forcing many activities, from certain
types of lending to certain types of trading, out-
side the banking system. Among many questions
that need definitive answers, a few big ones
would be: Do you want the mortgage business,
credit and market making, along with other
essential financial services, inside the banking
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
23
system or outside of it? What would be the
long-term effect of that choice? Under the new
scheme, would nonbank credit-providing institu-
tions be able to provide credit when their clients
need them the most? I personally doubt that
many of them could.
• We need banks to be attractive investments.
It is in the interest of the financial system that
banks not become “un-investable" because of
uncertainty around regulations that affect capi-
tal, profitability and long-term investing. Erratic
stress test capital requirements and constant
uncertainty around future regulations damage
the banking system without making it safer.
While it is perfectly reasonable that a bank
refrain from stock buybacks, dividends or
growth under certain circumstances, it would be
far better for the entire banking system if these
rules were clearly enumerated (i.e., stipulate
that a bank needs to reduce its buybacks and
dividend if they breach certain thresholds).
-
If done properly, banking regulations could be cali-
brated adding virtually no additional risk - to
make it easier for banks to make loans, intermedi-
ate markets, finance the economy, manage a run
on their bank and fail if need be. When it comes to
political debate about banking regulations, there is
little truth to the notion that regulations have been
“loosened," at least in the context of large banks.
(To the contrary, our capital requirements have
been increasing for years, as shown on the chart
on page 12.) The debate should not always be about
more or less regulation but about what mix of
regulations will keep America's banking system
the best in the world, such as capital and leverage
ratios, liquidity and what counts as liquidity, reso-
lution rules, deposit insurance, securitization,
stress testing, proper usage of the discount win-
dow, tailoring and other requirements (including
potential requirements on shadow banks). Because
of the recent problems, we can add to this mix the
review of concentrated customers, uninsured
deposits and potential limitations on the use of
HTM portfolios. Ideally, new rules and regulations
would also make it easier for banks to provide
credit in tougher times.
The Basel III Endgame (called Basel IV by some) -
which, incredibly, has been nearly 10 years in the
making - seems likely to increase, yet again, capi-
tal requirements for banks in general, through
higher operational risk changes, and for trading
and capital markets activity in particular, among
other things. Whether or not we agree with all
these changes (and we've discussed these regula-
tions in detail in prior letters), we will simply have
to adjust to them immediately. It's important we
describe to our shareholders how we will go about
doing that and what it means for banks and, in
particular, our bank.
MANAGEMENT LESSONS
I have spoken in the past about good and bad reve-
nue and good and bad expenses. Certain expenses,
such as opening well-designed and well-located
branches, actually are long-term investments of
great value. Conversely, poorly underwritten credit
creates revenue that you are bound to regret.
Further, there are accounting practices that may
distort the true value of actions you take. For
example, when we create a new credit card
account, we recognize origination costs over
12 months, but an average account exists for over
eight years. And with the new accounting rules for
loan loss reserves - called the current expected
credit losses standard - you book the expected life
of loan losses on the day you make the loan, while
the revenue comes in over multiple years.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, and lending-related commitments for which the fair value option was elected, the carrying value represents the fair value.
$
3,925,502
8.0 %
6.5 %
8.3 %
3,334,925
$
3,782,035
$
3,249,912
$
6.6 %
$
4,367,092
$
Total leverage exposure
4,571,789
Tier 1 leverage ratio
$
Adjusted average assets (b)
Leverage-based capital metrics: (a
(in millions, except ratios)
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
JPMorgan Chase & Co./2022 Form 10-K
277
Notes to consolidated financial statements
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
Guarantees
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnification
agreements included within third-party contractual
arrangements, certain derivative contracts and the
guarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the non-
contingent obligation assumed (e.g., the amount of
consideration received or the net present value of the
premium receivable). For these obligations, the Firm
records this fair value amount in other liabilities with an
offsetting entry recorded in cash (for premiums received),
3,703,873
$
4,119,286
SLR
Expires
after 5
years
5 years
through
3 years
Expires
after
Expires
after
1 year
through
3 years
1 year or
less
By remaining maturity at December 31,
(in millions)
Expires in
2022
2021
2022
2021
(i)
Carrying value"
Contractual amount
Off-balance sheet lending-related financial instruments, guarantees and other commitments
5.6 %
6.9 %
5.4 %
6.5 %
(a) The capital metrics reflect the CECL capital transition provisions.
(b) Adjusted average assets, for purposes of calculating the leverage ratios, includes quarterly average assets adjusted for on-balance sheet assets that are
subject to deduction from Tier 1 capital, predominantly goodwill, inclusive of estimated equity method goodwill, and other intangible assets.
or other assets (for premiums receivable). Any premium
receivable recorded in other assets is reduced as cash is
received under the contract, and the fair value of the
liability recorded at inception is amortized into income as
lending and deposit-related fees over the life of the
guarantee contract. The lending-related contingent
obligation is recognized based on expected credit losses in
addition to, and separate from, any non-contingent
obligation.
JPMorgan Chase & Co./2022 Form 10-K
Notes to consolidated financial statements
Note 28 - Off-balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Most
of these commitments and guarantees have historically
been refinanced, extended, cancelled, or expired without
being drawn or a default occurring. As a result, the total
contractual amount of these instruments is not, in the
Firm's view, representative of its expected future credit
exposure or funding requirements.
To provide for expected credit losses in wholesale and
certain consumer lending-related commitments, an
allowance for credit losses on lending-related commitments
is maintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2022 and 2021. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
276
JPMorgan Chase & Co./2022 Form 10-K
275
Total
Non-lending-related contingent obligations are recognized
when the liability becomes probable and reasonably
estimable. These obligations are not recognized if the
estimated amount is less than the carrying amount of any
non-contingent liability recognized at inception (adjusted
for any amortization). Examples of non-lending-related
contingent obligations include indemnifications provided in
sales agreements, where a portion of the sale proceeds is
allocated to the guarantee, which adjusts the gain or loss
that would otherwise result from the transaction. For these
indemnifications, the initial liability is amortized to income
as the Firm's risk is reduced (i.e., over time or when the
indemnification expires).
The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2022 and 2021.
82
$
6
$
December 31, 2021
123
$
9
Guarantee liability
December 31, 2022
-
353
Total carrying value
Commitments with collateral
$
$
408
$
6
$
476
$
9
15,296
$
795
$
14,511
$
999
$
Allowance for lending-related commitments
4,448
$
Standby letters of credit, other financial guarantees and other letters of credit
2022
2021
December 31,
(in millions)
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
Other letters
of credit
Investment-grade (a)
$
19,205
$
3,040
$
19,998
28,530
$
4,134
$
27,439
$
The contractual amount and carrying value of guarantees
and indemnifications are included in the table on page 277.
For additional information on the guarantees, see below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as commercial
paper facilities, bond financings, acquisition financings,
trade financings and similar transactions.
Total contractual amount
8,532
1,094
8,234
Noninvestment-grade (a)
3,087
$
1,361
(h) At December 31, 2022, includes net markdowns on held-for-sale positions related to unfunded commitments in the bridge financing portfolio.
Total
Consumer, excluding credit card:
indemnifications:
Loan sale and securitization-related
(7)
1
(2)
c。
74,263
66,407
534
65,873
Unsettled repurchase and securities loaned
agreements
103,681
715 - - 116,975
116,260
Mortgage repurchase liability
Unsettled resale and securities borrowed
agreements
$
649
-
$
$ 337,770
55,730
$ 283,386
59,180
41,000
12,632
466
$
$
$283,386 $
5,082
Derivatives qualifying as guarantees
$ 938,165 $144,353 $213,146 $ 31,118 $1,326,782
475
Loans sold with recourse
ΝΑ
ΝΑ
(g) At December 31, 2022 and 2021, primarily includes unfunded commitments related to certain tax-oriented equity investments, unfunded commitments
to purchase secondary market loans, and other equity investment commitments.
(f) At December 31, 2022 and 2021, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and
commitments and guarantees associated with the Firm's membership in certain clearing houses.
(e) At December 31, 2022 and 2021, collateral held by the Firm in support of securities lending indemnification agreements was $298.5 billion and $357.4
billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSES and government
agencies.
(b) Also includes commercial card lending-related commitments primarily in CB and CIB.
(c) Predominantly all consumer and wholesale lending-related commitments are in the U.S.
(d) At December 31, 2022 and 2021, reflected the contractual amount net of risk participations totaling $71 million and $44 million, respectively, for other
unfunded commitments to extend credit; $8.2 billion and $7.9 billion, respectively, for standby letters of credit and other financial guarantees; and $512
million and $451 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk
participations.
(a) Includes certain commitments to purchase loans from correspondents.
69
53
182,701
10,490
191,068
8,634
2,846
209
723
191,068
4,856
(g)
Other guarantees and commitments
Exchange & clearing house guarantees and
commitments
80
ΝΑ
3
NA
금금
ΝΑ
ΝΑ
140,852 206,604 23,441 471,980
NA
NA
ΝΑ
(a) The ratings scale is based on the Firm's internal risk ratings. Refer to Note 12 for further information on internal risk ratings.
820
827
28
61
19
NA
Lending-related
$ 2,624
9
2,522
-
730,534
821,284
821,284
102
75
45,334
33,518
7,677
6,542
3,501
15,798
2
12,338
837,082
100
6,089 $ 21,287 $ 32,996
12,231
1,588
6,542 $
3,500 $
1
10,642
5,156 $
$
Wholesale:
Total consumer(c)
Credit card (b)
Total consumer, excluding credit card
Auto and other
Residential Real Estate"
(a)
75
3,501
6,542
7,677
2,742
6
476
408
28,530
4,448
486,445
$1,262,313
27,439
4,134
1,023
1
4,585
98
8,272
343
13,559
3,692
101,083
2,037
2,328
453,467
440,407
22,417
201,921
132,237
854,802
775,868
75
102
Other unfunded commitments to extend credit (d)
Standby letters of credit and other financial
guarantees
$ 2,817
(d)
Total wholesale (c)
Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements
and guarantees
(h)
83,832
Other letters of credit(d)
278
76
Note 26 - Restricted cash, other restricted
assets and intercompany funds transfers
(657)
(705)
Decreases related to cash settlements
with taxing authorities
(126)
(148)
(116)
Balance at December 31,
$ 5,043 $ 4,636 $ 4,250
After-tax interest expense/(benefit) and penalties related
to income tax liabilities recognized in income tax expense
were $141 million, $174 million and $147 million in 2022,
2021 and 2020, respectively.
At December 31, 2022 and 2021, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $1.3
billion and $1.1 billion, respectively, for income tax-related
interest and penalties.
272
JPMorgan Chase & Co./2022 Form 10-K
Restricted cash and other restricted assets
Certain of the Firm's cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm's subsidiaries.
The business of JPMorgan Chase Bank, N.A. is subject to
examination and regulation by the OCC. The Bank is a
member of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject to
applicable limits.
The Firm is required to maintain cash reserves at certain
non-US central banks.
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm's broker-dealer activities are subject to certain
restrictions on cash and other assets.
The following table presents the components of the Firm's
restricted cash:
14.6
December 31, (in billions)
2022
2021
Segregated for the benefit of securities and cleared
derivative customers
18.7
(824)
related to prior periods
Decreases based on tax positions
362
JPMorgan Chase - New
York State
2012-2014
Field Examination
JPMorgan Chase - New
York City
2015-2017
Field Examination
JPMorgan Chase - U.K.
2011-2020
Field examination of
certain select entities
Year ended December 31,
(in millions)
2022
Cash reserves at non-U.S. central banks and held for
other general purposes
Balance at January 1,
2021
$ 4,250
2020
$ 4,024
Increases based on tax positions
related to the current period
1,234
798
685
Increases based on tax positions
related to prior periods
123
393
$ 4,636
8.1
Total restricted cash (a)
$ 26.8 $ 19.7
Tier 1
capital
The following table presents the risk-based regulatory
capital ratio requirements and well-capitalized ratios to
which the Firm and its IDI subsidiaries were subject as of
December 31, 2022 and 2021.
Standardized capital
Risk-based capital ratios
CET1 capital
Tier 1
capital
Total capital
Well-capitalized
ratios
■(e)
ratio requirements
BHC (a)(b)
Advanced capital
ratio requirements
IDI (c)
BHC (a)
Add'l
-Tier 1
capital
IDI (c)
12.0 %
7.0 %
10.5 %
7.0 %
ΝΑ
6.5 %
13.5
15.5
8.5
10.5
12.0
8.5
6.0 %
BHC (d) IDI
Field examination of
amended returns
Field examination of
original and amended
returns
• Perpetual preferred stock
NOL and tax credit carryforwards
5.1
(a) Comprises $25.4 billion and $18.4 billion in deposits with banks, and
$1.4 billion and $1.3 billion in cash and due from banks on the
Consolidated balance sheets as of December 31, 2022 and 2021,
respectively.
Also, as of December 31, 2022 and 2021, the Firm had the
following other restricted assets:
•
Cash and securities pledged with clearing organizations
for the benefit of customers of $42.4 billion and $47.5
billion, respectively.
Securities with a fair value of $31.7 billion and $30.0
billion, respectively, were also restricted in relation to
customer activity.
Intercompany funds transfers
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase Bank, N.A., and its subsidiaries, from lending to
JPMorgan Chase & Co. ("Parent Company") and certain of
its affiliates unless the loans are secured in specified
amounts. Such secured loans provided by any banking
subsidiary to the Parent Company or to any particular
affiliate, together with certain other transactions with such
affiliate (collectively referred to as "covered transactions"),
must be made on terms and conditions that are consistent
with safe and sound banking practices. In addition, unless
collateralized with cash or US Government debt obligations,
covered transactions are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
The Parent Company's two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the "IHC"). The IHC
generally holds the stock of JPMorgan Chase's subsidiaries
other than JPMorgan Chase Bank, N.A. and its subsidiaries.
The IHC also owns other assets and provides intercompany
loans to the Parent Company. The Parent Company is
obligated to contribute to the IHC substantially all the net
proceeds received from securities issuances (including
issuances of senior and subordinated debt securities and of
preferred and common stock).
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator's opinion, payment
of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends or
extending credit to the Parent Company if certain capital or
liquidity "thresholds" are breached or if limits are otherwise
imposed by the Parent Company's management or Board of
Directors.
At January 1, 2023, the Parent Company's banking
subsidiaries could pay, in the aggregate, approximately $34
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2023
will be supplemented by the banking subsidiaries' earnings
during the year.
JPMorgan Chase & Co./2022 Form 10-K
Total
capital
273
Note 27 - Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized requirements, for the
consolidated financial holding company. The Office of the
Comptroller of the Currency ("OCC") establishes similar
minimum capital requirements and standards for the Firm's
principal IDI subsidiary, JPMorgan Chase Bank, N.A.
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries, including
JPMorgan Chase Bank, N.A. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach ("Basel III Standardized"), and an advanced
approach ("Basel III Advanced"). For each of the risk-based
capital ratios, the capital adequacy of the Firm and
JPMorgan Chase Bank, N.A. is evaluated against the lower of
the Standardized or Advanced approaches compared to
their respective regulatory capital ratio requirements.
The three components of regulatory capital under the Basel
Ill rules are as illustrated below:
Common stockholder's equity
including capital for AOCI related to:
• AFS debt securities
• Defined benefit pension and OPEB
plans
CET1
capital
Less certain deductions for:
⚫ Goodwill
• MSRS
• Deferred tax assets that arise from
Notes to consolidated financial statements
Status
2014-2018
Periods under
examination
2011 - 2013
2,882
2,063
29,778
31,820
Stable value contracts with
contractually limited exposure
Maximum exposure of stable
value contracts with
contractually limited exposure
55,730
59,180
$
2021
December 31, December 31,
2022
(in millions)
Notional amounts
Derivative guarantees
The following table summarizes the derivatives qualifying
as guarantees as of December 31, 2022 and 2021.
Derivative payables
The fair value of derivative guarantees reflects the
probability, in the Firm's view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
The Firm transacts in certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products", that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty's reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
Derivatives qualifying as guarantees
The cash collateral held by the Firm may be invested on
behalf of the client in indemnified resale agreements,
whereby the Firm indemnifies the client against the loss of
principal invested. To minimize its liability under these
agreements, the Firm obtains collateral with a market value
exceeding 100% of the principal invested.
Through the Firm's securities lending program,
counterparties' securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
Securities lending indemnifications
JPMorgan Chase & Co./2022 Form 10-K
Affordable housing tax credits
The Firm recognized $1.8 billion of tax credits and other tax
benefits associated with investments in affordable housing
projects within income tax expense for the year ended
2022, and $1.7 billion and $1.5 billion for the years ended
2021 and 2020, respectively. The amount of amortization
of such investments reported in income tax expense was
$1.4 billion, $1.3 billion and $1.2 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm's Consolidated balance sheets, was
$12.1 billion and $10.8 billion at December 31, 2022 and
2021, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm's Consolidated balance
sheets, was $5.4 billion and $4.6 billion at December 31,
2022 and 2021, respectively.
Deferred taxes
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table.
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
Employee benefits
Accrued expenses and other
Non-U.S. operations
Tax attribute carryforwards
The notional value of derivative guarantees generally
represents the Firm's maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
2022
Fair value
475
JPMorgan Chase & Co./2022 Form 10-K
280
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
Refer to Note 5 for information on the derivatives that the
Firm executes for its own account and records in its
Consolidated Financial Statements.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPs; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPs, including ETDs such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin: variation margin is posted
on a daily basis based on the value of clients' derivative
contracts and initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
For the years ended December 31, 2022, 2021 and 2020,
the Firm processed an aggregate volume of $2,158.4
billion, $1,886.7 billion, and $1,597.3 billion, respectively.
Clearing Services - Client Credit Risk
Under the rules of payment networks, in its role as a
merchant acquirer, the Firm's Merchant Services business
CIB Payments, retains a contingent liability for disputed
processed credit and debit card transactions that result in a
charge-back to the merchant. If a dispute is resolved in the
cardholder's favor, the Firm will (through the cardholder's
issuing bank) credit or refund the amount to the cardholder
and will charge back the transaction to the merchant. If the
Firm is unable to collect the amount from the merchant, the
Firm will bear the loss for the amount credited or refunded
to the cardholder. The Firm mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or obtaining other collateral. In addition, the Firm
recognizes a valuation allowance that covers the payment
or performance risk related to charge-backs.
Merchant charge-backs
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with the
licensing of software to clients ("software licensees") or
when it sells a business or assets to a third party ("third-
party purchasers"), pursuant to which it indemnifies
software licensees for claims of liability or damages that
may occur subsequent to the licensing of the software, or
third-party purchasers for losses they may incur due to
actions taken by the Firm prior to the sale of the business or
assets. It is difficult to estimate the Firm's maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firm
that have not yet occurred. However, based on historical
experience, management expects the risk of loss to be
remote.
Indemnification agreements - general
Other off-balance sheet arrangements
649
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. The unpaid principal balance of loans
sold with recourse as well as the carrying value of the
related liability that the Firm has recorded in accounts
payable and other liabilities on the Consolidated balance
sheets, which is representative of the Firm's view of the
likelihood it will have to perform under its recourse
obligations, are disclosed in the table on page 277.
279
JPMorgan Chase & Co./2022 Form 10-K
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
Loans sold with recourse
Refer to Note 30 for additional information regarding
litigation.
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
Private label securitizations
In connection with the Firm's mortgage loan sale and
securitization activities with U.S. GSES the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm.
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. These agreements generally do not meet the
definition of a derivative, and therefore, are not recorded
on the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. Refer to Note 11 for a further discussion
of securities financing agreements.
Unsettled securities financing agreements
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. Refer to Note 5 for a further discussion of credit
derivatives.
Notes to consolidated financial statements
8.0
2021
5,193
2,049
Leasing transactions
2,843
4,227
Other, net
3,801
4,459
Gross deferred tax liabilities
10,552
14,024
Net deferred tax (liabilities)/assets
$
1,864
5,875 $
JPMorgan Chase & Co./2022 Form 10-K
JPMorgan Chase has recorded deferred tax assets of $365
million at December 31, 2022, in connection with U.S.
federal and non-U.S. NOL carryforwards and other tax
attributes, FTC carryforwards, and state and local capital
loss carryforwards. At December 31, 2022, total U.S.
federal NOL carryforwards were $648 million, non-U.S. NOL
carryforwards were $308 million, FTC carryforwards were
$81 million, state and local capital loss carryforwards were
$1.0 billion, and other U.S. federal tax attributes were
$256 million. If not utilized, a portion of the U.S. federal
NOL carryforwards and other U.S. federal tax attributes will
expire between 2026 and 2037 whereas others have an
unlimited carryforward period. Similarly, certain non-U.S.
NOL carryforwards will expire between 2026 and 2039
whereas others have an unlimited carryforward period. The
FTC carryforwards will expire between 2029 and 2030, and
the state and local capital loss carryforwards will expire in
2026.
The valuation allowance at December 31, 2022, was due to
the state and local capital loss carryforwards, FTC
carryforwards, and certain non-U.S. deferred tax assets,
including NOL carryforwards.
271
Notes to consolidated financial statements
Unrecognized tax benefits
At December 31, 2022, 2021 and 2020, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $5.0 billion, $4.6 billion and
$4.3 billion, respectively, of which $3.8 billion, $3.4 billion
and $3.1 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase evaluates the need for changes in unrecognized tax
benefits based on its anticipated tax return filing positions
as part of its U.S. federal and state and local tax returns. In
addition, the Firm is presently under audit by a number of
taxing authorities, most notably by the Internal Revenue
Service, as summarized in the Tax examination status table
below. The evaluation of unrecognized tax benefits as well
as the potential for audit settlements make it reasonably
possible that over the next 12 months the gross balance of
unrecognized tax benefits may increase or decrease by as
much as approximately $1.0 billion. The change in the
unrecognized tax benefit would result in a payment or
income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits.
Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2022.
JPMorgan Chase - U.S.
JPMorgan Chase - U.S.
(3,600)
$
hedges
3,289
$
4,345
1,342
987
8,577
3,955
1,148
900
365
615
Gross deferred tax assets
16,625
Mortgage servicing rights, net of
10,802
(198)
(378)
Deferred tax assets, net of valuation
allowance
$
16,427
$
10,424
Deferred tax liabilities
Depreciation and amortization
$
2,044 $
Valuation allowance
14.0
326
10.0
$
CET1 capital
(a)
Risk-based capital metrics: a
Chase Bank, N.A.
JPMorgan
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase & Co.
JPMorgan
Basel III Advanced
Basel III Standardized
(in millions, except ratios)
December 31, 2021
213,942
18.7
18.1
16.8
18.3
15.3
16.9
14.9
18.3 %
13.6 %
16.9 %
13.2 %
1,475,602
1,609,773
1,597,072
1,653,538
16.4
Risk-weighted assets
$
Total capital
10.5
Three months ended
19.5
17.2
17.8
16.8
Total capital ratio
19.2
15.9
19.2 %
13.8 %
16.9 %
16.9
15.0
13.1 %
Tier 1 capital
1,392,847
1,582,280
1,638,900
Risk-weighted assets
272,299
266,910
266,907
$
213,942
246,162
265,796
$
266,907
266,910
281,826
274,900
246,162
Tier 1 capital ratio
CET1 capital ratio
1,547,920
275,255
(a) The capital metrics reflect the CECL capital transition provisions.
269,668
274
(b) The Federal Reserve's regulations do not establish well-capitalized
thresholds for these measures for BHCs.
(a) Represents minimum SLR requirement of 3.0%, as well as
supplementary leverage buffer requirements of 2.0% and 3.0% for
BHC and IDI subsidiaries, respectively.
Note: The table above is as defined by the regulations issued by the
Federal Reserve, OCC and FDIC and to which the Firm and its IDI
subsidiaries are subject.
Under the risk-based capital and leverage-based guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1 capital, Tier 1 capital,
Total capital, Tier 1 leverage and the SLR. Failure to meet
these minimum requirements could cause the Federal
Reserve to take action. IDI subsidiaries are also subject to
these capital requirements established by their respective
primary regulators.
6.0
ΝΑ
6.0
5.0
SLR
5.0 %
ΝΑ
4.0 %
4.0 %
Leverage-based capital ratios
Tier 1 leverage
IDI
BHC (b)
269,672
Note: The table above is as defined by the regulations issued by the
Federal Reserve, OCC and FDIC and to which the Firm and its IDI
subsidiaries are subject.
(a) Represents the regulatory capital ratio requirements applicable to the
Firm. The CET1, Tier 1 and Total capital ratio requirements each
include a respective minimum requirement plus a GSIB surcharge of
3.5% as calculated under Method 2; plus a 4.0% SCB for Basel III
Standardized ratios and a fixed 2.5% capital conservation buffer for
Basel III Advanced ratios. The countercyclical buffer is currently set to
0% by the federal banking agencies.
(b) For the period ended December 31, 2021, the CET1, Tier 1, and Total
capital ratio requirements under Basel III Standardized applicable to
the Firm were 11.2%, 12.7% and 14.7%, respectively. SCB for Basel
III Standardized ratio for 2021 was 3.2%.
10.0
(e) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
JPMorgan Chase & Co./2022 Form 10-K
The following table presents the leverage-based regulatory
capital ratio requirements and well-capitalized ratios to
which the Firm and its IDI subsidiaries were subject as of
December 31, 2022 and 2021.
• Qualifying allowance for
credit losses
Tier 2
capital
Capital ratio
requirements (a)
Well-capitalized
ratios
BHC
IDI
Long-term debt qualifying as
Tier 2
CECL regulatory capital transition
(c) Represents requirements for JPMorgan Chase's IDI subsidiaries. The
CET1, Tier 1 and Total capital ratio requirements include a fixed capital
conservation buffer requirement of 2.5% that is applicable to the IDI
subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge.
(d) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
Beginning January 1, 2022, the $2.9 billion CECL capital
benefit is being phased out at 25% per year over a three-
year period. As of December 31, 2022, the Firm's CET1
capital reflected the remaining $2.2 billion benefit
associated with the CECL capital transition provisions.
Until December 31, 2021, the Firm's capital reflected a two
year delay of the effects of CECL provided by the Federal
Reserve Board in response to the COVID-19 pandemic.
218,934
245,631
264,583
277,769
269,672
245,631
Total capital ratio
Tier 1 capital ratio
CET1 capital ratio
Total capital
Tier 1 capital
$
269,668
$
218,934
288,433
CET1 capital
Additionally, effective January 1, 2022, the Firm phased
out 25% of the other CECL capital transition provisions
which impacted Tier 2 capital, adjusted average assets,
total leverage exposure and RWA, as applicable.
Refer to Note 1 for further information on the CECL
accounting guidance.
$
The following tables present risk-based capital metrics under both the Basel III Standardized and Basel III Advanced
approaches and leverage-based capital metrics for JPMorgan Chase and JPMorgan Chase Bank, N.A. As of December 31, 2022
and 2021, JPMorgan Chase and JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which
each was subject.
December 31, 2022
Basel III Standardized
Basel III Advanced
$
Chase & Co.
JPMorgan
Chase Bank, N.A.
Risk-based capital metrics: (a)
JPMorgan
Chase & Co.
(in millions, except ratios)
JPMorgan
Chase Bank, N.A.
JPMorgan
282
JPMorgan Chase & Co./2022 Form 10-K
Note 30 - Litigation
Contingencies
•
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.2 billion at December 31, 2022. This
estimated aggregate range of reasonably possible losses
was based upon information available as of that date for
those proceedings in which the Firm believes that an
estimate of reasonably possible loss can be made. For
certain matters, the Firm does not believe that such an
estimate can be made, as of that date. The Firm's estimate
of the aggregate range of reasonably possible losses
involves significant judgment, given:
•
•
.
the number, variety and varying stages of the
proceedings, including the fact that many are in
preliminary stages,
the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability
(if any) has yet to be determined,
As of December 31, 2022, the Firm and its subsidiaries and
affiliates are defendants or respondents in numerous legal
proceedings, including private, civil litigations, government
investigations or regulatory enforcement matters. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations and regulatory enforcement
matters involve both formal and informal proceedings, by
both governmental agencies and self-regulatory
organizations. These legal proceedings are at varying stages
of adjudication, arbitration or investigation, and involve
each of the Firm's lines of business and several geographies
and a wide variety of claims (including common law tort
and contract claims and statutory antitrust, securities and
consumer protection claims), some of which present novel
legal theories.
$ 793.2 $ 714.7
485.9
202.9
$ 104.4 $
2021
2022
Trading assets and other
Loans
Investment securities
December 31, (in billions)
Total pledged assets do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIES. Refer to Note 11
for additional information on the Firm's securities financing
activities. Refer to Note 20 for additional information on the
Firm's long-term debt. The significant components of the
Firm's pledged assets were as follows.
$ 793.2 $ 714.7
the numerous yet-unresolved issues in many of the
proceedings, including issues regarding class
certification and the scope of many of the claims, and
112.0
476.4
567.6
80.1
428.5
206.1
Total pledged assets
The original class action was divided into two separate
actions, one seeking primarily monetary relief and the other
seeking primarily injunctive relief. In September 2018, the
parties to the monetary class action finalized an agreement
which amends and supersedes the prior settlement
agreement. Pursuant to this settlement, the defendants
collectively contributed an additional $900 million to the
approximately $5.3 billion previously held in escrow from
the original settlement. In December 2019, the amended
settlement agreement was approved by the District Court.
Certain merchants appealed the District Court's approval
order, and those appeals are pending. Based on the
percentage of merchants that opted out of the amended
class settlement, $700 million has been returned to the
defendants from the settlement escrow in accordance with
the settlement agreement. The injunctive class action
continues separately, and in September 2021, the District
Court granted plaintiffs' motion for class certification in
part, and denied the motion in part.
In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's
estimate of the aggregate range of reasonably possible
losses will change from time to time, and actual losses may
vary significantly.
7,011 $
$
(d)
decision with the European General Court, and that appeal
is pending.
In addition, the Firm has been named as a defendant along
with other banks in various individual and putative class
actions related to benchmark rates, including U.S. dollar
LIBOR. In actions related to U.S. dollar LIBOR during the
period that it was administered by the BBA, the Firm has
obtained dismissal of certain actions and resolved certain
other actions, and others are in various stages of litigation.
The United States District Court for the Southern District of
New York has granted class certification of antitrust claims
related to bonds and interest rate swaps sold directly by the
defendants, including the Firm. A consolidated putative
class action related to the period that U.S. dollar LIBOR was
administered by ICE Benchmark Administration has been
dismissed. In addition, a group of individual plaintiffs filed a
lawsuit asserting antitrust claims, alleging that the Firm and
other defendants were engaged in an unlawful agreement
to set U.S. dollar LIBOR and conspired to monopolize the
market for LIBOR-based consumer loans and credit cards. In
September 2022, the Court dismissed plaintiffs' complaint
in its entirety, and plaintiffs filed an amended complaint
asserting similar antitrust claims, which defendants have
moved to dismiss. The Firm's settlements of putative class
actions related to the Singapore Interbank Offered Rate and
the Singapore Swap Offer Rate, and the Australian Bank Bill
Swap Reference Rate received final court approval in
November 2022, while the settlement related to Swiss
franc LIBOR remains subject to court approval.
Securities Lending Antitrust Litigation. JPMorgan Chase
Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Prime,
Inc., and J.P. Morgan Strategic Securities Lending Corp. are
named as defendants in a putative class action filed in the
United States District Court for the Southern District of New
York. The complaint asserts violations of federal antitrust
law and New York State common law in connection with an
alleged conspiracy to prevent the emergence of anonymous
exchange trading for securities lending transactions.
Defendants' motion to dismiss the complaint was denied.
Plaintiffs have moved to certify a class in this action, which
defendants are opposing.
Shareholder Litigation. Several shareholder putative class
actions, as well as shareholder derivative actions purporting
to act on behalf of the Firm, have been filed against the
Firm, its Board of Directors and certain of its current and
former officers.
Certain of these shareholder suits relate to historical
trading practices by former employees in the precious
metals and U.S. treasuries markets and related conduct
which were the subject of the Firm's resolutions with the
DOJ, CFTC and SEC in September 2020, and fiduciary
activities that were separately the subject of a resolution
between JPMorgan Chase Bank, N.A. and the OCC in
November 2020. One of these shareholder derivative suits
was filed in the Supreme Court of the State of New York in
May 2022, asserting breach of fiduciary duty and unjust
enrichment claims relating to the historical trading
practices and related conduct and fiduciary activities which
were the subject of the resolutions described above. In
December 2022, the court granted defendants' motion to
dismiss this action in full. A second shareholder derivative
action was filed in the United States District Court for the
Eastern District of New York in December 2022 relating to
the historical trading practices and related conduct, which
asserts breach of fiduciary duty and contribution claims and
alleges that the shareholder is excused from making a
demand to commence litigation because such a demand
would have been futile. In addition, a consolidated putative
class action is pending in the United States District Court for
the Eastern District of New York on behalf of shareholders
who acquired shares of JPMorgan Chase common stock
during the putative class period, alleging that certain SEC
filings of the Firm were materially false or misleading
because they did not disclose certain information relating to
the historical trading practices and conduct. Defendants
have moved to dismiss the amended complaint in this
action.
A separate shareholder derivative suit was filed in March
2022 in the United States District Court for the Eastern
District of New York asserting breaches of fiduciary duty
and violations of federal securities laws based on the
alleged failure of the Board of Directors to exercise
adequate oversight over the Firm's compliance with records
preservation requirements which were the subject of
resolutions between certain of the Firm's subsidiaries and
the SEC and the CFTC. Defendants' motion to dismiss the
amended complaint is pending.
*
*
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
JPMorgan Chase & Co./2022 Form 10-K
the uncertainty of the various potential outcomes of
such proceedings, including where the Firm has made
assumptions concerning future rulings by the court or
other adjudicator, or about the behavior or incentives of
adverse parties or regulatory authorities, and those
assumptions prove to be incorrect.
284
Jeffrey Epstein Litigation. JPMorgan Chase Bank, N.A. is
named as a defendant in two lawsuits filed in the United
States District Court for the Southern District of New York
which allege that JPMorgan Chase Bank, N.A. knowingly
facilitated Jeffrey Epstein's sex trafficking and other
unlawful conduct by providing banking services to Epstein
until 2013. One case, which was filed in November 2022, is
a putative class action filed by an alleged sex-trafficking
victim of Epstein, and the other case, which was filed in
December 2022, was brought on behalf of the government
of the United States Virgin Islands and also alleges certain
Virgin Islands statutory claims. JPMorgan Chase Bank, N.A.
has moved to dismiss both complaints.
Of the merchants who opted out of the amended damages
class settlement, certain merchants filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks. While some of
those actions remain pending, the defendants have reached
settlements with the merchants who opted out representing
over half of the combined Mastercard-branded and Visa-
branded payment card sales volume.
appeal and remanded to the United States District Court for
the Eastern District of New York.
Interchange Litigation. Groups of merchants and retail
associations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted related rules in violation of
antitrust laws. In 2012, the parties initially settled the cases
for a cash payment, but that settlement was reversed on
With respect to civil litigation matters, in August 2018, the
United States District Court for the Southern District of New
York granted final approval to the Firm's settlement of a
consolidated class action brought by U.S.-based plaintiffs,
which principally alleged violations of federal antitrust laws
based on an alleged conspiracy to manipulate foreign
exchange rates and also sought damages on behalf of
persons who transacted in FX futures and options on
futures. Although certain members of the settlement class
filed requests to the Court to be excluded from the class, an
agreement to resolve their claims was reached in December
2022. A putative class action remains pending against the
Firm and other foreign exchange dealers on behalf of
certain consumers who purchased foreign currencies at
allegedly inflated rates. In addition, some FX-related
individual and putative class actions based on similar
alleged underlying conduct have been filed outside the U.S.,
including in the U.K., Israel, the Netherlands, Brazil and
Australia. An agreement to resolve one of the UK actions
was reached in December 2022. In a putative class action
pending before the U.K. Competition Appeal Tribunal,
proposed class representatives have appealed the tribunal's
denial of a request for class certification on an opt-out
basis. In Israel, a settlement in principle has been reached
in the putative class action, which remains subject to court
approval.
instructed as part of a complex fraud not involving
JPMorgan Chase Bank, N.A., but that JPMorgan Chase Bank,
N.A. was or should have been on notice that the payments
may be fraudulent. A trial was held between February and
April 2022. In June 2022, the Court decided the case in
favor of JPMorgan Chase Bank, N.A. and dismissed it in full.
In November 2022, the Court refused permission to the
FRN to appeal the dismissal, and the matter was concluded.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange ("FX") sales and
trading activities and controls related to those activities.
Among those resolutions, in May 2015, the Firm pleaded
guilty to a single violation of federal antitrust law. The
Department of Labor ("DOL") granted the Firm exemptions
that permit the Firm and its affiliates to continue to rely on
the Qualified Professional Asset Manager exemption under
the Employee Retirement Income Security Act ("ERISA")
through the ten-year disqualification period following the
antitrust plea. The only remaining FX-related governmental
inquiry is a South Africa Competition Commission matter
which is currently pending before the South Africa
Competition Tribunal.
Notes to consolidated financial statements
283
JPMorgan Chase & Co./2022 Form 10-K
Federal Republic of Nigeria Litigation. JPMorgan Chase Bank,
N.A. operated an escrow and depository account for the
Federal Government of Nigeria ("FGN") and two major
international oil companies. The account held
approximately $1.1 billion in connection with a dispute
among the clients over rights to an oil field. Following the
settlement of the dispute, JPMorgan Chase Bank, N.A. paid
out the monies in the account in 2011 and 2013 in
accordance with directions received from its clients. In
November 2017, the Federal Republic of Nigeria ("FRN")
commenced a claim in the English High Court for
approximately $875 million in payments made out of the
accounts. The FRN alleged that the payments were
Amrapali. India's Enforcement Directorate ("ED") is
investigating J.P. Morgan India Private Limited in
connection with investments made in 2010 and 2012 by
two offshore funds formerly managed by JPMorgan Chase
entities into residential housing projects developed by the
Amrapali Group ("Amrapali”). In 2017, numerous creditors
filed civil claims against Amrapali, including petitions
brought by home buyers relating to delays in delivering or
failure to deliver residential units. The home buyers'
petitions have been overseen by the Supreme Court of India
and are ongoing. In August 2021, the ED issued an order
fining J.P. Morgan India Private Limited approximately
$31.5 million. The Firm is appealing the order and the fine.
Relatedly, in July 2019, the Supreme Court of India issued
an order making preliminary findings that Amrapali and
other parties, including unspecified JPMorgan Chase entities
and the offshore funds that had invested in the projects,
violated certain currency control and money laundering
provisions, and ordering the ED to conduct a further inquiry
under India's Prevention of Money Laundering Act ("PMLA”)
and Foreign Exchange Management Act ("FEMA”). In May
2020, the ED attached approximately $25 million from J.P.
Morgan India Private Limited in connection with the
criminal PMLA investigation. The Firm is responding to and
cooperating with the PMLA investigation.
1MDB Litigation. J.P. Morgan (Suisse) SA was named as a
defendant in a civil litigation filed in May 2021 in Malaysia
by 1 Malaysia Development Berhad ("1MDB"), a Malaysian
state-owned and controlled investment fund. J.P. Morgan
(Suisse) SA was served in August 2022. The claim alleges
"dishonest assistance" against J.P. Morgan (Suisse) SA in
relation to payments of $300 million and $500 million,
from 2009 and 2010, respectively, received from 1MDB
and paid into an account at J.P. Morgan Suisse (SA) held by
1MDB PetroSaudi Limited, a joint venture company
between 1MDB and PetroSaudi Holdings (Cayman) Limited.
In September 2022, the Firm filed an application
challenging the validity of service and the Malaysian court's
jurisdiction to hear the claim.
Set forth below are descriptions of the Firm's material legal
proceedings.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has responded to inquiries from
various governmental agencies and entities around the
world relating primarily to the British Bankers Association's
("BBA") London Interbank Offered Rate ("LIBOR") for
various currencies and the European Banking Federation's
Euro Interbank Offered Rate ("EURIBOR"). The Swiss
Competition Commission's investigation relating to
EURIBOR, to which the Firm and one other bank remain
subject, continues. In December 2016, the European
Commission issued a decision against the Firm and other
banks finding an infringement of European antitrust rules
relating to EURIBOR. The Firm has filed an appeal of that
114.8
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services to its clients.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to the amount (or a multiple of
the amount) of the Firm's contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of a
member default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share of
losses that may result from the clearing house's investment
of guarantee fund contributions and initial margin,
unrelated to and independent of the default of another
member. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to
absorb the losses in the first instance. In certain cases, it is
difficult to estimate the Firm's maximum possible exposure
under these membership agreements, since this would
require an assessment of future claims that may be made
against the Firm that have not yet occurred. However,
based on historical experience, management expects the
risk of loss to the Firm to be remote. Where the Firm's
maximum possible exposure can be estimated, the amount
is disclosed in the table on page 277, in the Exchange &
clearing house guarantees and commitments line.
Assets pledged at Federal Reserve banks and
FHLBS
285
Notes to consolidated financial statements
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other legal
proceedings currently pending against it should not have a
material adverse effect on the Firm's consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase's operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase's income for that period.
286
JPMorgan Chase & Co./2022 Form 10-K
Note 31 - International operations
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
booking location or the location of the trading desk.
However, many of the Firm's U.S. operations serve
international businesses.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 32.
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As of or for the year ended December 31,
(in millions)
2022
Europe/Middle East/Africa
JPMorgan Chase & Co./2022 Form 10-K
Asia-Pacific
Total international
North America (a)
Total
(b)
(c)
Revenue
Expense
Income before
income tax
expense
Net income
Total assets
5,158
$
18,765 $
10,025
Latin America/Caribbean
Total pledged assets
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upward or downward, as appropriate, based on
management's best judgment after consultation with
counsel. The Firm's legal expense was $266 million, $426
million and $1.1 billion for the years ended December 31,
2022, 2021 and 2020, respectively. There is no assurance
that the Firm's litigation reserves will not need to be
adjusted in the future.
Sponsored member repo program
Assets that may not be sold or repledged or
otherwise used by secured parties
1,111.0
1,019.4
$ 1,346.9 $ 1,471.3
2021
2022
Collateral permitted to be sold or
repledged, delivered, or otherwise used
Collateral sold, repledged, delivered or
otherwise used
December 31, (in billions)
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and other
securities financing agreements, prime brokerage-related
held-for-investment customer receivables and derivative
contracts. Collateral is generally used under repurchase and
other securities financing agreements, to cover short sales,
and to collateralize derivative contracts and deposits.
The following table presents the fair value of collateral
accepted.
Collateral
$ 126.3
$ 110.8
2022
Exchange & Clearing House Memberships
2021
December 31, (in billions)
The following table presents the Firm's pledged assets.
The Firm pledges financial assets that it owns to maintain
potential borrowing capacity at discount windows with
Federal Reserve banks, various other central banks and
FHLBS. Additionally, the Firm pledges assets for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
Pledged assets
Note 29 - Pledged assets and collateral
Notes to consolidated financial statements
281
JPMorgan Chase & Co./2022 Form 10-K
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC ("JPMFC"), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company and
no other subsidiary of the parent company guarantees
these securities. These guarantees, which rank on a parity
with the Firm's unsecured and unsubordinated
indebtedness, are not included in the table on page 277 of
this Note. Refer to Note 20 for additional information.
counterparties. The obligations of the subsidiaries are
included on the Firm's Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm's
Guarantees of subsidiaries
The Firm acts as a sponsoring member to clear eligible
overnight and term resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation ("FICC”) on behalf of clients
that become sponsored members under the FICC's rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients'
respective obligations under the FICC's rules. The Firm
minimizes its liability under these guarantees by obtaining a
security interest in the cash or high-quality securities
collateral that the clients place with the clearing house;
therefore, the Firm expects the risk of loss to be remote.
The Firm's maximum possible exposure, without taking into
consideration the associated collateral, is included in the
Exchange & clearing house guarantees and commitments
line on page 277. Refer to Note 11 for additional
information on credit risk mitigation practices on resale
agreements and the types of collateral pledged under
repurchase agreements.
Assets that may be sold or repledged or
otherwise used by secured parties
$
9,289
2,119
6,372
9,654
Asia-Pacific
5,728 $
10,833 $
16,561 $
$
Europe/Middle East/Africa
2021
$ 3,665,743
37,676
46,166 $
82,529 $
3,282
128,695 $
2,747,161
29,243
34,412
62,315
96,727
918,582
78,673
8,433
11,754
16,566 $
10,987 $
5,579
$
$
Asia-Pacific
Latin America/Caribbean
1,589
11,754
6,763
1,697
27,598
$
Europe/Middle East/Africa
2020
(e)
(e)
277,897
65,040
860,841
2,882,726
$ 3,743,567
48,334
$
59,562
62,087 $
121,649 $
2,756
$
40,954
49,385
43,293
92,678
North America (a)
7,380
10,177
18,794
28,971
Total international
(d)
4,202 $ 517,904
2,300
878
1,167
Total
5,558
3,731
3,868 $
2,630
287
Notes to consolidated financial statements
Note 32 - Business segments
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is evaluated by the Firm's
Operating Committee. Segment results are presented on a
managed basis. Refer to Segment results of this footnote
for a further discussion of JPMorgan Chase's business
segments.
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
Consumer & Community Banking
Consumer & Community Banking offers products and
services to consumers and small businesses through bank
branches, ATMs, digital (including mobile and online) and
telephone banking. CCB is organized into Banking & Wealth
Management (including Consumer Banking, J.P. Morgan
Wealth Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card Services &
Auto. Banking & Wealth Management offers deposit,
investment and lending products, cash management,
payments and services. Home Lending includes mortgage
origination and servicing activities, as well as portfolios
consisting of residential mortgages and home equity loans.
Card Services issues credit cards and offers travel services.
Auto originates and services auto loans and leases.
Corporate & Investment Bank
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a broad
suite of investment banking, market-making, prime
brokerage, lending, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, merchants, government and
municipal entities. Banking offers a full range of investment
banking products and services in all major capital markets,
including advising on corporate strategy and structure,
capital-raising in equity and debt markets, as well as loan
origination and syndication. Banking also includes
Payments, which provides payments services enabling
clients to manage payments and receipts globally, and
cross-border financing. Markets & Securities Services
includes Markets, a global market-maker across products,
including cash and derivative instruments, which also offers
sophisticated risk management solutions, prime brokerage,
and research. Markets & Securities Services also includes
Securities Services, a leading global custodian which
provides custody, fund accounting and administration, and
securities lending products principally for asset managers,
insurance companies and public and private investment
funds.
Commercial Banking
Commercial Banking provides comprehensive financial
solutions, including lending, payments, investment banking
and asset management products across three primary client
segments: Middle Market Banking, Corporate Client Banking
and Commercial Real Estate Banking. Other includes
amounts not aligned with a primary client segment.
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
JPMorgan Chase & Co./2022 Form 10-K
Asset & Wealth Management
Asset Management
Offers multi-asset investment management solutions across
equities, fixed income, alternatives and money market
funds to institutional and retail investors providing for a
broad range of clients' investment needs.
Global Private Bank
Provides retirement products and services, brokerage,
custody, estate planning, lending, deposits and investment
management to high net worth clients.
The majority of AWM's client assets are in actively managed
portfolios.
Corporate
The Corporate segment consists of Treasury and Chief
Investment Office ("CIO") and Other Corporate. Treasury
and CIO is predominantly responsible for measuring,
monitoring, reporting and managing the Firm's liquidity,
funding, capital, structural interest rate and foreign
exchange risks.
Other Corporate includes staff functions and expense that is
centrally managed as well as certain Firm initiatives and
activities not aligned to a specific LOB. The major Other
Corporate functions include Real Estate, Technology, Legal,
Corporate Finance, Human Resources, Internal Audit, Risk
Management, Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
20,214
31,968
1,156
1,481
558,430
281,479
Asset & Wealth Management, with client assets of $4.0
trillion, is a global leader in investment and wealth
management.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(d) Total assets for the U.K. were approximately $357 billion, $365 billion and $353 billion at December 31, 2022, 2021 and 2020, respectively.
(e) Prior-period amounts have been revised to conform with the current presentation.
(b) Revenue is composed of net interest income and noninterest revenue.
(a) Substantially reflects the U.S.
(d)
530,687
252,553
Latin America/Caribbean
2,740
1,590
1,150
837
Total international
28,595
18,135
10,460
7,335
North America (a)
91,356
66,001
25,355
21,796
63,853
847,093
2,537,664
(e)
(e)
Total
$
119,951
$
84,136 $
35,815 $
29,131
$ 3,384,757
3,262
3,178
19,654
$
128,695
121,649
119,951
Provision for credit losses
22
81
66
6,389
(9,256)
17,480
Noninterest expense
1,034
(2,978)
1,802
76,140
71,343
66,656
Income/(loss) before income
tax expense/(benefit)
Income tax expense/(benefit)
Net income/(loss)
Average equity
Total assets
Return on equity
Overhead ratio
(976)
1,373
(3,655)
(3,582)
(1,176)
2021
2020
2022
2021
2020
Noninterest revenue
$
(1,798) $
68
$
1,199 $
(3,148) $ (3,225) $
(2,560)
$ 61,985 $ 69,338 $ 65,388
Net interest income
1,878
(3,551)
(2,375)
(434)
(430)
(418)
66,710
52,311
54,563
Total net revenue
80
(3,483)
(5,366)
(233)
(1,653)
(2,615)
(865)
NA
NA
NA
$ 253,068
3,665,743
$ 250,968
$ 236,865
3,743,567
3,384,757
NM
NM
NM
NM
NM
NM
14 %
19%
12 %
NM
NM
NM
NM
NM
59
59
56
NM
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/
(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
1,359,831
2022
1,518,100
$
(3,582)
(3,655)
(2,978)
46,166
59,562
35,815
(3,582)
(3,655)
(2,978)
8,490
11,228
6,684
(743) $
(3,713)
$
(1,750) $
$
$
$ 37,676
$ 48,334
$ 29,131
$
58,068 $
79.968
$
72,365 $
- $
1,328,219
2020
2021
2022
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. At least annually, the assumptions, judgments
and methodologies used to allocate capital are reassessed
and, as a result, the capital allocated to the LOBS may
change.
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
Capital allocation
(Table continued on next page)
Segment results and reconciliation (a)
The following table provides a summary of the Firm's
segment results as of or for the years ended December 31,
2022, 2021 and 2020, on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the
reportable business segments) on an FTE basis.
Accordingly, revenue from investments that receive tax
credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. This allows management to
assess the comparability of revenue from year-to-year
arising from both taxable and tax-exempt sources. The
corresponding income tax impact related to tax-exempt
items is recorded within income tax expense/(benefit).
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Segment results
JPMorgan Chase & Co./2022 Form 10-K
288
23,020
5,546
6,914
3,402
5,791
6,265
4,020
Income tax expense/
(benefit)
Net income/(loss)
Average equity
Total assets
Return on equity
Overhead ratio
4,862
6,876
2,749
4,684
6,464
As of or for the year
5,926
Consumer & Community Banking
Commercial Banking
$10,822
$12,507 $13,071
2020
2021
2022
2020
$3,067
$3,336 $3,929
$35,120
2021
2022
2020
2021
$ 38,209
13,540
$17,740 $35,999
11,900
33,528
32,787
39,928
Net interest income
$ 15,089 $17,286
Noninterest revenue
2022
2020
2021
2022
(in millions, except ratios)
December 31,
ended
Asset & Wealth Management
Corporate & Investment Bank
290
1,333
824
16 %
21 %
11 %
25 %
33 %
28 %
57
58
55
57
49
48
41
40
41
67
64
70
JPMorgan Chase & Co./2022 Form 10-K
Notes to consolidated financial statements
(Table continued from previous page)
Corporate
Reconciling Items(a)
Total
As of or for the year ended
December 31,
(in millions, except ratios)
20%
1,668
25 %
15 %
1,426
1,528
1,028
$ 14,871
$ 50,000
$20,930
$50,000
$ 8,217
$52,000
514,085
500,370
496,705
$14,970
$103,000
1,334,296 1,259,896
$ 21,134
$ 83,000
$ 17,094
$ 80,000
$4,213 $5,246
$25,000 $24,000
1,095,926
257,106
230,776
$2,578
$22,000
228,911
$4,365 $4,737
$17,000 $14,000
$2,992
$10,500
232,037
234,425
203,384
29%
41 %
14 %
JPMorgan Chase & Co./2022 Form 10-K
289
3,813
(1,174)
2,726
1,268
(947)
2,113
128
(227)
263
Noninterest expense
31,471
29,256
27,990
27,087
25,325
23,538
4,719
4,041
1,158
12,312
(6,989)
Provision for credit losses
14,164
Total net revenue
55,017
50,073
51,268
47,899
51,749
49,284
11,829
8,197
11,533 10,008
6,246
5,241
3,886
3,418
9,313
17,748
16,957
14,240
6,079
10,919
3,798
Income/(loss) before
9,957
income tax expense/
(benefit)
19,733
27,806
10,966
5,056
2.34
125,036
3,326
2.66
106,911
2,813
2.63
1.31
7,399
216,025
475,832
8,703
1.83
154,825
0.95
1,341
563,109
2.22
0.01
158,793
141,409
0.43
134,517
1,095
0.81
137,752
(319)
(0.23)
100,026
(305)
(0.30)
52,903
(66)
(0.12)
43,446
3
659
3,530
0.26
206
114,406
2021
(Table continued from previous page)
JPMorgan Chase & Co./2022 Form 10-K
294
Refer to the "Net interest income” discussion in Consolidated Results of Operations on pages 51-54 for further information.
(c) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(a) Negative interest and rates reflect the net impact of interest earned offset by fees paid on client-driven prime brokerage securities borrowed transactions.
(b) Includes commercial paper.
20.6
24.9
1.09
8,194
2.27
58,950
2.00 %
67,144
0.78 %
26,097
Average balance
299
Interest
2020
0.26 %
(0.01)
(19)
149,389
30,868
(0.09)
(181)
192,432
768
294,669 $
$
0.13 %
693
527,340 $
$
Rate
Interest
Average balance
Rate
397
1.81
34,105
728
109,583
(0.02)
(30)
151,120
(0.20)
(345)
0.66
176,466
195
50,463
0.09
52
60,082
0.42
863
0.39
92,988
597
0.64
60
6,777
0.96
53
5,528
2.30
5,704
247,623
1.73
4,229
244,850
1.12
214
19,216
0.57
83
14,595
204,958
0.11
222
199,220
0.73
894
123,079
2.30
2,178
94,747
2.21
2,448
110,686
4.58
41,708
909,850
4.24
39,215
924,713
1.69
577
78,784
1.29
1,023
3,215,942
0.02
69
320,367
(0.10)
(370)
371,053
0.21
2,288
1,068,857
0.07
901
1,301,616
2.34
64,941
2,779,710
782,281
3,349,079 $
$
58,294
1.30
$
1.02
26,097
266,764
3,202,150
$
(f)
236,865
29,899
(f)
250,968
283,995
3,725,202
$
33,027
2,935,386
3,441,207
161,269
186,755
61,593
60,318
32,628
36,656
517,527
674,485
(k)
0.46
9,960
2,162,369
$
0.22
52,741
$
U.S.
Deposits with banks:
Interest-earning assets
Rate
Interest
Average balance
(Taxable-equivalent interest and rates; in millions, except rates)
2022
Year ended December 31,
(Unaudited)
(Table continued on next page)
Presented below is a summary of interest and rates segregated between U.S. and non-U.S. operations for the years 2020
through 2022. The segregation of U.S. and non-U.S. components is based on the location of the office recording the
transaction.
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
293
JPMorgan Chase & Co./2022 Form 10-K
(j) Negative interest and rates reflect the net impact of interest earned offset by fees paid on client-driven prime brokerage securities borrowed transactions.
(k) Prior-period amounts have been revised to conform with the current presentation.
(i) The annualized rate for securities based on amortized cost was 1.75%, 1.33% and 1.85% for the years ended December 31, 2022, 2021 and 2020,
respectively, and does not give effect to changes in fair value that are reflected in AOCI.
(h) Fees and commissions on loans included in loan interest amounted to $1.8 billion, $1.9 billion and $1.0 billion for the years ended December 31, 2022,
2021 and 2020.
(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(f) The ratio of average stockholders' equity to average assets was 7.4%, 7.6% and 8.3% for the years ended December 31, 2022, 2021 and 2020,
respectively. The return on average stockholders' equity, based on net income, was 13.2%, 17.0% and 10.9% for the years ended December 31, 2022,
2021 and 2020, respectively.
(e) The combined balance of trading liabilities - debt and equity instruments was $138.1 billion, $128.2 billion and $106.5 billion for the years ended
December 31, 2022, 2021 and 2020, respectively.
1.88 %
1.98
54,981
1.59 %
1.64
Non-U.S.
5,553
2.27
44,618
0.11
274
259,302
$
0.03 %
531
$
1,672,669
$
(k)
3,202,150
$
179,413
51,934
(k)
73,749
120,878
(k)
22,241
3,725,202
$
207,737
126
2,482,993
0.28
$
5,764
254,400
1.71
4,282
250,378
1.12
214
19,216
0.57
83
14,595
0.10
195
205,255
0.11
257
241,431
0.96
372
0.41
1,058
0.17 %
2,357
1,389,224
255,421
38,853
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
194,570
(b)
Trading liabilities - debt, short-term and all other interest-bearing liabilities*
U.S.
0.91
638
69,746
Non-U.S.
1.78
3,083
173,016
U.S.
Federal funds purchased and securities loaned or sold under repurchase agreements:
0.78
3,056
390,344
Non-U.S.
0.52
7,026
1,358,322
U.S.
Interest-bearing deposits:
Interest-bearing liabilities
2.78
2,384
93,241
1.23
119,512
1.44
49
3,410
2,566,798
3.25
8,026
246,670
Liabilities
Assets
Percentage of total assets and liabilities attributable to non-U.S. operations:
Non-U.S.
U.S.
Net interest income and net yield:
Total investable funds
Noninterest-bearing liabilities (c)
Total interest-bearing liabilities
Non-U.S.
U.S.
2.02
226
11,208
Beneficial interests issued by consolidated VIES, predominantly U.S.
Long-term debt:
1.35
1,609
Non-U.S.
3,349,079
2.93
3,763
142,736
1.38
2,441
176,937
1.68
2,191
130,213
0.76
1,621
214,407
1.63 %
7,418
456,366 $
Loans:
Non-U.S.
U.S.
Investment securities:
Non-U.S.
U.S.
Trading assets - debt instruments:
Non-U.S.
U.S.
Securities borrowed: (a)
1,811
1.27
62,780
426
128,229
3.41
3,924
115,131
4.97
48,953
985,187
Total interest-earning assets
All other interest-earning assets, predominantly U.S.
Non-U.S.
U.S.
0.89
1.96
30,700
1.76
10,994
623,285
3.28
3,683
112,133
3.17
5,414
170,975
0.68
602
2,482,993
2.25
0.22
1,802
1,636
166
(75)
(383) $
308 $
$
$ 6,725
$ (1,185) $ 7,910
Net
change
Rate
Volume
Net
change
Rate
Volume
2021 versus 2020
Increase/(decrease) due
to change in:
Increase/(decrease) due
to change in:
2022 versus 2021
U.S.
(42)
(120)
(162)
267
(14)
70
(84)
2,130
2,066
64
U.S.
Securities borrowed: (a)
(436)
agreements:
(511)
1,782
1,471
311
Non-U.S.
(1,042)
(976)
(66)
1,892
1,625
75
Federal funds sold and securities purchased under resale
Non-U.S.
U.S.
Long-term debt:
U.S.
75
Non-U.S.
(31)
3,722
27
3,797
(4)
(64)
(12)
(131)
Change in interest expense
20,182
20,544
22
(1,411)
5
(4,429)
(1,475)
(7)
(4,407)
Change in net interest income
$ 3,643 $ 10,760 $ 14,403
$ 1,771 $ (4,011) $ (2,240)
362
Non-U.S.
(104)
143
Deposits with banks:
Interest-earning assets
(On a taxable-equivalent basis; in millions)
Year ended December 31,
(Unaudited)
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual rates (refer to pages 292-296 for more information on average balances and rates). In this analysis, when the change
cannot be isolated to either volume or rate, it has been allocated to volume. The annual rates include the impact of changes in
market rates, as well as the impact of any change in composition of the various products within each category of asset or liability.
This analysis is calculated separately for each category without consideration of the relationship between categories (for example,
the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a result, changes in
the granularity or groupings considered in this analysis would produce a different attribution result, and due to the complexities
involved, precise allocation of changes in interest rates between volume and rates is inherently complex and judgmental.
2,729
(43)
(272)
(27)
(315)
125
756
881
112
19
131
Beneficial interests issued by consolidated VIES, predominantly
U.S.
(69)
212
Non-U.S.
69
423
492
Non-U.S.
(1,387)
(1,496)
109
6,125
5,857
268
U.S.
Interest-bearing deposits:
161
Interest-bearing liabilities
(8,440)
1,793
34,947
30,942
4,005
Change in interest income
(129)
(449)
320
(6,647)
2,869
3,265
(55)
U.S.
liabilities
Trading liabilities - debt, short-term and all other interest-bearing
(b)
(143)
(151)
8
586
493
93
3,426
Non-U.S.
(635)
(6)
2,861
3,327
(466)
U.S.
Federal funds purchased and securities loaned or sold under
repurchase agreements:
(439)
(384)
(641)
(a) Negative interest and rates reflect the net impact of interest earned offset by fees paid on client-driven prime brokerage securities borrowed transactions.
(b) Includes commercial paper.
2,708
All other interest-earning assets, predominantly U.S.
Non-U.S.
U.S.
Investment securities:
513
32
481
(1,526)
(259)
(1,267)
1,061
1,884
357
(418)
Non-U.S.
1,509
375
U.S.
Trading assets - debt instruments:
(69)
(56)
(13)
775
161
2,534
1,170
270
(2,493)
(3,093)
(85)
355
1,476
1,328
148
Non-U.S.
600
3,595
9,738
2,988
U.S.
Loans:
(1,304)
(180)
(2,474)
(136)
(44)
205
207
(2)
6,750
296
JPMorgan Chase & Co./2022 Form 10-K
Glossary of Terms and Acronyms
299
Glossary of Terms and Acronyms
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
Merchant Services: offers merchants payment processing
capabilities, fraud and risk management, data and analytics,
and other payments services. Through Merchant Services,
merchants of all sizes can accept payments via credit and
debit cards and payments in multiple currencies.
MEV: Macroeconomic variable
Moody's: Moody's Investor Services
Mortgage origination channels:
-
Retail Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
MD&A: Management's discussion and analysis
Alt-A
Option ARMS
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Prime
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Subprime
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v)
a history of delinquencies or late payments on the loan.
MREL: Minimum requirements for own funds and eligible
liabilities
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
MBS: Mortgage-backed securities
Markets: consists of CIB's Fixed Income Markets and Equity
Markets businesses.
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
JPMorgan Chase Foundation or the Firm's Foundation: A
not-for-profit organization that makes contributions for
charitable and educational purposes.
JPMorgan Securities: J.P. Morgan Securities LLC
JPMSE: J.P. Morgan SE
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default
LIBOR: London Interbank Offered Rate
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
JPMorgan Chase & Co./2022 Form 10-K
LOB: Line of business
LOB CROS: Line of Business and CTC Chief Risk Officers
LTIP: Long-term incentive plan
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual
appraised values of collateral (i.e., loan-level data) at the
origination date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist
of actual data to the extent available and forecasted data
where actual data is not available. As a result, the
estimated collateral values used to calculate these ratios do
not represent actual appraised loan-level collateral values;
as such, the resulting LTV ratios are necessarily imprecise
and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Macro businesses: the macro businesses include Rates,
Currencies and Emerging Markets, Fixed Income Financing
and Commodities in CIB's Fixed Income Markets.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment with
the performance of competitors.
LLC: Limited Liability Company
ISDA: International Swaps and Derivatives Association
NA: Data is not applicable or available for the period
presented.
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
46,622
1.98 %
54,981
$
1.64 %
52,741
$
0.36 %
9,960
1.86
2,779,710 $
0.17 %
5,553
3,215,942 $
$
617,341
732,949
0.46
9,960
2,162,369
$
NAV: Net Asset Value
49,242
6,119
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Net interchange income includes the following
components:
•
•
Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
Reward costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs
generally tied to sales transactions.
• Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans,
which is recognized over the period in which the service is
provided; changes in the fair value of MSRS; the impact of
risk management activities associated with MSRS; and gains
and losses on securitization of excess mortgage servicing.
Net mortgage servicing revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
of certain repurchased loans insured by U.S. government
agencies.
Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans
for the period.
300
2,523
JPMorgan Chase & Co./2022 Form 10-K
295
JPMorgan Chase & Co./2022 Form 10-K
20.9
23.5
20.4
24.6
0.97
5,739
0.87
Changes in net interest income, volume and rate analysis
5,553
IPO: Initial public offering
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
CFTC: Commodity Futures Trading Commission
Chase Bank USA, N.A.: Chase Bank USA, National
Association
CIB: Corporate & Investment Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
Client investment assets: Represent assets under
management as well as custody, brokerage and annuity
accounts, and deposits held in investment accounts.
CLO: Collateralized loan obligations
CLTV: Combined loan-to-value
CMT: Constant Maturity Treasury
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided substantially through the operation or sale of the
collateral when the borrower is experiencing financial
difficulty, including when foreclosure is deemed probable
based on borrower delinquency.
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
CFP: Contingency funding plan
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the
reference entity. The protection purchaser has recourse to
the protection seller for the difference between the face
value of the CDS contract and the fair value at the time of
settling the credit derivative contract. The determination as
to whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Glossary of Terms and Acronyms
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes.
CRO: Chief Risk Officer
CRR: Capital Requirements Regulation
CTC: CIO, Treasury and Corporate
Custom lending: Loans to AWM's Global Private Bank
clients, including loans to private investment funds and
loans that are collateralized by nontraditional asset types,
such as art work, aircraft, etc.
CVA: Credit valuation adjustment
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
297
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
CFO: Chief Financial Officer
CEO: Chief Executive Officer
2022 Form 10-K: Annual report on Form 10-K for the year
ended December 31, 2022, filed with the U.S. Securities
and Exchange Commission.
ABS: Asset-backed securities
AFS: Available-for-sale
ALCO: Asset Liability Committee
Amortized cost: Amount at which a financing receivable or
investment is originated or acquired, adjusted for accretion
or amortization of premium, discount, and net deferred fees
or costs, collection of cash, charge-offs, foreign exchange,
and fair value hedge accounting adjustments. For AFS
securities, amortized cost is also reduced by any
impairment losses recognized in earnings. Amortized cost is
not reduced by the allowance for credit losses, except
where explicitly presented net.
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
AUC: Assets under custody
AUM: “Assets under management”: Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called."
CET1 Capital: Common equity Tier 1 capital
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
BWM: Banking & Wealth Management
CB: Commercial Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: "Central counterparty" is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes a counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CDS: Credit default swaps
CECL: Current Expected Credit Losses
JPMorgan Chase & Co./2022 Form 10-K
AWM: Asset & Wealth Management
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment. The Firm
considers ratings of BBB-/Baa3 or higher as investment-
grade.
DVA: Debit valuation adjustment
Eligible HQLA: Eligible high-quality liquid assets, for
purposes of calculating the LCR, is the amount of
unencumbered HQLA that satisfy certain operational
considerations as defined in the LCR rule.
FSB: Financial Stability Board
FTE: Fully taxable equivalent
298
JPMorgan Chase & Co./2022 Form 10-K
Glossary of Terms and Acronyms
FVA: Funding valuation adjustment
FX: Foreign exchange
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm's other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
Ginnie Mae: Government National Mortgage Association
GSIB: Global systemically important banks
Home equity-senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
Home equity - junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.
HQLA: "High-quality liquid assets" consist of cash and
certain high-quality liquid securities as defined in the LCR
rule.
HTM: Held-to-maturity
IBOR: Interbank Offered Rate
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
55,003
HELOC: Home equity line of credit
EC: European Commission
Freddie Mac: Federal Home Loan Mortgage Corporation
FINRA: Financial Industry Regulatory Authority
Firm: JPMorgan Chase & Co.
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
EPS: Earnings per share
ERISA: Employee Retirement Income Security Act of 1974
ETD: “Exchange-traded derivatives”: Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
EU: European Union
•
•
•
Expense categories:
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., "spot
rate") to determine the forward exchange rate.
FRC: Firmwide Risk Committee
Volume- and/or revenue-related expenses generally
correlate with changes in the related business/
transaction volume or revenue. Examples include
commissions and incentive compensation within the
LOBS, depreciation expense related to operating lease
assets, and brokerage expense related to trading
transaction volume.
Structural expenses are those associated with the day-to-
day cost of running the Firm and are expenses not
included in the above two categories. Examples include
employee salaries and benefits, certain other incentive
compensation, and costs related to real estate.
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
FDIC: Federal Deposit Insurance Corporation
Federal Reserve: The Board of the Governors of the Federal
Reserve System
FFIEC: Federal Financial Institutions Examination Council
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICC: The Fixed Income Clearing Corporation
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
Investments in the business include expenses associated
with supporting medium- to longer-term strategic plans
of the Firm. Examples include front office growth, market
expansion, initiatives in technology (including related
compensation), marketing, and acquisitions.
69,101
Total interest-bearing liabilities
26,776
Comprehensive income
$ 20,419
$ 40,264 $ 35,548
Balance sheets
All other financing activities, net
Net cash provided by/(used in)
financing activities
(3,162) (18,408) (6,517)
(13,562) (12,858)
(1,205)
(12,690)
(1,238)
(1,080)
(6,759)
4,500
8,544
December 31, (in millions)
2022
2021
Assets
Cash and due from banks
$
Deposits with banking subsidiaries
41 $
9,806
Trading assets
2,727
(12,694)
36
6,809
2,293
7,350
(2,575) (1,430)
Redemption of preferred stock
Treasury stock repurchased
Dividends paid
32,217
5,753
176
Payments of long-term
borrowings
(18,294)
(15,543) (34,194)
Income tax benefit
1,260
1,329
1,324
(7,434)
Equity in undistributed net income
4,199
41,252
27,631
Proceeds from issuance of
preferred stock
Net income
$ 37,676 $ 48,334 $ 29,131
Other comprehensive income/
(loss), net
(17,257)
(8,070)
6,417
of subsidiaries
Net increase/(decrease) in cash
and due from banks and deposits
with banking subsidiaries
3,002
(20)
545,635
1,007
12,220
$ 555,687 $ 568,481
Liabilities and stockholders' equity
Borrowings from, and payables to, subsidiaries
and affiliates
$ 24,164 $ 28,039
Short-term borrowings
Other liabilities
Long-term debt (b)(c)
Total liabilities (c)
1,130
10,440
1,064
9,108
227,621
263,355
292,332
1,018
9,340
235,957
274,354
294,127
9,847
$ 7,462 $ 4,065 $ 5,445
6,941 15,259
5,366
(a) Includes interest expense for intercompany derivative hedges on the
Firm's LTD and related fair value adjustments, which is predominantly
offset by related amounts in Other interest expense/(income).
(b) At December 31, 2022, long-term debt that contractually matures in
2023 through 2027 totaled $9.4 billion, $23.5 billion, $26.8 billion,
$28.2 billion, and $17.5 billion, respectively.
(c) Refer to Notes 20 and 28 for information regarding the Parent
Company's guarantees of its subsidiaries' obligations.
(d) Represents payments, net of refunds, made by the Parent Company to
various taxing authorities and includes taxes paid on behalf of certain
of its subsidiaries that are subsequently reimbursed. The
reimbursements were $11.3 billion, $13.9 billion, and $8.3 billion for
the years ended December 31, 2022, 2021 and 2020, respectively.
$ 6,845 $ 6,865
Total liabilities and stockholders' equity
$ 555,687 $ 568,481
JPMorgan Chase & Co./2022 Form 10-K
Total stockholders' equity
Total assets
Other assets
Non-bank
1,524
Cash and due from banks and
deposits with banking
subsidiaries at the beginning of
the year
6,845
6,865
5,341
Advances to, and receivables from, subsidiaries:
Cash and due from banks and
Bank and bank holding company
136
431
deposits with banking
subsidiaries at the end of the
Non-bank
46
50
year
$
Investments (at equity) in subsidiaries and
affiliates:
Cash interest paid
Bank and bank holding company
Cash income taxes paid, net(d)
532,759
subsidiaries
291
and undistributed net income of
49,169
Parent company net loss
Cash dividends from subsidiaries
and affiliates
33,631
(7,023) (2,918) (4,500)
Bank and bank holding company
Non-bank
$ 40,500
$ 10,000 $
6,000
Other operating adjustments
40,500
(23,747)
10,000
6,000
(12,677) 15,357
Interest income from subsidiaries
affiliates:
498
63
Net cash provided by/(used in)
operating activities
9,730
(5,595)
16,857
Other income/(expense) from
Investing activities
subsidiaries:
Net change in:
Bank and bank holding company
32
(3,497)
51,252
Less: Net income of subsidiaries
and affiliates
Note 33 Parent Company
-
The following tables present Parent Company-only financial
statements.
Statements of income and comprehensive income
Statements of cash flows
(in millions)
Year ended December 31,
2022
2021
44,699
172,822
Net income
$ 37,676 $ 48,334
$ 29,131
Year ended December 31,
(in millions)
Income
Dividends from subsidiaries and
2022
2021
2020
Operating activities
859
2,019
Non-bank
Net change in:
Other interest expense/(income)(a)
(14,658)
(1,349)
14,150
Borrowings from subsidiaries
and affiliates
(4,491)
2,647
Noninterest expense
2,817
(8,830)
2,637
Total expense
Short-term borrowings
1,425
(20)
10,890
6,641
7,542
Proceeds from long-term
Income before income tax benefit
borrowings
41,389
2,222
5,353
22,731
(a)
335
366
(569)
Other income/(expense)
5,271
1,137
205
Total income
43,107
12,394
7,718
Advances to and investments in
subsidiaries and affiliates, net
All other investing activities, net
Net cash provided by/(used in)
investing activities
31
(3,000)
31
(2,663)
24
31
(2,969)
(2,639)
Expense
Financing activities
Interest expense/(income) to
subsidiaries and affiliates a
37,312
Supplementary Information: Distribution of assets, liabilities and stockholders' equity; interest rates
and interest differentials
2020
(Table continued on next page)
Average
balance
2020
Interest(g)
Rate
$
719,772
$
512
0.07 %
$
Rate
444,058
749
0.17 %
269,231
958
0.36
275,926
2,436
0.88
190,655
(385)
$
(0.20)
Interest(g)
Average
balance
3,568,579
Preferred stock
Common stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
Interest rate spread
Net interest income and net yield on interest-earning assets
(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
31,893
$
2021
253,068
284,961
3,853,540
$
67,144
1.76 %
2.00
(b) Includes brokerage-related held-for-investment customer receivables, which are classified in accrued interest and accounts receivable, and all other
interest-earning assets, which are classified in other assets on the Consolidated Balance Sheets.
(c) Includes commercial paper.
(d) All other interest-bearing liabilities include brokerage-related customer payables.
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. Refer to Note 12 for
additional information on nonaccrual loans, including interest accrued.
292
JPMorgan Chase & Co./2022 Form 10-K
(Table continued from previous page)
(f)
(j)
143,472
(302)
1.82
(h)
1,035,399
123,079
3,215,942
(22,179)
41,663
4.02
1,004,597
43,886 (h)
9,280
4.37
0.73
78,784
1,023
1.30
1.81
2,779,710
64,941
2.34
(25,775)
Consolidated average balance sheets, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest and rates on a
taxable-equivalent basis for the years 2020 through 2022.
Income computed on a taxable-equivalent basis is the
income reported in the Consolidated statements of income,
adjusted to present interest income and rates earned on
894
(i)
509,937
1.31
(0.21)
(j)
283,829
6,856
2.42
322,936
7,869
2.44
563,147
6,460
1.15
476,650
7,843
1.65
30,830
1,336
4.33
33,287
1,437
4.32
(i)
593,977
7,796
Stockholders' equity
Total liabilities
58,294
57,388
Taxable securities
Non-taxable securities (a)
Total investment securities
Loans
All other interest-earning assets (b)
Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets - equity and other instruments
Trading assets - derivative receivables
3.21
626,122
1.66
27,863
1,224
4.39
(i)
653,985
11,596
1.77
(h)
1,100,318
10,372
9,097
283,108
Trading assets - debt instruments
(Unaudited)
185,989
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
assets exempt from income taxes (i.e., federal taxes) on a
basis comparable with other taxable investments. The
incremental tax rate used for calculating the taxable-
equivalent adjustment was approximately 24% in 2022,
2021 and 2020.
Average
balance
2022
Interest (g)
Rate
Deposits with banks
$
670,773
$
9,039
1.35 %
Federal funds sold and securities purchased under resale agreements
307,150
4,632
1.51
Securities borrowed
205,516
2,237
1.09
52,877
4.81
Assets
3,763
1.62
Trading liabilities - debt and all other interest-bearing liabilities (d)(e)
268,019
3,246
1.21
Beneficial interests issued by consolidated VIES
Long-term debt
Noninterest-bearing deposits
11,208
226
2.02
250,080
8,075
3.23
2,566,798
26,097
All other liabilities, including the allowance for lending-related commitments
1.02
719,249
39,155
128,229
747
1.53
Trading liabilities - equity and other instruments(e)
0.58 %
2.93
3,721
3,349,079
(17,399)
93,241
2.78
Goodwill, MSRs and other intangible assets
All other noninterest-earning assets
Total assets
Liabilities
27,601
140,778
Trading liabilities - derivative payables
59,467
10,082
1,748,666
242,762
46,063
$
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings (c)
$
78,606
3,853,540
$
215,408
Interest-bearing deposits
Tony Blair Institute for Global Change
Former Prime Minister of
Great Britain and Northern Ireland
London, United Kingdom
Chairman of the Council
Executive Chairman
Rt. Hon. Tony Blair
As of March 1, 2023
J.P. Morgan International Council
305
JPMorgan Chase & Co./2022 Annual Report
Peter L. Scher
JPMorgan Chase Vice Chairs
Vittorio U. Grilli
Mark S. Garvin
David E. Rawlings
Canada
North America
Yan L. Tavrovsky
Russia, Kazakhstan and
Central Asia
Michal Szwarc
Poland
Cassander Verwey
David Mayhew
The Hon. Robert M. Gates
Vice Chairman of the Council
Principal
Aliko Dangote
Paul Bulcke
New Brunswick, New Jersey
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
The Netherlands
Alex Gorsky
San Pedro Garza García, Mexico
Armando Garza Sada
Chairman of the Board
ALFA, S.A.B. of C.V.
Chief Executive Officer
Mercado Libre
Montevideo, Uruguay
Marcos Galperin
Madrid, Spain
Iberdrola, S.A.
Executive Chairman
Ignacio S. Galán
Turin, Italy
Executive Director and Chairman
John Elkann
New York, New York
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
Jamie Dimon*
Group President and Chief Executive
Dangote Group
Lagos, Nigeria
Vevey, Switzerland
Chairman of the Board of Directors
Nestlé S.A.
Rice, Hadley, Gates & Manuel LLC
Washington, District of Columbia
Stellantis
Colombia
Middle East and North Africa
Marc Hussey
Ireland
Majed Al Mesmari
Ignacio de la Colina
Iberia
Daniel Darahem
Brazil
Facundo D. Gómez Minujin
Kevin G. Latter
Switzerland
Reinnout Böttcher
Türkiye
Kyril Courboin
Germany
Stefan P. Povaly
Argentina
Moises Mainster
Andean, Caribbean and Central
America
Latin America/Caribbean
Sub-Saharan Africa
Bader A. Alamoudi
Saudi Arabia
France
The Hon. Carla A. Hills
Chair and Chief Executive Officer
Hills & Company International
Consultants
Tanguy A. Piret
Anton J. Ulmer
Belgium
Israel
Mustafa Bagriacik
United Arab Emirates
Chile
Pablo Garnica
Luxembourg
Francesco Cardinali
Van Bich Phan
Vietnam
Carl K. Chien
Taiwan
Marco Sucharitkul
Thailand
Edmund Y. Lee
Khaled Hobballah
Singapore
Philippines
Hooi Ching Wong
Malaysia
Gioshia Ralie
Italy
Roy Navon
Felipe García-Moreno
Mexico
Angela M. Hurtado
Andres Errazuriz
Carlos Ma. G Mendoza
Washington, District of Columbia
For information about direct deposit of
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New York, NY 10179-0001
Telephone: 212-270-6000
jpmorganchase.com
Annual Report on Form 10-K
The Annual Report on Form 10-K of
JPMorgan Chase & Co. as filed with the
U.S. Securities and Exchange Commission
will be made available without charge
upon request to:
Office of the Secretary
JPMorgan Chase & Co.
383 Madison Avenue, 39th Floor
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corporate.secretary@jpmchase.com
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questions should be addressed to:
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Director or the non-management directors
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Corporate headquarters
306
Rice, Hadley, Gates & Manuel LLC
Stanford, California
Austria
Paolo Rocca
Chairman and Chief Executive Officer
Tenaris
Buenos Aires, Argentina
Nassef Sawiris
Executive Chair
OCI N.V.
London, United Kingdom
Ratan Naval Tata
Chairman Emeritus
Tata Sons Ltd
Mumbai, India
Joseph C. Tsai
Executive Vice Chairman
Alibaba Group
Hong Kong, China
The Hon. Tung Chee Hwa GBM
Vice Chairman
National Committee of the Chinese
People's Political Consultative Conference
Hong Kong, China
Jaime Augusto Zobel de Ayala
Chairman
Ayala Corporation
Makati City, Philippines
* Ex-officio
JPMorgan Chase & Co./2022 Annual Report
The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
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of time - benefits not only
our shareholders but
also everyone we touch.
It enables us to lift up our
communities and to focus
on issues that are universally
important, including
economic development,
education and employment.
Saudi Aramco
President and Chief Executive Officer
Amin H. Nasser
Managing Director and
Chief Executive Officer
Intesa Sanpaolo
Turin, Italy
Carlo Messina
Alphen aan den Rijn, The Netherlands
Chair of the Executive Board
Wolters Kluwer
Chief Executive Officer and
Nancy McKinstry
New York, New York
Kissinger Associates, Inc.
The Hon. Henry A. Kissinger
Chairman
Munich, Germany
Daimler Truck Holding AG
Siemens Energy AG and
Chairman of the Supervisory Board
© 2023 JPMorgan Chase & Co.
Direct deposit of dividends
FSC® C020268
MIX
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Independent registered public
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"JPMorgan Chase," "J.P. Morgan," "Chase," the Octagon
symbol and other words or symbols in this report that
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report that identify other parties' goods or services may
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Board of Directors
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SPES: Special purpose entities
SOFR: Secured Overnight Financing Rate
SMBS: Stripped mortgage-backed securities
SLR: Supplementary leverage ratio
Shelf securities: Securities registered with the SEC under a
shelf registration statement that have not been issued,
offered or sold. These securities are not included in league
tables until they have actually been issued.
Single-name: Single reference-entities
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
Securities financing agreements: Include resale,
repurchase, securities borrowed and securities loaned
agreements
SEC: Securities and Exchange Commission
Scored portfolios: Consumer loan portfolios that
predominantly include residential real estate loans, credit
card loans, auto loans to individuals and certain small
business loans.
SCB: Stress Capital Buffer
SAR(s) as it pertains to employee stock awards: Stock
appreciation rights
SAR as it pertains to Hong Kong: Special Administrative
Region
SA-CCR: Standardized Approach for Counterparty Credit
Risk
S&P: Standard and Poor's 500 Index
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
RWA: "Risk-weighted assets": Basel III establishes two
comprehensive approaches for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between
the Standardized and Advanced approaches are that for
Basel III Advanced, credit risk RWA is based on risk-sensitive
RSU(s): Restricted stock units
ROU assets: Right-of-use assets
ROTCE: Return on tangible common equity
ROE: Return on equity
ROA: Return on assets
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, underlying
reference pool of loans or other market variables. The notes
typically contain embedded (but not separable or
detachable) derivatives. Contractual cash flows for
principal, interest, or both can vary in amount and timing
throughout the life of the note based on non-traditional
RHS: Rural Housing Service of the U.S. Department of
Agriculture
302
Glossary of Terms and Acronyms
Linda B. Bammann2,4
Retired Deputy Head of Risk
Management
303
JPMorgan Chase & Co./2022 Form 10-K
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as loans.
VGF: Valuation Governance Forum
VIES: Variable interest entities
VCG: Valuation Control Group
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VA: U.S. Department of Veterans Affairs
U.S. Treasury: U.S. Department of the Treasury
U.S. GSE(s): “U.S. government-sponsored enterprises" are
quasi-governmental, privately-held entities established or
chartered by the U.S. government to serve public purposes
as specified by the U.S. Congress to improve the flow of
credit to specific sectors of the economy and provide
certain essential services to the public. U.S. GSEs include
Fannie Mae and Freddie Mac, but do not include Ginnie Mae
or FHA. U.S. GSE obligations are not explicitly guaranteed as
to the timely payment of principal and interest by the full
faith and credit of the U.S. government.
U.S. government agencies: U.S. government agencies
include, but are not limited to, agencies such as Ginnie Mae
and FHA, and do not include Fannie Mae and Freddie Mac
which are U.S. government-sponsored enterprises (“U.S.
GSES"). In general, obligations of U.S. government agencies
are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the
U.S. government in the event of a default.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S.: United States of America
Unaudited: Financial statements and/or information that
have not been subject to auditing procedures by an
independent registered public accounting firm.
U.K.: United Kingdom
TLAC: Total loss-absorbing capacity
TDR: "Troubled debt restructuring" is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty. Loans with short-term and
other insignificant modifications that are not considered
concessions are not TDRs.
TCE: Tangible common equity
TBVPS: Tangible book value per share
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
indexes or non-traditional uses of traditional interest rates
or indexes.
JPMorgan Chase & Co./2022 Form 10-K
JPMorgan Chase & Co.
(Financial services)
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and loan
syndications. Source: Dealogic, a third-party provider of
investment banking competitive analysis and volume-based
league tables for the above noted industry products.
REO: Real estate owned
PCAOB: Public Company Accounting Oversight Board
PCA: Prompt corrective action
each class of common stock and participating securities,
based on their respective rights to receive dividends.
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively,
"dividends"), which are included in the earnings per share
calculation using the two-class method. JPMorgan Chase
grants RSUs to certain employees under its share-based
compensation programs, which entitle the recipients to
receive nonforfeitable dividends during the vesting period
on a basis equivalent to the dividends paid to holders of
common stock. These unvested awards meet the definition
of participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
Parent Company: JPMorgan Chase & Co.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Over-the-counter cleared ("OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
OPEB: Other postretirement employee benefit
Over-the-counter (“OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
OCI: Other comprehensive income/(loss)
OCC: Office of the Comptroller of the Currency
OAS: Option-adjusted spread
NSFR: Net Stable Funding Ratio
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
NOL: Net operating loss
NM: Not meaningful
NFA: National Futures Association
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
Glossary of Terms and Acronyms
jpmorganchase.com
Dhahran, Saudi Arabia
PCD: "Purchased credit deteriorated" assets represent
acquired financial assets that as of the date of acquisition
have experienced a more-than-insignificant deterioration in
credit quality since origination, as determined by the Firm.
PD: Probability of default
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
Pillar 1: The Basel framework consists of a three "Pillar”
approach. Pillar 1 establishes minimum capital
requirements, defines eligible capital instruments, and
prescribes rules for calculating RWA.
PPP: Paycheck Protection Program under the Small
Business Association ("SBA")
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
PSUs: Performance share units
Production revenue: Includes fees and income recognized
as earned on mortgage loans originated with the intent to
sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Production revenue also includes gains and losses on
sales and lower of cost or fair value adjustments on
mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
derivatives used for specific risk management purposes,
primarily to mitigate credit, foreign exchange and
interest rate risks.
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
•
•
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
physical commodities inventories and financial instruments
that reference commodities.
Glossary of Terms and Acronyms
301
JPMorgan Chase & Co./2022 Form 10-K
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
- Unrealized gains and losses result from changes in
valuation.
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
⚫ realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
•
Pre-tax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including:
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
PRA: Prudential Regulation Authority
Pillar 3: The Basel framework consists of a three "Pillar"
approach. Pillar 3 encourages market discipline through
disclosure requirements which allow market participants to
assess the risk and capital profiles of banks.
Indonesia
Stephen B. Burke²,3
(Television and entertainment)
304
General Auditor
Lou Rauchenberger
Elena A. Korablina
Firmwide Controller
Mikael Grubb
Investor Relations
Joseph M. Evangelisti
Corporate Communications
Other Corporate Officers
CEO, International Consumer Banking
Sanoke Viswanathan
Vice Chairman
Peter L. Scher
Troy L. Rohrbaugh
Head of Global Markets
Co-CEO, Consumer & Community
Banking
Jennifer A. Piepszak
CEO, Commercial Banking
Douglas B. Petno
Robin Leopold
Head of Human Resources
Co-CEO, Consumer & Community
Banking
Marianne Lake
Teresa A. Heitsenrether
Global Head of Securities Services
Takis T. Georgakopoulos
Head of Payments
John H. Tribolati
Stacey Friedman
General Counsel
Secretary
Regional Chief Executive Officers
India
Sudhir Goel
Southeast Asia
Howard Kim
Korea
Steve Teru Rinoie
Japan
Harshika Patel
Hong Kong
Mark C.M. Leung
China
Robert P. Bedwell
Australia and New Zealand
Asia Pacific
Senior Country Officers and Location Heads
Alfonso Eyzaguirre
Viswas Raghavan
Latin America/Canada
Europe/Middle East/Africa
Filippo Gori
Asia Pacific
JPMorgan Chase & Co./2022 Annual Report
Retired Chairman and
Chief Executive Officer
NBCUniversal, LLC
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Lori A. Beer
Chief Executive Officer
GE Capital
Michael A. Neal 1,5
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Mellody Hobson 4,5
Co-CEO and President
Ariel Investments, LLC
(Investment management)
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Healthcare)
Alex Gorsky4
(Professional services)
KPMG
Chief Executive Officer
Timothy P. Flynn¹
Retired Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
James Dimon
Chairman and
Alicia Boler Davis
Chief Executive Officer
Alto Pharmacy, LLC
(Digital pharmacy)
(Diversified investments)
Henry Crown and Company
Chief Executive Officer
Chairman and
James S. Crown 4,5
(Conglomerate and insurance)
Chief Executive Officer
GEICO
Berkshire Hathaway Inc.;
President and
Todd A. Combs 2,3
Investment Officer
(Industrial and financial services)
Chief Information Officer
Phebe N. Novakovic¹
Chairman and
Virginia M. Rometty 2,3
Jeremy Barnum
Chief Financial Officer
Head of Global Sales & Research
Marc K. Badrichani
Chief Risk Officer
Ashley Bacon
Daniel E. Pinto
President and Chief Operating Officer;
CEO, Corporate & Investment Bank
Chairman and Chief Executive Officer
James Dimon
Operating Committee
5 Public Responsibility Committee
Risk Committee
Nominating Committee
4
3 Corporate Governance &
Development Committee
2 Compensation & Management
Audit Committee
1
Member of:
(Technology)
Retired Executive Chairman
and Chief Executive Officer
International Business Machines
Corporation
Chief Executive Officer
General Dynamics
(Aerospace and defense)
The Hon. Condoleezza Rice
Principal
in f
% NPV
in first 10 years
In addition to CCAR testing, we stress test for vari-
ous types of huge market disruptions. For exam-
ple, we stress counterparties - such as hedge
funds, large asset managers or trading houses
for extremely large market moves, perhaps an
instantaneous 130 basis point move in Treasuries
or 50% to 60% moves in commodities. Our share-
holders should know that regarding any major
international bank, we remain well-collateralized
across all of our exposures. Even if one of those
banks went bankrupt overnight, we would be okay.
While there is always a risk that we won't receive a
margin call or that some trades may default and
leave us exposed to large market risk, the losses
likely would not be material.
Suffice it to say, our company prepares not only for
various forms of extreme economic risk but for
various forms of geopolitical risk. Later in this letter
I describe how we have enhanced those efforts.
EVALUATING AND MANAGING THE ECONOMIC AND GEOPOLITICAL RISKS AHEAD
35
Don't underestimate the extreme importance
of interest rates.
Interest rates are extraordinarily important - they
are the cosmological constant, or the mathemati-
cal certainty, that affects all things economic.
Before I comment on that, I want to share some
astounding numbers to illustrate this point:
Here's one example that illustrates this. From
March 5 to March 20, 2020, when the stock market
fell 24% and the bond index spread gapped from
191 to 446 basis points prior to major Fed inter-
vention, our actual trading revenue was higher
than normal as we actively made markets for our
clients. By contrast, the hypothetical stress test
had us losing a huge amount of money in market
making, based on the way it is calculated. One
more thing to point out: JPMorgan Chase now has
enough total loss-absorbing capacity to bear out
peak CCAR losses (using the Fed's numbers) more
than eight times over.
Net present value (NPV) of $1.00 annuity
NPV
1% interest rate
$100
9%
10% interest rate
$10
Lifetime
While I understand why regulators stress test this
way they are essentially trying to ensure that
banks survive the worst-case scenario (which
assumes multiple problems at a struggling bank
without any benefit from good management or
rapid response) – the methodology clearly does
not result in an accurate forecast of how our com-
pany would perform under adverse circumstances.
I have very little doubt that if the severely adverse
scenario played out, JPMorgan Chase would per-
form far better than the stress test projections.
I believe we would actually make money over the
nine quarters in the Fed's stress scenario.
really lose the $44 billion after taxes (over a
nine-quarter period) that the stress test shows.
And the answer is absolutely not.
The Fed's CCAR stress test, by its nature, has fairly
arbitrary results since it uses only one different
and hypothetical scenario each year. This creates
uncertainty around our capital requirements (as I
mentioned, this may damage the value of bank
stocks and the banking system). If I were a share-
holder, I would want to know if my company would
There has been huge intervention by central banks
around the world over the last decade. While it was
completely necessary in 2008 and 2009 to stop
the worst of the global financial crisis, and again in
2020 to stop the effects of the global pandemic,
the depth and breadth of these interventions will
be studied for years as will the extent to which we
need QT (whose full effect may not be known
immediately). It is unclear how the Fed incorpo-
rated the enormous fiscal spending into both its
forecasts for growth and inflation, as well as its
need to continue QE as it did. And importantly, the
Fed's ability to reverse course on this strategy (QT)
is somewhat constrained by higher inflation
(though, of course, it can temporarily adjust its
actions to deal with the current bank failure crisis).
War complicates geopolitics and materially
adds risks.
We have not had a major land war in Europe since
1945. The war in Ukraine, already into its second
year, has been particularly devastating in terms of
casualties and damage and has been haunted by
the threat of nuclear weapons. It may very well
last for many more years. Wars are unpredictable,
and at the start, most predictions about how they
will end have been completely wrong.
This war is also affecting global energy and food
supplies, with a disproportionate and negative
effect falling on poor people and poorer nations,
including millions of Ukrainian refugees. There is
still a risk that energy and food supply lines, which
are not secure, will lead to higher prices and the
large migration of people, triggering another level
of geopolitical dislocation.
The tensions of this war are also leading to the
rethinking of many economic alliances, as well
as trade and national security. All these factors
create more risk and potentially higher inflation,
and their confluence (along with inflation and QT)
creates a somewhat unpredictable and dangerous
outcome.
This may be a once-in-a-generation sea
change, with material effect.
Of course, there is always uncertainty. I am often
frustrated when people talk about today's uncer-
tainty as if it were any different from yesterday's
uncertainty. However, in this case, I believe it
actually is.
34
EVALUATING AND MANAGING THE ECONOMIC AND GEOPOLITICAL RISKS AHEAD
Less predictable geopolitics, in general, and a
complex adjustment to relationships with China
are probably leading to higher military spending
and a realignment of global economic and military
alliances.
Higher fiscal spending, higher debt to gross
domestic product (GDP), higher investment spend
in general (including climate spending), higher
energy costs and the inflationary effect of trade
adjustments all lead me to believe that we may
have gone from a savings glut to scarce capital
and may be headed to higher inflation and higher
interest rates than in the immediate past.
Essentially, we may be moving, as I read some-
where, from a virtuous cycle to a vicious cycle.
Of course, we hope that everything turns out okay
and that all of these storm clouds peacefully and
painlessly dissipate - and we need to be prepared
for that outcome. We also need to be prepared for
a new and uncertain future. The new risks (in
addition to the normal ones, like recession) are
higher inflation for longer, the market effects of
QT and growing political risks. Of course, I cannot
be sure this will happen, but I place higher odds
on it than the "market."
Managing risks is far more than simply
meeting the Fed's annual stress test.
While it is critical that we meet and pass the Fed's
Comprehensive Capital Analysis and Review (CCAR)
stress test, managing risk is far more than that –
and we are fairly fanatical when it comes to manag-
ing risk. Our company does hundreds of stress tests
a week, which include market movements reflective
of many past crises (such as volatility resulting
from the Russia-Ukraine conflict and the pandemic
in 2020) and rapidly rising interest rates.
61%
When you analyze a stock, you look at many factors:
earnings, cash flow, competition, margins, scenar-
ios, consumer preferences, new technologies and
so on. But the math above is immovable and
affects all.
In a rapidly rising rate environment, any invest-
ment where the cash flows were expected in the
out years would have been dramatically affected -
think venture capital or real estate development,
for example. Any form of carry trade (effectively
borrowing short and investing long) would be
sorely disappointed. Carry trade exists not just in
banks but is embedded and is silently present in
companies, investment vehicles and others, includ-
ing situations that require recurring refinancing.
We are prepared for potentially higher interest
rates, and we may have higher inflation for
longer.
Finally, when one talks about risk for too long, it
begins to cloud your judgment. Looking ahead, the
positives are huge. However events play out, it is
likely that 20 years from now, America's GDP will be
more than twice the size it is today, and hundreds of
millions of people around the world will have been
lifted out of poverty. In the next section, I talk more
about the need for a global economic strategy.
EVALUATING AND MANAGING THE ECONOMIC AND GEOPOLITICAL RISKS AHEAD
37
Our Serious Need for More
Effective Public Policy
and Competent Government
Like most Americans, I get frustrated with the
mediocrity and bureaucracy of the massive admin-
istrative state. We accept it too readily. And it dam-
ages the confidence we have in our own country.
I have enormous respect for the people who work
for the U.S. government, but we simply don't invest
enough in making it more effective. Some examples
are: antiquated systems at the Federal Aviation
Administration, United States Postal Service and
Internal Revenue Service; inefficient ports and
crumbling infrastructure; an ineffective immigra-
tion policy; policies that prevent affordable housing
and leave apartments vacant; policies that hurt
Puerto Rico; tenure versus merit-based compensa-
tion and promotion; and work rules that dramati-
cally reduce efficiency. We have a vast system with
a lack of accountability and proper reporting. And
usually when reports are issued, they only address
how much money was spent - not, for example,
how many highway miles were built, in what time
period and at what cost. Government, which is 20%
of the economy, seems to be getting less produc-
tive over time, unlike the rest of the economy. In
addition, we have too much litigation - this is the
bureaucratization of America - think Europe.
To be completely fair, I am also frustrated with the
typically shortsighted selfishness of some busi-
nesses, asking for abundant special tax breaks and
often using regulations to protect the incumbent. I
also want to express exasperation with some of my
fellow citizens who don't pay the taxes they owe on
the order of $600 billion a year, who won't con-
sider sensible policy measures like a carbon tax to
stem climate change and who sometimes seem to
only like democracy when the voters agree with
them. Democracy by its nature is compromise. One
of the lessons of the past decade is that if major
legislation cannot be done in a bipartisan way,
maybe it should not be done at all.
DEVELOPING EFFECTIVE POLICY AND
EFFECTIVE GOVERNMENT
Theology is not policy. Policy based on falsehood
or oversimplified facts is doomed to failure. Too
often now, policy starts as politics without the
benefit of analytics and experts.
Policy should precede politics - not the other
way around.
Policy should be painstakingly developed based on
facts and analysis (and on information about how
policies were productively developed in other
parts of the world). You can effectively crowd-
source policy expertise. Why were Germany and
Switzerland so successful with apprenticeship pro-
grams? Why were Canada and Singapore so effec-
tive with permitting and infrastructure? All poli-
cies, like education, infrastructure and regulation,
need to start with an agreed-upon goal - and be
comprehensive and coordinated to accomplish it.
After the core of a policy is developed, then, of
course, it will be modified by political leaders – but
it is hoped the core of the policy remains intact. If
those modifications bastardize it in such a way as to
render it inefficient, it should be dropped.
We require a 21st century government.
In a company, you are constantly setting up your
organization for success. We need to find a way to
more rapidly reorganize our government for the
new world. While Congress can often move very
quickly in a crisis, we are unable to move quickly
as a government over the medium term. We need
to move faster, adopt new technologies and retrain
human capital more quickly. Even in a good
company, reorganizing for change can be hard-
business and staff units fight to maintain their
status quo and perceived prerogatives as if their
lives were at stake. I can only imagine how hard
this is in the government, but it will only get worse
if we do not fix this in our fast-changing world.
38
OUR SERIOUS NEED FOR MORE EFFECTIVE PUBLIC POLICY AND COMPETENT GOVERNMENT
-
It should be noted that an inordinate amount of
attention is focused on short-term interest rates,
which the Fed affects directly. But the Fed does
not completely control long-term rates and liquid-
ity, which are influenced by both supply and
demand (QT) and global investor preferences and
sentiment importantly, including views on risk
and safety. It is also important to remember that
while the central banks of the world are now sell-
ing instead of buying securities, the governments
of the world have larger debts to finance. The
United States alone needs to sell $2 trillion in
securities, which must be absorbed in the market.
This turn of events is generally true globally.
We have established a new Security Forum.
The war in Ukraine has exposed the severity, com-
plexity and interconnectivity of threats such as
physical security, the loss of nonbank critical infra-
structure (i.e., communication networks), pandem-
ics, insider threats, trade relations, political risk,
sanctions, data privacy, war, and the impact of
regulatory and governmental actions. All these
factors affect our company, as well as our clients
and countries and their governments. You should
know that we have formed a new Security Forum,
which meets periodically and enables manage-
ment to continually assess the impact of ongoing
threats to our company, our clients and countries
around the globe. These risks – which include mar-
ket risk, credit risk, cyber risk and operational risk,
among others
― are also covered at the board level
by our Risk Committee.
Along with reconfiguring our supply chains, we
must create new trading systems with our allies.
My preference would be to rejoin the Trans-Pacific
Partnership – it is the best geostrategic trade
arrangement possible with allied nations. You can
be certain that our company is closely monitoring
and adjusting to the risks and opportunities cre-
ated by current events.
If we have higher inflation for longer, the Fed may
be forced to increase rates higher than people
expect despite the recent bank crisis. Also, QT may
have ongoing impacts that might, over time, be
another force, pushing longer-term rates higher
than currently envisioned. This may occur even if
we have a mild - or not-so-mild - recession, as we
saw in the 1970s and 1980s.
Today's inverted yield curve implies that we are
going into a recession. As someone once said, an
inverted yield curve like this is "eight for eight"
in predicting a recession in the next 12 months.
However, it may not be true this time because of
the enormous effect of QT. As previously stated,
longer-term rates are not necessarily controlled
by central banks, and it possible that the inver-
sion we see today is still driven by prior QE and
not the dramatic change in supply and demand
that is going to take place in the future.
We have always looked at the "fat tails" of higher
interest rates, particularly on our own company.
We were premature in thinking about the possibil-
ity of interest rates going to 5%, 6% or 7% - which
still might not happen, but we always want to be
protected against this outcome. For example, we
have spoken about stockpiling cash, not investing
in sovereign debt when rates were low and being
willing to forgo income to protect against rising
rates. Rest assured, our company can handle
significantly higher interest rates no matter how
anyone analyzes capital.
Higher interest rates will obviously have an
important impact, not just for banks but for some
of those who borrow on a floating rate or those
who have to refinance in a higher rate environ-
ment. If this tide goes out, you should assume that
it will expose additional weaknesses in the econ-
omy. However, our company is prepared - not only
for higher rates but for a potential recession that
could arise and related credit losses. That prepara-
tion includes analyzing all of our clients (in particu-
lar our leveraged lending, real estate and other cli-
ents) for what the impact of higher rates may
mean for them. We believe the risks within our
own portfolio are manageable. And we try to ana-
lyze the impact of these factors on companies and
industries away from us. For example, we do
expect that some types of real estate in certain
locations may come under pressure.
Finally, we assume all of these risks and uncertain-
ties will result in volatile markets.
36
EVALUATING AND MANAGING THE ECONOMIC AND GEOPOLITICAL RISKS AHEAD
There are risks and opportunities in the
restructuring of global economic relations.
There is no question that supply chains need to be
restructured for three different reasons:
•
For any products or materials that are essential
for national security (think rare earths, 5G and
semiconductors), the U.S. supply chain must be
domestic or only open to completely friendly
allies or partners. We cannot and should not
ever be reliant on processes that can and will be
used against us, especially when we are most
vulnerable. All countries will be protecting their
national security in their own way, tailoring their
strategies as they see fit.
• Countries will also be taking specific action to
protect critical industries (think electric vehicles
(EV), Al and chips) that may not be directly
related to national security but are key to
national competitiveness. This is essentially
what America's IRA is meant to do.
Companies will diversify their supply chains
simply to be more resilient.
This restructuring will likely take place over time
and does not need to be excessively disruptive.
There will be winners and losers some of the
main beneficiaries will be Brazil, Canada, Mexico
and friendly Southeast Asian nations.
For similar national security reasons, activities
including investment activities - that help create a
national security risk (e.g., sharing critical technol-
ogy with potential adversaries) should be restricted.
While focusing on the risks, it's also important
not to forget the opportunities. The transition to
a green economy will eventually require $4 trillion
a year in capital expenditures. The IRA, CHIPS Act
and Bipartisan Infrastructure Law combined will
create huge opportunities for companies, investors
and entrepreneurs across virtually every industry
group in the United States. You can rest assured
that our company is organizing to help clients
make the most of these opportunities.
Believe it or not, inflation and interest rates are
not the things that worry me the most. I'm most
concerned about large geopolitical events, cyber
attacks, nuclear proliferation, large dysfunctional
markets (partially due to poorly calibrated regula-
tions; e.g., the U.K. Gilt and U.S. Treasury markets)
and failure of other critical infrastructure.
-
PREPARING FOR WHAT MAY BE A NEW
AND UNCERTAIN FUTURE
supply) that undoubtedly drove increased prices
across many investment classes - from stocks
and bonds to crypto, meme stocks and real estate,
among others. Importantly, this also increased
bank deposits from $13 trillion to $18 trillion
(and the now-famous uninsured deposits from
$6 trillion to $8 trillion).
SOME COMMONSENSE PRINCIPLES FOR CORPORATE GOVERNANCE
ACTIVE ENGAGEMENT WITH ASSET
MANAGERS
We - companies and investors - need to become
more active and involved in proxy issues each
year to foster better communication between the
investors and the board of the companies they
own. Whether it's issues around climate risk or
say on pay, it should be appropriate for the man-
agement team or board to actively engage with
investors during proxy season to hear and under-
stand each other's views on key issues and com-
municate their positions in real time. Investors
should also require proxy advisors to share any
communications they have with a company in real
time before investors make voting decisions. In
my view, too many portfolio managers and inves-
tors have partially ceded critical decisions on key
proxy issues to their internal stewardship groups
or external proxy advisors. Stewardship teams
are also often under pressure to follow proxy
advisors by bureaucratic internal systems at
investment firms that discourage disagreement
and encourage the safety of the herd. Many port-
folio managers have told me that even when they
have the authority to override the internal group,
it is frequently very difficult to do so.
QE is now being reversed into quantitative tighten-
ing (QT) as the Fed grapples with inflation. So far,
the Fed has reduced its securities holdings by
approximately $550 billion and is committed to
reducing its holdings by almost $100 billion in
securities each month or over $1 trillion each year.
How all this will unfold is still unknown as the
direction and speed of money have changed sig-
nificantly from prior years. To varying degrees,
banks will compete for money, not only among one
another but also with money market funds, other
investments and the Fed itself. Money market fund
total assets under management have increased
by $650 billion since April 2022, with a significant
portion migrating into the Fed's reverse repo facil-
ity, thereby draining deposits from the banking
system. So while the Fed's balance sheet has come
down by approximately $550 billion, deposits at
the banks have come down by $1 trillion, largely
uninsured deposits. Unfortunately, some banks
invested much of these excess deposits in "safe"
Treasuries, which, of course, went down in value as
rates rose faster than most people expected.
The new universal proxy makes it such that one
investor with one share, who owns it for as little
as one day, can nominate a director for any rea-
son, at relatively low cost. In my view, it is likely
that not just activists but also special interest
groups will nominate directors. Not only would
this be extremely disruptive to the board, but,
almost by their nature, special interest groups
would be counter to shareholders' interests. While
we fully respect being transparent - protecting
investors and shareholder rights - director elec-
tion processes are becoming too far removed
from shareholder interests.
While there are legitimate complaints against
entrenched boards, good boards often tend to
interview prospective candidates for their brains,
integrity, work ethic, management and collabora-
tion skills, and experience. With this new universal
proxy, it's easy to envision a time when a proxy
season will be like a political campaign, with inter-
est groups on both sides of an issue trying to elect
a board member. Disruptive boards, which can be
caused by just a single troublesome member, are
an anathema to shareholders' interests. This is
unlikely to end well.
SOME COMMONSENSE PRINCIPLES FOR CORPORATE GOVERNANCE
31
Evaluating and Managing
the Economic and Geopolitical
Risks Ahead
We usually don't worry about typical economic
fluctuations and often compare economic forecast-
ing with weather forecasting: It is extremely com-
plicated, easy to do in the short term and far more
difficult to do in the long run. It is particularly hard
to forecast true longer-term inflection points in the
economy. Although we don't want to waste time on
"normal" fluctuations, we do want to be prepared
for economic extremes - we look at multiple pos-
sibilities and probabilities and manage our com-
pany so that we can handle all of them, whether or
not we think they actually will happen. After we
spoke last year about storm clouds, some of those
storms did indeed hit, and, unfortunately, some of
those threatening clouds are still here.
2022 was not normal, economically speaking, and,
in fact, 2022 witnessed several dramatic events -
the Ukraine war began; inflation hit a 40-year high
of 9%; the federal funds rate experienced one of
its most rapid increases, up 425 basis points,
albeit from a low level; stock markets were down
20%; unemployment fell to a 50-year low at 3.5%;
and the U.S. economy was bolstered by frequent
fiscal stimulus and by high and rising government
debt while supply chain issues eased. In addition,
work from home began to raise commercial real
estate challenges, and, finally, long- and short-
term interest rates presented a sharply inverted
yield curve, which is "eight for eight" in terms of
predicting a recession (more on this later). But,
surprisingly, the global economy marched ahead.
THE CURRENT ECONOMY: PRETTY GOOD
BUT STORM CLOUDS AHEAD
Until the collapse of Silicon Valley Bank, the cur-
rent economy was performing adequately, both
here in the United States and remarkably better
than anyone expected in Europe. The "market"
was generally forecasting either a soft landing or a
mild recession, with interest rates peaking at 5%
and then slowly coming down.
There has been a lot of market volatility over the
past year, partially, in my opinion, as people
over-extrapolate monthly data, which is highly dis-
torted by inflation, supply chain adjustments, con-
sumer substitution, basically poor assumptions
about housing costs and other factors. But under-
lying all this, consumers have been spending 7% to
9% more than in the prior year and 23% more
than pre-COVID-19. Similarly, their balance sheets
are in great shape as they still have, according to
our own analysis, $1.2 trillion more “excess cash”
in their checking accounts than before the pan-
demic (credit card debt is simply normalizing).
In addition, unemployment is extremely low, and
wages are going up, particularly at the low end.
We've had 10 years of home and stock price appre-
ciation, and even if we go into a recession, con-
sumers would enter it in far better shape than
during the great financial crisis. Finally, supply
chains are recovering, businesses are pretty
healthy and credit losses are extremely low.
30
The failures of SVB and Credit Suisse have signifi-
cantly changed the market's expectations, bond
prices have recovered dramatically, the stock mar-
ket is down and the market's odds of a recession
have increased. And while this is nothing like 2008,
it is not clear when this current crisis will end. It
has provoked lots of jitters in the market and will
clearly cause some tightening of financial condi-
tions as banks and other lenders become more
conservative. However, it is unclear whether this
disruption is likely to slow consumer spending (as
of April 1, 2023, spending has been consistently
running higher versus the prior year). Although
higher rates, particularly in mortgages, have
reduced both home sales and prices, do remember
that consumer spending drives more than 65% of
the U.S. economy.
Our board is responsible for succession planning,
and it is on the agenda every time board members
meet - both when they are with me and when I am
not in the room. We already have a "hit-by-the-
truck" plan ready to go (not all companies can say
this), and we have multiple successor candidates
who are well-known to the board and to the inves-
tor community. The board believes this is one of its
paramount priorities. You can rest assured that
our board members are on the case and are very
comfortable with where we are.
This one act would allow the board to have a com-
pletely open conversation and provide candid
feedback to the CEO and management team. Good
CEOs, who are trying to do the best job they can,
should appreciate this important feedback - and
should know how difficult it is to gather in a large
group. This type of quality discussion among and
with board members leads to collaboration and
good succession planning since every meeting
should include a real conversation around this
important topic. Meetings such as these allow
the board to nurture the extraordinary value of
collaboration and trust.
BALANCING A CUSTOMER-CENTRIC
APPROACH WITH (EXCESSIVE) RISK
Most businesses, including banks like us, say they
put their customers first. We often go further than
that statement to say that we need to be there for
them, in good times and in bad. However, banking
is a complex industry, and this customer-centric
approach requires a little more explanation.
In our business, we are essentially a financial
partner to a client. While we strive to build great
client relationships based on trust over the long
run, our role has intricacies. For example, we do
not need every transaction to make economic
sense - just the overall client relationship, year
after year. Whatever the transaction, we need to
be properly compensated for the risks we bear,
which can be extraordinary. Very often, a client
will merely look for the lowest price, which we
completely understand; we recognize that some-
times banks are perfectly willing to make a cer-
tain transaction for a client at a loss. There are
also occasions when we need to tell a client that a
specific financial transaction would be imprudent
- maybe for us and the client.
Say, for example, that a very strong client of ours
is simply trying to get the best price for a lever-
aged loan. If we believe the desired price is unwise
and another institution is willing to offer it, we will
advise the client to take that option. For us, this is
pure counterparty risk and not really part of our
core relationship. Conversely, should the same
client come to us and request something that
extends beyond what we consider reasonable
for that transaction, we may nonetheless do it.
Perhaps the client is in the middle of an M&A
transaction in difficult markets and simply cannot
get the financing they need - other than from us.
In recent crises, we have often gone the extra
mile for a client at great risks to ourselves, not
to make a profit but to rescue the client from
financial calamity.
Fundamentally, putting the client first means
always providing them with the products and ser-
vices they need (although they may go somewhere
else because of price) and having our whole team
work hard for them - either in the United States or
around the world, reliably and with constancy. One
of the most important things we do for a client,
above all else, is to be a steady hand, providing
financial safety and security at every turn.
MANAGEMENT LESSONS
29
20
Some Commonsense Principles
for Corporate Governance
I have written before about the diminishing role of
public companies in the American financial system.
They peaked in 1996 at 7,300 and now total 4,600.
Conversely, the number of private U.S. companies
backed by private equity firms has grown from
1,900 to 11,200 over the last two decades. And this
does not include the increasing number of compa-
nies owned by sovereign wealth funds and family
offices. This migration is serious and worthy of
critical study, and it may very well increase with
more regulation and litigation coming. We really
need to consider: Is this the outcome we want?
There are good reasons for such healthy private
markets, and some good outcomes have resulted
from them as well. The reasons are complex
and may include public market factors such as
onerous reporting requirements, higher litigation
expenses, costly regulations, cookie-cutter board
governance, less compensation flexibility, height-
ened public scrutiny and the relentless pressure
of quarterly earnings.
With intensified public reporting, investors' grow-
ing needs for environmental, social and gover-
nance information and the universal proxy - which
makes it very easy to put disruptive directors on a
board - the pressure to become a private com-
pany will rise. Corporate governance principles are
becoming more and more templated and formu-
laic, which is a negative trend. For example, some-
times proxy advisors automatically judge board
members unfavorably if they have been on the
board a long time, without a fair assessment of
their actual contributions or experience. And some
simple, sensible governance principles are far bet-
ter than the formulaic ones. The governance of
major corporations is evolving into a bureaucratic
compliance exercise instead of focusing on its rela-
tionship to long-term economic value. Good corpo-
rate governance is critical, and a little common
sense would go a long way.
PROMOTING OPEN COMMUNICATION AND
TRUST WITH THE BOARD
As authorized and coordinated by the board, direc-
tors should have unfettered access to manage-
ment, including those below the CEO's direct
reports. At every board meeting, to ensure open
and free discussion, the full board should meet in
executive session without the CEO or other mem-
bers of management. The independent directors
should ensure that they have enough time to do
this properly.
CONFRONTING SUCCESSION PLANNING
32
The new universal proxy is likely to create
havoc for companies.
EVALUATING AND MANAGING THE ECONOMIC AND GEOPOLITICAL RISKS AHEAD
Unpredictable war
■Energy and food crisis averted for now
■Disproportionate suffering imposed
on poor people and nations
■Inflationary trade adjustments
■Economic alliances in flux
Potential for rising oil and gas prices
Huge economic and geopolitical strains
While the current crisis has exposed some weak-
nesses in the system, it should not be considered,
as I pointed out, anything like what we experienced
in 2008. Nonetheless, we do have other unique
and complicated issues in front of us, which are
outlined in the chart above.
POTENTIAL TROUBLE BREWING FROM
UNPRECEDENTED FISCAL SPENDING,
QUANTITATIVE TIGHTENING AND
GEOPOLITICAL TENSIONS
Having already confessed to how difficult it is to
predict the future, for planning purposes it still
makes sense to try to assess the environment
ahead by laying out those factors that may be
significantly different from the past.
Fiscal stimulus is still surging through the
system.
In the last three years, partially but not entirely
due to the pandemic, the federal government had
a deficit of $3.1 trillion (2020), $2.8 trillion (2021)
and $1.4 trillion (2022). These are extraordinary
numbers, which ended up in consumers' pockets,
in states and local municipalities, and even in com-
panies. We pointed out last year that you simply
cannot have this level of spending and say that it's
not inflationary. It's also important to point out
that there is a multiplier effect of this stimulus;
that is, one person's spending is another person's
income and so on. The deficit for the next three
years is now estimated to be $1.4 trillion to $1.8
trillion per year, which is also an extraordinary
number, with no end in sight. In Europe, fiscal defi-
cits are high - even before the enormous subsidies
given to consumers to counterbalance higher
energy prices. It's also important to note that
borrowing to invest is fundamentally different
from borrowing to consume - borrowing to con-
sume can only be inflationary.
This is before any additional costs related to future
recessions, the war or any other unforeseeable
events. Offsetting this, by sometime late this year
or early next year, we expect consumers will have
spent the bulk of their remaining excess savings. It
remains to be seen whether this will cause a little
bit of a cliff effect or whether consumer spending
will simply slow down. Either way, this will add to
whatever recessionary pressures there are some-
time in the future.
32
In the two years after COVID-19, the Fed bought
$4.5 trillion of U.S. Treasuries and mortgage-
backed securities, bringing its total balance sheet
to $9 trillion. We have experienced almost 12
years of quantitative easing (QE), which drove
interest rates down - so much so that U.S. short-
term rates were virtually zero, and the 10-year
bond hit a low of 0.5%. Amazingly, tens of trillions
of dollars of debt, mostly in Europe, sold at negative
interest rates (we will look back upon this with
total astonishment). This period of QE also led
to extraordinary liquidity (and a surging money
EVALUATING AND MANAGING THE ECONOMIC AND GEOPOLITICAL RISKS AHEAD
33
War, Energy Crisis, Trade, China
Maybe no end in sight
Today's quantitative tightening is following
more than a decade of quantitative easing.
■Lingering effects of fiscal stimulus
Possible persistent inflation, requiring
higher interest rates
Here & Now
Still Good Economy
■Healthy jobs
Higher wages
■ Good credit
■Home values up over 10 years
Recovering supply chain
■Normalized interest rates
■Healthy business
Healthy consumer
In Front of Us: Storm Clouds Ahead
Abnormal QT & Fiscal Spending
Consumer excess savings close to zero
by year-end
Large quantitative tightening (QT)
and other unknowns, reducing liquidity
and triggering higher long-term
interest rates
Higher fiscal spending
Higher climate spending
Λ
Opened 13 Community Center branches
in minority neighborhoods and hired
over 140 Community Managers
Conducted over 9,000 financial health
sessions with more than 190,000
attendees
Hired 160 Community Home Lending
Advisors and expanded our homebuyer
grant program to more than 10,000
minority neighborhoods nationwide
Provided complimentary one-on-one
coaching to nearly 3,000 small busi-
nesses through dedicated consultants
in 21 U.S. cities and launched a national
special purpose credit program to
improve access to credit for small
business owners in historically under-
served areas
ENVIRONMENT
AND THE FIRM THROUGH A
STRONG RISK AND CONTROLS
Everyone's top priority in CCB is to pro-
tect our customers and the firm. Having
the proper governance and processes in
place ensures our business is sustainable
and resilient and meets regulatory
requirements. Coupled with our fortress
balance sheet, this strength attracts a
strong, diversified customer base that has
confidence in the safety and security of
banking with Chase.
Through data and analytics, we continue
to enhance our risk management capabil-
ities across CCB. Keeping our credit appe-
tite constant, machine learning is helping
us surgically extend more credit to more
consumers and small businesses. While
fraud is everywhere, we are improving
our ability to protect customers earlier
and more often. Education plays a big
role, too. Bankers, Community Managers
and marketing work together to help
customers build healthy financial habits
and avoid becoming victims of fraud.
Our people continue to be our greatest
asset. We attract the best talent from all
backgrounds who choose to work at
Chase because of the impact we have
on our customers and communities and
the opportunity to grow their career.
We strive to create a culture where every-
one's voice matters, leading to the best
business outcomes.
⋅
CULTIVATING TALENT TO BUILD
HIGH-PERFORMING, DIVERSE
TEAMS WHERE CULTURE IS A
COMPETITIVE ADVANTAGE
PROTECTING OUR CUSTOMERS
•
-
•
A key part of our engagement strategy is
ensuring we reach historically under-
served populations. We continue to make
meaningful strides in our community
strategy in support of our $30 billion
racial equity commitment announced in
of delivering award-winning digital capa-
bilities to our 63 million active digital
users, our extensive physical network
spanning all lower 48 states, and our
more than 50,000 local bankers, advi-
sors, business relationship managers and
branch managers, who operate as a local
team of experts to serve customer needs.
We're building and delivering experiences
our customers love and achieved record-
high customer satisfaction across channels?
in 2022. Although we're proud of this, we
are never satisfied and recognize there's
always more to do for our customers. We
prioritize improving activities our custom-
ers do most often in their everyday lives,
such as opening an account, replacing a
card and making a payment. We also help
them with major life milestones, like plan-
ning for their future through goals-based
plans or searching for and buying a car
or a home.
Our true differentiator is the combination
CONSUMER & COMMUNITY BANKING
46
Earning the right to be the primary
financial partner for consumers and small
businesses requires us to build trust by
delivering experiences our customers
expect in both major and everyday
moments. The completeness of our
product set can serve all of our custom-
ers' banking, lending and investing needs.
Omnichannel engagement
My Chase PlanⓇ: Two years post-launch,
we've opened more than 7 million plans
The Connected Commerce business is
driving impact for Chase by improving
satisfaction, stimulating engagement and
creating capital-light, recurring revenue
streams, all while making the core fran-
chise more resilient long term. As we told
you at Investor Day last year, we expect
to drive more than $30 billion in volume
through our Commerce platforms in the
next few years.
•
• Chase Offers: We drove over $6 billion
in spend to merchants who used our
offers platform
• Chase Travel: Our travel business
delivered $8 billion in volume booked
in 2022
Our efforts produced meaningful results
in 2022:
Our employees embrace the full spectrum
of career opportunities that Chase offers
- across lines of business, functions and
roles. They grow with us and move across
our businesses to develop unique perspec-
tives that help us solve the most important
and complicated issues across the firm.
October 2020. Since then, we have:
Our people work hard every day – with
heart and humanity – to better serve our
customers, communities and each other.
How the U.S. can marshal its strengths-not only military but also moral, economic and diplomatic
We're tremendously confident about the
future of our franchise, yet we approach
our opportunities and challenges with
great humility. We wouldn't trade our
hand with anyone's. Our scale, distribu-
tion, brand, products and people position
us well to continue to achieve best-in-
class performance for decades to come.
To extend that leadership position, we're
also investing in our Commerce business.
The strategy here is straightforward: Lean
into what our customers do on our cards
all the time - spend on travel, dining and
shopping- and invest in digital experi-
ences for Chase to win in discovery, book-
ing, paying and borrowing across these
journeys. With our recent acquisitions of
cxLoyalty, FROSCH, Figg and The Infatua-
tion, we now own differentiated assets
and experiences in travel, offers and din-
ing. We're leveraging our new assets and
talent to build out our two-sided platform,
connecting customers and merchants as
only a company with our scale and digi-
tally engaged customer base can.
The West Needs America's Leadership
2 Coalition Greenwich Competitor Analytics (preliminary for
FY22). Market share is based on JPMorgan Chase's internal
business structure and revenue. Ranks are based on Coalition
Index Banks for Markets. Securities Services market share is
based on cumulative growth from FY17 to FY22.
1 Dealogic as of January 2, 2023.
CORPORATE & INVESTMENT BANK
48
Interest rate hikes and geopolitical ten-
sions had investors repositioning port-
folios, driving Fixed Income revenue
higher, particularly in our Currencies &
Emerging Markets and Rates trading
businesses. Overall, we reported $18.6
billion in Fixed Income revenue, up 10%
from the previous year, and retained
our top wallet share². Equities revenue
came in at $10.4 billion. Underscoring
the strides we've made in Equities, the
business has grown revenue by more
than 80% since 2017, and market share
has increased by almost 300 basis
points over the same period². Another
notable success in 2022 was our Global
Research team's top ranking across all
three of Institutional Investor's annual
global surveys.
Our Markets business continues to be
the top-ranked franchise in the world
by revenue². The business outperformed
even our own expectations in 2022,
generating revenue of $29 billion, just
short of 2020's record highs, as volatil-
ity persisted.
Meanwhile, we have continued to scale
up our regional investment banking
capabilities across the United States.
Working with the Commercial Bank, we
are deepening relationships with middle
market sponsors and aligning coverage
teams to support growth industries,
particularly technology, healthcare and
the green economy.
$1.7 billion IPO of Corebridge, its retire-
ment solutions and life insurance busi-
ness, and Volkswagen's €9.4 billion IPO
of Porsche.
Equity capital markets also saw a dra-
matic drop-off in deal activity during
the year. Volatile and uncertain markets
nearly shut down the IPO market,
although J.P. Morgan did help lead two
of the year's most notable deals: AIG'S
With declining M&A activity and higher
rates slowing refinancings, our debt
underwriting fees declined 43% year-
over-year in 2022. More positively,
we're proud of the discipline we kept in
underwriting, particularly in our lever-
aged finance business. This puts us in
prime position to help companies when
activity picks up.
In 2022, our M&A franchise advised on
over 350 deals that totaled more than
$900 billion, including some of the
year's biggest deals, notably in the
healthcare industry for Johnson &
Johnson and Pfizer.
The CIB generated $15 billion in net
income on revenue of $48 billion in
2022, a solid performance following
record net income and revenue in 2021.
Industrywide investment banking fees
fell 42% from the prior year¹, and
J.P. Morgan's fees followed suit, down
48% from 2021. This was not unex-
pected. Industrywide investment
banking fees have averaged about
$80 billion per year from 2015 to 2020¹
so 2022 was a lighter-than-average
year, more comparable with the
pre-pandemic years of 2018 and 2019.
Even so, we finished the year #1 in
investment banking fees, #1 in equity
capital markets, #1 in debt capital mar-
kets and #2 in mergers and acquisitions¹.
In recent shareholder letters, I've
stressed the key pillars of a strategy we
set years ago: to be global, diversified,
complete and at scale. That strategy has
served us well and continues to serve us
well across the Corporate & Investment
Bank (CIB) and our wholesale busi-
nesses. We and our clients benefit from
our strong, balanced business during
volatile times and market dislocations,
including those we have witnessed in
the last few months.
BENEFITS OF BUSINESS DIVERSITY
Geopolitics dominated headlines and
moved markets. In February, Russia
invaded Ukraine, fomenting a humani-
tarian crisis that worsens even now.
The war disrupted supply chains and
forced countries to rethink their entire
approach to sourcing energy, food and
other critical resources, with every
issue now being viewed through the
lens of national security.
The end of near-zero interest rates
meant that many young, emerging com-
panies needed to focus on profitability
rather than revenue growth at any cost.
Higher rates also dented investors'
confidence and tested their patience in
assets such as special purpose acquisi-
tion companies and cryptocurrencies,
which benefited so much from excess
capital just a year ago.
Tasked with taming inflation and cooling
an overheating economy, the Federal
Reserve raised interest rates seven
times in 2022 to levels not seen in
nearly 15 years.
2022 was a watershed year for financial
markets.
Corporate &
Investment Bank
47
CONSUMER & COMMUNITY BANKING
Co-CEO, Consumer & Community Banking
Jennifer Piepszak
Jenn
Co-CEO, Consumer & Community Banking
Marianne Lake
Marianne
IN CONCLUSION
Payments remain a center of gravity
for financial relationships. We are a lead-
ing payments franchise in the United
States, enabling our customers to move
more than $5.6 trillion in 2022 across
payment methods.
On technology modernization, we are on
a journey to mature our agile model,
focused on our applications, infrastruc-
ture and data, and are already realizing
benefits from this work. Our migration of
all Chase.com customers to the public
cloud is generating higher site availability
and leading to a 50% reduction in run-
time costs. We're scaling the use of AI/ML
across CCB, which delivered over $500
million in value in 2022 alone, with more
value to unlock in years to come.
engine that fuels distribution and scale.
Marketing is to Card what bankers,
branches and advisors are to banking:
baseline distribution. Our strategy is
working. In 2022, we drove a 20% year-
over-year increase in new accounts within
our risk appetite. This drove our share of
outstandings to 17.3%, up nearly 75 basis
points-healthy progress toward our goal
of 20% lend share over the long term.
13 Experian Velocity data as of 4Q22. Reflects financing market share for new and used loan and
lease units at franchised and independent dealers.
14 Dealogic as of January 2, 2023.
15 Coalition Greenwich Competitor Analytics (preliminary for FY22). Market share is based on
JPMorgan Chase's internal business structure and revenue. Ranks are based on Coalition Index
Banks for Markets. 2006 rank is based on JPMorgan Chase analysis. 2021 excludes the impact of
Archegos.
16 Client deposits and other third-party liabilities pertain to the Payments and Securities Services
businesses.
17 Firmwide Payments revenue metrics exclude the net impact of equity investments
18 Coalition Greenwich Competitor Analytics (preliminary for FY22). Reflects global firmwide
Treasury Services business (CIB and CB). Market share is based on JPMorgan Chase's internal
business structure, footprint and revenues. Ranks are based on Coalition Index Banks for
Treasury Services.
19 Institutional Investor.
20 Based on third-party data.
21 Nilson, Full Year 2022.
22 Based on Assets Under custody reported in company filings.
24 Includes gross revenues earned by the Firm for investment banking and payments products sold
to CB clients that are subject to a revenue sharing arrangement with the CIB.
25 S&P Global Market Intelligence as of December 31, 2022.
26 Refinitiv LPC, FY22.
27 Aligns with the affordable housing component of the firm's $30B racial equity commitment.
28 Represents the Nomura "star rating" for Japan-domiciled funds and Morningstar for all other
domiciled funds. Includes only Asset Management retail open-ended mutual funds that have a
rating. Excludes money market funds, Undiscovered Managers Fund, and Brazil- and
Korea-domiciled funds. Mutual fund rating services rank funds based on their risk-adjusted
performance over various periods. A 5-star rating is the best rating and represents the top 10%
of industry-wide ranked funds. A 4-star rating represents the next 22.5% of industry-wide ranked
funds. A 3-star rating represents the next 35% of industry-wide ranked funds. A 2-star rating
represents the next 22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The "overall Morningstar rating" is
derived from a weighted average of the performance figures associated with a fund's three-,
five-and 10-year (if applicable) Morningstar Rating metrics. For U.S.-domiciled funds, separate
star ratings are given at the individual share class level. The Nomura "star rating" is based on
three-year risk-adjusted performance only. Funds with fewer than three years of history are not
rated and hence excluded from this analysis. All ratings and the assigned peer categories used
to derive this analysis are sourced from these fund rating providers as mentioned. Past
performance is not indicative of future results.
29 In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM
to CCB. Prior-period amounts have been revised to conform with the current presentation.
30 Traditional assets includes Equity, Fixed Income, Multi-Asset and Liquidity AUM; Brokerage,
Administration and Custody AUS.
31 AUM only for 2006. Prior period amounts have been restated to include changes in product
categorization.
32 Source: Euromoney.
33 All quartile rankings, the assigned peer categories and the asset values used to derive this
analysis are sourced from the fund ranking providers. Quartile rankings are done on the
net-of-fee absolute return of each fund. The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on fund performance and associated peer rankings at the
share class level for U.S.-domiciled funds, at a "primary share class" level to represent the
quartile ranking of U.K., Luxembourg and Hong Kong funds, and at the fund level for all other
funds. The "primary share class" is defined as C share class for European funds and Acc share
class for Hong Kong and Taiwan funds. In case the share classes defined are not available, the
oldest share class is used as the primary share class. The performance data could have been
different if all share classes would have been included. Past performance is not indicative of
future results. Effective September 2021, the Firm has changed the peer group ranking source
from Lipper to Morningstar for U.S.-domiciled funds (except for Municipal and Investor Funds)
and Taiwan-domiciled funds, to better align these funds to the providers and peer groups it
believes most appropriately reflects their competitive positioning. This change may positively or
adversely impact, substantially in some cases, the quartile rankings for one or more of these
funds as compared with how they would have been ranked by Lipper for this reporting period or
future reporting periods. The source for determining the rankings for all other funds remains the
same. The classifications in terms of product suites and product engines shown are J.P. Morgan's
own and are based on internal investment management structures.
34 Source: Company filings and JPMorgan Chase estimates. Rankings reflect publicly traded peer
group as follows: Allianz, Bank of America, Bank of New York Mellon, BlackRock, Charles Schwab,
Credit Suisse, DWS, Franklin Templeton, Goldman Sachs, Invesco, Morgan Stanley, State Street,
T. Rowe Price and UBS. JPMorgan Chase ranking reflects Asset & Wealth Management client
assets, U.S. Wealth Management investments and new-to-firm Chase Private Client deposits.
35 Source: iMoneynet.
36 Represents AUM in a strategy with at least one listed female and/or diverse portfolio manager.
"Diverse" defined as U.S. ethnic minority.
JPMorgan Chase Exhibits Strength in Both Efficiency and Returns When Compared with Large
Peers and Best-in-class Peers (page 11)
1 Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS),
Morgan Stanley (MS) and Wells Fargo & Company (WFC).
2 Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS
and MS is reflected on a reported basis.
3 Best-in-class peer overhead ratio represents the comparable business segments of
JPMorgan Chase (JPM) peers: Bank of America Consumer Banking (BAC-CB), Goldman Sachs
Investment Banking and Global Markets (GS-IB & GM), Truist Financial Corp (TFC), Northern
Trust Asset Management (NTRS-WM) and Allianz Group (ALLIANZ-AM).
12 Inside Mortgage Finance, Top Owned Mortgage Servicers as of 4Q22.
11 J.D. Power, 2022 U.S. Mortgage Origination Satisfaction Study.
7 Represents general purpose credit card (GPCC) loans outstanding, which excludes private label,
American Express Company (AXP) Charge Card and Citi Retail Cards, and Commercial Card.
Based on loans outstanding disclosures by peers and internal JPMorgan Chase estimates.
8 Represents users of all web and/or mobile platforms who have logged in within the past 90 days.
9 Represents users of all mobile platforms who have logged in within the past 90 days.
10 Based on 2022 sales volume and loans outstanding disclosures by peers (American Express
Company (AXP), Bank of America Corporation, Capital One Financial Corporation, Citigroup Inc.
and Discover Financial Services) and JPMorgan Chase estimates. Sales volume excludes private
label and Commercial Card. AXP reflects the U.S. Consumer segment and JPMorgan Chase
estimates for AXP's U.S. small business sales. Loans outstanding exclude private label, AXP
Charge Card, Citi Retail Cards, and Commercial Card.
6 Represents general purpose credit card (GPCC) spend, which excludes private label and
Commercial Card. Based on company filings and JPMorgan Chase estimates.
-
become less and less a “living wage." Of the 150
million Americans working today, approximately
21 million are paid less than $15 per hour. It is
hard to live on $15 an hour, particularly for fami-
lies (even if two household members are working).
But all jobs should be treated with respect. Jobs
and living wages bring dignity, lead to more
opportunity - in housing, education, childcare,
health and overall well-being- and also help
rebuild communities as that income is used to
improve how people live.
A major step would be to expand the Earned
Income Tax Credit (EITC), which many Democrats
and Republicans already agree upon. Today, the
EITC supplements low- to moderate-income
working individuals and couples, particularly with
children. For example, a single mother with two
children earning $9 an hour (approximately
$20,000 a year) could receive a tax credit of
more than $6,000 at year's end. Workers without
children receive a very small tax credit - this
should be dramatically expanded, too - and
personally, I would eliminate the child requirement
altogether. Last year, the EITC program cost the
United States about $64 billion, and 31 million
individuals received the credit. We should convert
the EITC to make it more like a negative income
payroll tax, paid monthly. Many people who are
eligible for this benefit do not get it (often because
they do not know about it). Proper reform of this
program could increase benefits where deserved
and reduce fraudulent and improper payments.
Any tax credit income should not be offset by any
other benefits these individuals already receive.
I have little doubt that this would do more than
anything else to lift up lower-income neighbor-
hoods as the money is spent on lifting up their
families. I also have little doubt that this would add
to GDP - because most of this money would, in
fact, be spent.
Fourth, America must take the lead on
devising a comprehensive global economic
strategy.
In an op-ed published by The Wall Street Journal
earlier this year, I wrote: “Only America has the full
capability to lead and coalesce the Western world,
though we must do so respectfully and in partner-
ship with our allies. Without cohesiveness and
unity with our allies, autocratic forces will divide
and conquer the bickering West. America needs to
lead with its strengths-not only military but also
economic, diplomatic and moral."
OUR SERIOUS NEED FOR MORE EFFECTIVE PUBLIC POLICY AND COMPETENT GOVERNMENT
41
Getting military strategy right isn't sufficient.
We must keep the Western alliances together and
actively appeal to developing nations. A compre-
hensive economic strategy would tighten the
bonds, strengthen our alliances and, importantly,
maximize our economic resources. Furthermore, it
must encompass a global trade and investment
strategy, a holistic plan around energy security
and food security, and far more dynamic develop-
ment finance for emerging markets. Done prop-
erly, the economic strength to emerge from such
collaboration will preserve our alliances, entice
nations such as India into the fold, guarantee the
strength of the U.S. military and preserve the
mighty U.S. dollar as the world's reserve currency.
Finally, more active diplomacy and more dynamic
communication around the principles that moti-
vate the Western world are required. These princi-
ples are life, liberty, the pursuit of happiness and
the idea that all people are created equal. Democ-
racy and human freedom are inseparable from
freedom of speech, freedom of religion and free
enterprise. We should loudly and proudly sing
these values from the rooftops.
4 Best-in-class all banks ROTCE represents implied net income minus preferred stock dividends
of the comparable business segments of JPM peers when available, or of JPM peers on a
firmwide basis when there is no comparable business segment: Bank of America Consumer
Banking (BAC-CB), and Goldman Sachs Investment Banking and Global Markets (GS-IB & GM),
Wells Fargo & Company Commercial Banking (WFC-CB) and UBS Global Wealth Management
& Asset Management (UBS-GWM & AM).
In Closing
Finally, we sincerely hope that all the citizens and countries of the world
return to normal after the pandemic, see an end to the ongoing war in Ukraine,
and see a renaissance of a world on the path to peace and democracy.
Jane Pon
Jamie Dimon
Chairman and Chief Executive Officer
April 4, 2023
42
OUR SERIOUS NEED FOR MORE EFFECTIVE PUBLIC POLICY AND COMPETENT GOVERNMENT
Footnotes
Client Franchises Built Over the Long Term (page 8)
Note: figures may not sum due to rounding
1 Certain wealth management clients were realigned from Asset & Wealth Management to
Consumer & Community Banking in 4Q20. 2006 and 2012 amounts were not revised in
connection with this realignment.
2 Federal Deposit Insurance Corporation (FDIC) 2022 Summary of Deposits survey per S&P Global
Market Intelligence applies a $1 billion deposit cap to Chase and industry branches for market
share. While many of our branches have more than $1 billion in retail deposits, applying a cap
consistently to ourselves and the industry is critical to the integrity of this measurement.
Includes all commercial banks, savings banks and savings institutions as defined by the FDIC.
3 Barlow Research Associates, Primary Bank Market Share Database as of 4Q22. Rolling 8-quarter
average of small businesses with revenue of more than $100,000 and less than $25 million.
4 Total payment volumes reflect Consumer and Small Business customers' digital (ACH, Bill Pay,
PayChase, Zelle, RTP, External Transfers, Digital Wires), Non-digital (Non-digital Wires, ATM,
Teller, Checks) and credit and debit card payment outflows. 2012 is based on internal JPMorgan
Chase estimates.
5 Digital non-card payment transactions include outflows for ACH, Bill Pay, PayChase, Zelle, RTP,
external transfers, and some wires, excluding credit and debit card sales. 2006 and 2012 are
based on internal JPMorgan Chase estimates.
I would like to express my deep gratitude and appreciation for the
290,000+ employees, and their families, of JPMorgan Chase. From this letter,
I hope shareholders and all readers gain an appreciation for the tremendous
character and capabilities of our people and how they continue to help
communities around the world. They have faced these times of adversity with
grace and fortitude. I hope you are as proud of them as I am.
5 Best-in-class G-SIB ROTCE represents implied net income minus preferred stock dividends
of the comparable business segments of JPM G-SIB peers when available, or of JPM G-SIB
peers on a firmwide basis when there is no comparable business segment: Bank of America
Consumer Banking (BAC-CB), Goldman Sachs Investment Banking and Global Markets
(GS-IB & GM), Wells Fargo & Company Commercial Banking (WFC-CB) and Morgan Stanley
Wealth Management and Investment Management (MS-WM & IM). WFC-CB is the only G-SIB peer
to disclose a comparable business segment to Commercial Banking.
6 Given comparisons are at the business segment level, where available; allocation methodologies
across peers may be inconsistent with JPM's.
Our Fortress Balance Sheet (page 12)
+24%
2020
We take a long-term approach to invest-
ments and focus on delivering sustainable
growth and outperformance. Last year,
we continued to invest in data and tech-
nology, in distribution through our branch
network and marketing, and in our
growth businesses.
2021
2022
2020
2021
2022
2020
2021
2022
AUTO
RELATIONSHIPS¹
HOME LENDING
ORIGINATIONS
CREDIT CARD
ACTIVE ACCOUNTS²
+17%
-21%
MORTGAGE ORIGINATIONS
-43%
4. Protecting our customers and the firm
through a strong risk and controls
environment
5. Cultivating talent to build high-
performing, diverse teams where
culture is a competitive advantage
DELIVERING FINANCIAL
PERFORMANCE THAT IS
CONSISTENTLY BEST-IN-CLASS
In 2022, CCB delivered a 29% return on
equity (ROE) on net income of $14.9 billion.
Revenue of $55 billion was up 10% year-
over-year, and our overhead ratio was
57%, down one percentage point.
A large part of our Card strategy is to get
the right products into customers' hands.
Over the last three years, we refreshed
our entire branded card portfolio to
ensure our cards' value propositions were
best-in-class and set up to perform well.
We also renewed valuable relationships
with our co-brand partners that cover the
vast majority of co-brand spend share to
at least 2027. Beyond consumer cards,
we're making progress on the opportunity
with business customers, launching Ink
Business PremierSM in the second half of
2022. While it's early days, the new card
has been well-received, attracting higher-
revenue small businesses that spend mul-
tiples above the average.
LOAN AND LEASE
The second step is related to the first: Get more
income to lower-paid workers. The gap between
skilled and unskilled workers has been growing
dramatically so much so that unskilled labor has
WEALTH MANAGEMENT
+8%
1 Basel III Transitional rules became effective on January 1, 2014; prior period CET1 data is based
on Basel I rules. As of December 31, 2014, the ratios represent the lower of the Standardized or
Advanced approach calculated under the Basel III Fully Phased-In basis.
2 Includes average eligible high-quality liquid assets (HQLA) as defined in the liquidity coverage
ratio rule and unencumbered marketable securities, such as equity and debt securities, that the
firm believes would be available to raise liquidity, including excess eligible HQLA securities at
JPMorgan Chase Bank, N.A., that are not transferable to nonbank affiliates.
3 Capital returned to common stockholders includes common dividends and net repurchases.
Size of the Financial/Sector Industry (page 25)
1 2010 is sourced from World Bank.org annual GDP publication. 2022 is calculated
using JPM Research forecasts. Figures are represented in 2015 prices.
2 Consists of cash assets and Treasury and agency securities.
3 2022 figure is annualized based on available data through 1Q.
4 Top 50 fund AUM data per Sovereign Wealth Fund Institute, where unavailable 2021 disclosure
was used in place of 2022.
5 Loans held by nonbank entities per the FRB Z.1 Financial Accounts of the United States.
6 U.S. money market fund investment holdings of securities issued by entities worldwide.
7 Methodology updated in 2022, 2010 has been restated.
8 NYSE + NASDAQ; excludes investment funds, exchange-traded funds' unit trusts and companies
whose business goal is to hold shares of other listed companies; a company with several classes
of shares is only counted once.
9 Inside Mortgage Finance and JPMorgan Chase internal data; consists of Top 50 Originators.
33
+19%
43
We're proud of the performance of
Consumer & Community Banking (CCB)
in 2022. In a rapidly changing macro
environment, we delivered strong financial
results, drove meaningful growth of our
franchise and continued our disciplined
approach to investing for the future. We
continued to put the customer at the center
of everything we do, across every interac-
tion and line of business. Through the
efforts of more than 135,000 talented CCB
employees, we extended our leadership
positions in retail deposits and credit card
while gaining momentum in our growth
businesses: Wealth Management and
Connected Commerce. Overall, CCB has
grown to serve nearly 80 million consum-
ers and 5.7 million small businesses.
CCB is operating from a position of
strength with our distribution and scale,
exceptional products and highly
respected brand. We take none of this for
granted. We recognize that 2023 remains
2020 TO 2022 GROWTH
CONSUMER BANKING
CUSTOMERS
uncertain; however, our data-driven
approach to decision making, including
risk management and investing, positions
us well for what lies ahead.
We provide value to customers through
the completeness and interconnectivity of
our products, services, channels and
experiences. We strive to make it easy to
do business with us by engaging custom-
ers in the channel of their choice.
Our strategy has not changed, and we are
focused on a consistent set of strategic
priorities:
1. Delivering financial performance that
is consistently best-in-class
2. Leveraging data and technology to
drive speed to market and deliver
customer value
3. Growing and deepening relationships
by engaging customers with products
and services they love and expanding
our distribution
BUSINESS BANKING
CUSTOMERS
Consumer &
Community Banking
Of all the policy errors we need to remedy in Amer-
ica, there are two that I believe will have a dramatic
effect on growth and equality - and go a long way
toward repairing the frayed American dream. The
first is providing graduating students and other
individuals with work skills (in fields such as
advanced manufacturing, cyber, data science and
technology, healthcare and so on) that will lead to
better paying jobs. This would be good for growth
and much that ails us. And we know what to do.
High schools and community colleges should
work with local businesses to create specific skills-
training programs, internships and apprenticeships
that prepare graduating students to be job ready-
whether they go on to earn a credential, to work or
to attend college. With 10.8 million job openings
and 5.9 million unemployed workers in the United
States, work-skills training has never been needed
more. Businesses must be involved in this process,
and programs need to be offered locally because
that is where the actual jobs are.
23 Prior year new relationship numbers have been revised to conform to current presentation.
OUR SERIOUS NEED FOR MORE EFFECTIVE PUBLIC POLICY AND COMPETENT GOVERNMENT
Our goal is to grow primary bank relation-
ships with our customers across Banking
and Wealth Management. Core to that
goal is having the right products, experi-
ences and distribution to meet our
customers in their channel of choice
and serve more of their financial needs.
Banking and Wealth Management
In 2022, we grew our customer base by
nearly 4% across all our lines of business.
Here, our primary measure is customer
growth because it indicates success as we
strive to be the bank for all and to deepen
and engage customer relationships.
GROWING AND DEEPENING
RELATIONSHIPS BY ENGAGING
CUSTOMERS WITH PRODUCTS
AND SERVICES THEY LOVE AND
EXPANDING OUR DISTRIBUTION
Data and technology are critical enablers,
driving business value over time. The full
scope of benefits will manifest in a num-
ber of key areas - from reliability and
speed to market to employee satisfaction.
On product development, we're investing
to drive engagement and deliver experi-
ences customers love across channels,
products and platforms. To do so, we
operate in a fully agile product structure
with close to 100 products and services
delivered by dedicated design, product,
data and technology teams. We've
enhanced the Chase MobileⓇ app and
Chase.com, making it easier for custom-
ers to manage their everyday financial
lives and engage with a richer offering of
products and features. We also improved
our platforms and experiences so cus-
tomers can perform more activities with
ease - such as more seamlessly opening
new accounts.
-
employees and regulators - and to deliver
the best of what Chase has to offer, with
greater speed than ever before.
7 In 2022, we achieved record high satisfaction in our
branch and digital channels, determined by overall satis-
faction and measured on a scale of 1 to 10. The score is
calculated as the share of "9" and "10" responses as a
percent of total responses. Digital channel includes a
weighted average of monthly active users of Chase.com
and the Chase Mobile app.
6 #1 In active users among digital banking mobile apps
based on Data.ai and #1 most-visited banking portal
in the U.S. (Chase.com) based on Similarweb.
5 "Customer" includes both consumers and small busi-
nesses and reflects unique individuals and business
entities that have financial ownership or decision-
making power with respect to accounts. The firm
believes this metric is more representative of its
customer relationships than similar metrics it has
presented in previous public reports.
4 Reflects the days of outflow coverage based on
available deposit balances.
Our strategy is working. We are #1 in U.S.
retail deposit share, driven by growth of
more than $400 billion in deposits over the
past three years. Key to this growth is the
branch - and our branch network is second
to none. We have the right branches in the
right locations to capture a larger customer
base in both legacy and new markets.
2 Reflects open accounts that received a statement.
3 Federal Deposit Insurance Corporation (FDIC) 2022
Summary of Deposits survey per S&P Global Market
Intelligence applies a $1 billion deposit cap to Chase
and industry branches for market share. While many
of our branches have more than $1 billion in retail
deposits, applying a cap consistently to ourselves and
the industry is critical to the integrity of this measure-
ment. Includes all commercial banks, savings banks
and savings institutions as defined by the FDIC.
Data and technology are key differentia-
tors and competitive advantages for CCB,
enabling us to deliver innovation at scale.
In 2022, our investments focused on two
core categories: technology moderniza-
tion and product development. These
investments allow us to better respond to
the needs of our customers, partners,
LEVERAGING DATA AND
TECHNOLOGY TO DRIVE SPEED TO
MARKET AND DELIVER CUSTOMER
VALUE
The diversification of the CCB franchise,
which provides natural hedges and deliv-
ers industry-leading returns through the
cycle, delivered another year exceeding
25% ROE.
Our customers remain on solid footing.
While still elevated, cash buffers are
down from their peak, as spending con-
tinued to be strong throughout 2022.
We ended the year with $439 billion
in average loans, up 1%. Credit perfor-
mance across our portfolios remains
strong, and, although net charge-offs
were at historic lows, we continued to
see normalization. In 2022, we built
$1.1 billion in credit reserves.
CONSUMER & COMMUNITY BANKING
44
2022
2021
2020
2022
2021
2020
1 Unique families with primary and joint account owners
for open and funded accounts.
2022
Our branches are a local storefront, where
digital engagement comes together with
our bankers and advisors to deliver the
full capabilities of JPMorgan Chase. Last
year, nearly 40 million customers walked
into our almost 5,000 branches. In 2021,
we became the first bank with branches in
all lower 48 states and have delivered on
our commitment of 400 new branches in
25 states and the District of Columbia. Not
only are our seasoned branches delivering
value to our customers, communities and
shareholders, but the investment in new
branches is a key driver to market share
gains over time. Our model's success gives
us confidence to continue to invest in new
branches in high-opportunity markets
where we still have significant untapped
opportunity.
It's part of our job to make it easy for
customers to have more of their banking
relationship with us. We're continuing
the United States
#1 digital banking
platform in
#1
Payments, lending, commerce
We continue to be the #1 credit card
issuer in the United States for both spend
and lend, crossing $1 trillion in sales
volume in 2022. It is our marketing
For our Wealth Management clients,
we're growing our advisor base and
developing products and capabilities
to serve clients across the wealth contin-
uum. In 2022, we added more than
300 advisors on our path to 6,000,
launched new products such as Wealth
Plan and Personal Advisors, and
continued to make enhancements to
Self-Directed Investing. Our goal is to
achieve $1 trillion in assets over the next
several years, and we're on track to do so.
For our Business Banking customers, we
offer products, services and expertise to
make it easier than ever to start, run and
grow their businesses. We made it simpler
to open a checking account, introduced
more convenient methods to pay and get
paid, and created a streamlined digital
lending experience for faster access to
capital when customers need it. We take
pride in helping entrepreneurs go from
idea to IPO and beyond.
to invest in natural adjacencies to the
Consumer Banking franchise so we can
deepen and grow Business Banking and
Wealth Management efficiently.
#1 in total combined
U.S. credit and debit
payments volume
#1
#1 U.S. credit card issuer based
on sales and outstandings
VISA
ink.
Beyond our investments in the branch
network, we continue to scale and
improve products that meet the distinct
needs of customers across segments.
Last year, we enhanced our cash flow
management solutions. We launched
early direct deposit for our Secure
BankingSM customers, which allows them
to access their paychecks up to two days
early, and we enhanced Chase Overdraft
Assist SM to provide an extra day before
charging an overdraft fee.
#1
D. BARRETT
Third, fixing income inequality will reignite the
American dream.
SAPPHIRE
freedom
#1 primary bank for
U.S. small businesses
#1 in U.S. retail deposit
market share³
#1
#1
CHASE
45
45
CONSUMER & COMMUNITY BANKING
D. BARRETT
BARRETT CONNECT
2021
D. BARRETT
Average deposits of $1.2 trillion were up
10% over 2021, and we extended our
#1 market share in U.S. retail deposits³.
In 2022, the historic speed and magnitude
of rate hikes accelerated the return
toward normalized deposit margins.
•Rededicate ourselves to the qualities
and principles that made America great.
These principles are life, liberty, the pursuit
of happiness and the idea that all people
are created equal. Democracy and human
freedom are inseparable from freedom of
speech, freedom of religion and free enter-
prise. It would help to educate all Americans
about the sacrifice of those who came before
us for democracy at home and abroad.
We need to acknowledge the critical role
that government plays and we need
government to be more competent and
accountable. We must build stronger safety
nets to care for the poor, the old and the
disabled, and to cushion adjustment to
economic change, while also maintaining
economic dynamism, individual responsi-
bility and the dignity of work. We must
confront crises and failures of public policy
by developing better policies and by
dealing with realities. We can recognize
the mistakes America has made without
disparaging the nation.
We support global human rights and
stand on the side of liberty, but we also
have to be realistic about the compromises
necessary to accomplish long-term goals.
Remember Franklin D. Roosevelt and
Winston Churchill allied with Stalin against
Hitler's imminent threat.
•Develop a Marshall Plan for global
energy and food security. This will be
critical both in keeping the Western
alliances together and minimizing the
global suffering caused by starvation.
Global energy and food supply chains are
precarious by their nature. And it should
be self-evident that energy security and
preventing climate change aren't contra-
dictory: Secure and reliable oil and gas
production is compatible with reducing
CO2 over the long run, and is far better
than burning more coal. It should also
be self-evident that global food and energy
security relies on realistic trade policy and
American military strength.
• Increase military spending, along
with our allies, as much as necessary to
protect the world. Not only is America a
bastion of freedom; it is still the arsenal of
democracy, and economic sanctions are no
substitute for an effective military. "We
know only too well that war comes not
when the forces of freedom are strong, but
when they are weak," as Ronald Reagan
said in 1980. Military strength needs to
be combined and coordinated with strong
diplomatic and economic aid for the devel-
oping world. Thoughtful policies would
help many nations lift up their people,
develop their human rights and join eco-
nomic unions that are good for all involved.
•Recover our economic dynamism. A
strong economy is the foundation for
American power, and we haven't focused
enough on economic growth. Between
2000 and 2020, real U.S. GDP grew at an
average rate of only 1.7% a year. Had
we grown at 3% instead, last year's gross
domestic product per person would have
been $15,000 higher. That would help pay
for much of what we need to do as a nation.
Economic growth will repair the fraying
of the American dream, particularly if we
share the wealth by improving education
and wages for lower-paid citizens. There
are many effective ways to do this, such as
raising minimum wages and expanding the
earned-income tax credit. We must also fix
the immigration policies that are tearing us
apart, dramatically reducing illegal immi-
gration and dramatically increasing legal
immigration. Economic growth will reduce
inflation, reduce the deficit, and make it
easier to afford the strong military we need.
We aren't going to have the economic
growth we need with the legal, regulatory
and bureaucratic system we have today.
Global trade will necessarily be restruc-
tured so that we don't rely on potential
adversaries for critical goods and services.
This will require more “industrial plan-
ning" than America is used to-and we
must ensure it is properly done and is not
used for political purposes. Yet America
should also open its arms, through trade
and aid, to all other nations. Most develop-
ing countries would prefer to align eco-
nomically with the West if we help them
solve their problems. We should develop a
new strategic and economic framework to
make ourselves their partner of choice.
•Deal with China thoughtfully and
without fear. America still has an enor-
mously strong hand-plenty of food, water
and energy; peaceful neighbors; and what
is still the most prosperous and dynamic
economy the world has ever seen, with a
per person GDP of over $75,000 a year.
We can have faith that our system will
maintain the economic dynamism we need.
China has done a great job lifting up its
nation and bringing its GDP per person up
to $13,000 a year. Yet any fair assessment
must recognize its challenges―not enough
food, water and energy; a very complex
geopolitical situation with tough neighbors;
a lack of freedom that creates economic
rigidity and malinvestment.
Whether you
potential adversary, we, along with our
allies, should firmly negotiate with China
(where my company and its predecessor
firms have done business for more than a
century). We should acknowledge that we
have common interests in combating
nuclear proliferation, climate change and
terrorism. Tough but thoughtful negotia-
tions over strategic, military and economic
concerns including unfair competition—
should yield a better situation for all. If
America leads well, China will be better
off forming partnerships with a strong
Western world than with Russia, Iran and
other such nations.
think it is a competitor or a
It should also lay to rest the idea that
America can stand alone. U.S. leaders must
always put America first, but global peace
and order is a vital American interest. Only
America has the full capability to lead and
coalesce the Western world, though we
must do so respectfully and in partnership
with our allies. Without cohesiveness and
unity with our allies, autocratic forces will
divide and conquer the bickering West.
America needs to lead with its strengths—
not only military but also economic, diplo-
matic and moral. Here's what we can do:
Mr. Dimon is Chairman and CEO of
JPMorgan Chase & Co.
CREATING A COMPREHENSIVE GLOBAL
ECONOMIC STRATEGY
Just as we need a comprehensive military strategy,
globally, to deal with future security risks, we need
a comprehensive global economic strategy to deal
with future economic risks. Done properly, this will
help strengthen and coalesce the Western demo-
cratic alliances over an extended period of time.
This strategy has four pillars.
First, we need a U.S. growth strategy.
Between 2000 and 2022, real U.S. GDP grew at an
average rate of only 2% a year. Had we grown at
3% instead, last year's GDP per person would have
been $15,000 higher. That would help pay for much
of what we need to do as a nation. We simply have
not focused enough on growing the U.S. economy.
In prior letters, we have spoken about how we
need to get public policy right to address a multi-
tude of areas, which span ineffective education
systems, soaring healthcare costs, excessive regu-
lation and bureaucracy, the inability to plan and
build infrastructure efficiently, inequitable taxes, a
capricious and wasteful litigation system, frustrat-
ing immigration policies and reform, inefficient
mortgage markets and housing markets and hous-
ing policy, a partially untrained and unprepared
labor force, excessive student debt, and the lack of
proper federal government budgeting and spend-
ing. I believe that our poor policies have restrained
our growth, and simply improving those policies
would accelerate our growth.
We should also focus on reducing the worker
shortages by allowing both more merit-based
immigration and seasonal immigration. Reducing
trade barriers could also have a rapid effect, and
decreasing regulations and bureaucracy would be
helpful. For example, starting a small business
today generally requires multiple licenses, which
take precious months to get. But it doesn't end
there. Talk with any small business owner, and that
person will describe the mountains of red tape,
inefficient systems and huge amount of documen-
tation involved to operate the business. We need
to reduce the burdens that are imposed on those
who want to open and run a small business.
By seeking a bold, comprehensive approach, we
increase our ability to positively impact economic
growth and jobs; in fact, this is also the best way to
reduce inflation and the deficit.
Second, an industrial policy, done properly,
could drive growth and also protect our
national security.
The United States has essentially never had an
"industrial policy," a strategy by which the federal
government, through incentives and policies,
drives American industry. We have done it indi-
rectly through things like the Defense Advanced
Research Projects Agency and NASA's moon mis-
sion but not generally by favoring industries. More
directly, the IRA and the CHIPS Act provide specific
incentives for EVs, semiconductors, rare earths,
alternative energy sources and others. There are
two reasons we should develop an industrial policy:
1) specifically to safeguard our national security and
2) to counter unfair economic competition, particu-
larly where our national security is directly con-
cerned. For example, making bicycles would not be
part of the second example. But China, using subsi-
dies and its economic muscle to dominate batteries,
rare earths, semiconductors or EVs, could eventu-
ally imperil national security by disrupting our
access to these products and materials. We cannot
cede these important resources and capabilities
to another country.
Crafting an industrial policy should be done properly
and with a tightly restricted scope. If the policy is
politically motivated, it will be used to benefit vari-
ous political benefactors and eventually provoke
extreme misallocation of capital and corruption.
Managing the economy is extremely complex, and
Adam Smith's invisible hand still prevails - in a
way we can never understand. If the government
starts to micromanage through an industrial policy,
it will not stop, and much of the efficiencies meant
to be created will not be realized. Industrial policy
should come with twins - very strict limitations on
political interference and related comprehensive
policy around factors like permitting require-
ments, which if not drastically improved will inhibit
our ability to make investments and allow infra-
structure to be built.
40
2020
Originally published in The Wall Street Journal on January 3, 2023. Reprinted with permission.
ussia's invasion of Ukraine punc-
tured many assumptions about the
future of the world and thus was a
pivotal moment in history. America and the
West can no longer maintain a false sense
of security based on the illusion that dicta-
torships and oppressive nations won't use
their economic and military powers to
advance their aims-particularly against
what they perceive as weak, incompetent
and disorganized Western democracies. In
a troubled world, we are reminded that
national security is and always will be
paramount, even if it seems to recede in
tranquil times.
Together, we can ensure America's lead-
ership for the next 100 years.
By Jamie Dimon
Our financial performance should also be
considered in the context of the rapidly
evolving macro environment, which
created both headwinds and tailwinds for
our lines of business. On the strength of
our models to acquire, engage and retain
customer relationships, we continued to
drive core growth in most of our busi-
nesses. However, we acknowledge that
our businesses are not immune to the
macro landscape - Home Lending, in par-
ticular, faced shrinking total market size.
R
5 Private debt market measured by private debt assets under
management. Syndicated lending market measured by
leveraged loans outstanding.
2 2017 Securities Services revenue adjusted down by $0.1 billion to exclude the impact of past business simplification,
exit actions and accounting changes.
1 2017 Firmwide Payments revenue is predominantly in CIB and CB and excludes the net impact of equity investments;
adjusted down by $0.1 billion for Merchant Services accounting re-class.
2022
$4.5
+17%
2017
$3.8
($ in billions)²
Securities Services revenue
2022
Looking ahead, clients will increasingly
turn to service providers for help in man-
aging their data. Anticipating this devel-
opment, we launched our Fusion platform
in 2022, and we're already building strong
brand recognition in the market. Provid-
ing seamless and efficient solutions for
discovering, managing and analyzing data
will unlock new opportunities to deliver
value to our investor clients.
$13.9
Software solutions for healthcare and
connected cars
2017
$9.1
($ in billions)¹
Firmwide Payments revenue
PAYMENTS AND SECURITIES SERVICES
is defined by share of wallet, product, penetration and
revenue metrics.
6 Coalition Greenwich Institutional Client Analytics. "Large
Institutional Clients" is a JPM-only categorization that
CORPORATE & INVESTMENT BANK
50
We are also investing to expand our capa-
bilities in areas like exchange-traded fund
(ETF) servicing, middle-office outsourcing
and alternatives - all of which are growth
areas for our business.
+52%
Our Payments business also operates at
tremendous scale and lightning speed,
moving more than $9 trillion each day
across 160 countries and 120 currencies.
We are investing to further scale and
modernize our core payments infra-
structure, as well as to develop the net-
works of the future. From peer-to-peer
blockchain connections to JPM Coin,
programmable money and digitization
of assets, we're seeking to make sending,
managing and receiving money easier,
faster and more secure.
CB's strategy is anchored on being our
clients' most important financial partner,
and we do this by delivering the expertise
and capabilities of our global firm locally.
In 2022, we continued to extend and
deepen our reach by growing our U.S.
and international footprint, enabling us
to increase our addressable market and
serve more exceptional clients around
the world.
Another big opportunity exists in
developing data and software-as-a-
service solutions for platform busi-
nesses and industry verticals such as
healthcare and connected cars. For
example, in U.S. healthcare, InstaMed,
which we acquired in 2019, digitizes
interactions between patient, payers
and providers, seamlessly processing
payments and moving healthcare data.
Now connected to approximately 60%
of U.S. healthcare providers, it has
created an extensive network for our
clients. Similar opportunities exist in
the fast-changing mobility industry,
impacting not only the automotive
sector but energy, utilities and
commerce. Through our partnership
with Volkswagen Financial Services
and majority stake in Volkswagen Pay,
we are exploring a future in which cars
will be used as smart payment devices
and commerce platforms.
In this and many other areas, our accel-
erated investments over the past few
years are helping to future-proof our
business. As we compete with banks
and fintechs, we have the best of both:
scale, end-to-end capabilities and direct
relationships with clients of all sizes.
WELL-POSITIONED FOR THE
FUTURE
Global markets have already encountered
significant challenges in the new year -
from interest rate volatility to market and
geopolitical uncertainty.
And with central banks tightening in ways
we haven't seen before as they wrestle
with ongoing inflationary pressures,
market uncertainty is likely to persist and
weigh on growth in the United States and
other developed economies in 2023.
More positively, we are well-positioned to
help clients in any environment. Our
scale, completeness and culture of collab-
oration are key differentiators as clients
increasingly look to us for solutions that
straddle different business lines.
I am incredibly proud of how our employ-
ees supported clients in 2022. Our per-
formance and the opportunities ahead
show what an amazing hand our busi-
ness has and give me immense confi-
dence and hope for the future.
Janus
Daniel E. Pinto
President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
CORPORATE & INVESTMENT BANK
Growth opportunities in data services
In Securities Services, the rising complex-
ity of funds is creating opportunities as
we continue to evolve to meet the chang-
ing needs of our clients. As a result, we
have been modernizing our core custody
and fund accounting infrastructure to cre-
ate scale and efficiency.
51
Commercial Banking
In 2022, Commercial Banking (CB)
remained focused on executing our
long-term strategy - growing our client
franchise, investing in our platform
and capabilities, and empowering and
enabling our teams. We continued to
stand by our clients, delivering capital,
advice and solutions to help them
best navigate an uncertain market
environment.
I'm incredibly proud of our results and
the notable market leadership positions
we achieved last year.
CB reported record revenue of
$11.5 billion, net income of $4.2 billion
and a return on equity of 16%. Our strong
performance was largely driven by adding
clients, expanding into new markets and
maintaining higher deposit margins.
We had our third-best year for
Investment Banking, with $3 billion
in revenue¹.
• Commercial & Industrial loans increased
by 11% year-over-year².
• Commercial Real Estate loans grew
7% year-over-year².
Credit performance remained strong,
with net charge-offs of 4 basis points.
Our business continues to perform
extremely well in a complex and competi-
tive environment. The sustained invest-
ments we're making across our franchise
are accelerating our organic growth, and
our success is compounding. This letter will
give you a window into our business and
the tremendous runway that lies ahead.
SERVING MORE
EXTRAORDINARY CLIENTS
Connections with other parts of our firm,
including Investment Banking, Commer-
cial Banking, Markets and Retail Banking,
are opening opportunities for Payments,
especially with the 5.8 million small busi-
nesses that already bank with Chase. As
the only bank with end-to-end in-house
acquiring and treasury capabilities, we
have created an ecosystem that provides
merchants with everything from smart
terminals and tap-on-phone solutions to
consumer trends and insights drawn from
issuing and acquiring data.
All of our clients continue to embrace
electronic trading. Through the years,
we've invested heavily in our electronic
trading capabilities, both in areas that
have been at the forefront of electronifi-
cation, such as equities and foreign
exchange, and in those where the indus-
try has been slower to embrace the trend,
such as credit.
#1
services to complete the full trade life
cycle experience for our clients.
Global Investment Banking wallet evolution and J.P. Morgan rankings
($ in billions)
$133
Scale is essential to run a successful
and profitable Markets business, and
the capital required to fuel our global
trading desks has risen significantly
over the last five years. While this
increase has been a headwind, our
business has been disciplined in
deploying capital and continues to
deliver strong returns. With the strate-
gic initiatives we have in place, we're
confident in our strategy as market
structure evolves.
Our Securities Services business, which
provides essential post-trade services
to our institutional asset-manager
and asset-owner clients, also had a
strong year, reporting record revenue
of $4.5 billion.
Investment over the years has allowed
us to steadily grow revenue and market
share in Securities Services² while main-
taining a top-tier operating margin.
The scale of our business is remarkable.
We provide safekeeping, settlement and
services for securities in approximately
100 markets around the world, and at
the end of 2022, assets under custody³
exceeded $28 trillion.
Turning to Payments, the business saw
strong growth in 2022, generating
firmwide revenue of nearly $14 billion,
$4 billion more than in 2021, due in
large part to the effect of higher
rates4. Payments revenue generated
from the CIB alone increased 33%
from the previous year4.
$81
$77
We expanded to five additional U.S.
states and four new countries:
2015-2020 average
INVESTMENT BANKING
2021
J.P. Morgan rank
#1
(all years)
Source: Dealogic as of January 2, 2023
Serving more than 30,000 clients
across the CIB and Commercial Banking
and approximately 300,000 small- and
medium-sized enterprises in the United
States and Canada, the business contin-
ued to win new mandates and deepen
relationships with the world's largest
and most sophisticated companies.
Over the last five years, the CIB's new
mandates revenue more than doubled
for both corporate and financial institu-
tion clients.
INNOVATION, TALENT AND
INVESTMENT
I am very proud of our people, our
results and the vital role our business
plays in supporting global economies
and commerce and in maintaining
liquid, orderly markets. That role is
amplified by the close collaboration
across our businesses, which has
allowed us to grow and invest while
still maintaining strong returns for our
shareholders. Innovation and invest-
ment are critical as we work to meet
clients' evolving needs, as the competi-
tion intensifies and as we look to capi-
talize on several exciting opportunities.
#1
#1
Capital for the climate
Climate change is one of the most
pressing challenges of our age. With the
introduction of the Inflation Reduction
Act and the need for solutions to
Europe's energy challenges, a major
opportunity exists in committing capital
and expertise to help clients transition
to the low-carbon economy. In 2022,
the CIB facilitated $164 billion in trans-
actions (toward the firmwide target of
$2.5 trillion by the end of 2030) to fur-
ther sustainable development, including
$1 trillion to support green initiatives.
This predominantly consisted of leading
or participating in environmental, social
and governance (ESG)-related bond
issuances, providing derivative hedging
and advising on M&A deals.
Moving forward, we plan to deepen our
coverage of clients engaged in the
green economy and low-carbon transi-
tion, create new products and allocate
capital to finance ESG objectives. We
will also build on the success of our two
centers of excellence: the Center for
Carbon Transition and ESG Solutions, a
specialist team of investment bankers
who provide ESG-related advice and
transaction support.
2022
Finally, we want to capitalize on secular
growth trends in the industry. For
instance, over the last five years, the
industry wallet with large institutional cli-
ents has grown more than with other
financial institutions. Increasingly, these
large clients need banks with size, scale
and solutions to manage complex portfo-
lios. Being a reliable, complete counter-
party, our market share with this particu-
lar group of clients has grown more than
350 basis points over the past five years.
3 Represents assets held directly or indirectly on behalf
of clients under safekeeping, custody and servicing
arrangements.
CORPORATE & INVESTMENT BANK
comprehensive middle- and back-office
We are also committed to providing a
seamless and differentiated experience
across the trade life cycle - from pre-
trade through to execution to post-trade.
For pre-trade, we are the clear leader in
research, offering analysis on more than
5,200 companies and around 80 econo-
mies worldwide. With so much content,
our focus has been on improving the client
experience, ensuring we're delivering rel-
evant, timely reports in the most accessi-
ble and digestible formats. For post-trade,
our Securities Services business offers
The halo effect in trading
Private debt markets have also grown
significantly in the last five years and at
a much faster pace than the syndicated
lending market. To compete, we have set
up a new direct lending initiative that has
already funded dozens of deals, helping
to deepen relationships, especially with
middle market clients.
Boom in private capital markets
Another opportunity is the rapid growth
in private capital markets. In 2022, we
were involved in nearly 60 deals, raising
$12 billion in proceeds. We also launched
our Capital Connect platform, which
reinvented the traditional private capital
raise, seamlessly connecting investors
with earlier-stage companies. Helping
a client at an early stage can result in a
client-for-life relationship, leading to
opportunities in global corporate and
private banking and potentially an IPO
or sell-side M&A mandate.
Source: Coalition Greenwich Competitor Analytics (preliminary for FY22); market share is based on JPMorgan Chase's internal
business structure and revenue; ranks are based on Coalition Index Banks for Markets
#1
2022
2017
13.1%
+300 basis points
4 Firmwide Payments and CIB Payments revenue metrics
exclude the net impact of equity investments.
EQUITIES
2022 rank
2017
10.1%
11.0%
10.9%
+10 basis points
FIXED INCOME
Markets market share
MARKETS
49
49
2022
• In the United States, CB established
a presence in Idaho, Montana, Nevada,
New Mexico and South Carolina and is
now in 78 of the top 100 metropolitan
statistical areas, with a potential to cover
more than 48,000 prospective clients.
In trading, we believe that being complete
continues to offer huge advantages.
Providing a complete set of trading prod-
ucts creates a halo effect, making it more
attractive for clients to trade with us
across the full range of our products.
Our diversification also provides balance
to our revenue regardless of the macro-
economic environment. For example, in
2021, equities outperformed while in
2022, fixed income macro businesses
were the main growth engines.
SELECT FINANCIAL HIGHLIGHTS
$13.2B
+6%
+10%
$17.7B
$5.8B
$3.6B
2017
2022
2017
2022
2017
2022
GPB ADVISORS
$4.0T
(In thousands)
2.4
2.2
+1.5x
3.1
2.7
2.5
2017
2018
2019
2020
2021
2022
GROWING ETF BUSINESS
2.4
+9%
$2.7T
PRE-TAX INCOME
2022 % of J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Outperforming Peer Median Over 10 Years¹
TOTAL J.P. MORGAN
ASSET MANAGEMENT
0
90%
FIXED INCOME
91%
EQUITY
95%
MULTI-ASSET SOLUTIONS
& ALTERNATIVES
77%
AWM has one of the industry's largest
internal research budgets and employs
more than 1,100 investment professionals
who cover over 2,500 companies, span-
ning every asset class and major geogra-
phy. These individuals methodically travel
around the world to uncover compelling
investment opportunities for our clients;
last year alone, they held over 5,000
meetings with companies and manage-
ment teams.
Our durable approach helped us deliver
strong investment performance amid the
historic levels of volatility in 2022, partic-
ularly in our Fixed Income and Equity
platforms, outpacing most of our largest
peers, especially those with more passive
approaches to investing assets. In fact,
across the three-, five- and 10-year time
horizons, our investment performance in
those asset classes has never been stron-
ger. Our long-term mutual fund assets
under management (AUM) outperforming
the peer median over 10 years increased
from a strong 86% in 2021 to an even
better 90% in 2022.
Clients rewarded our consistent and
strong outperformance by entrusting us
with even more of their assets. AWM not
only achieved its 19th consecutive year of
net new inflows, but we also ranked in the
top three of public peers for net client
inflows over the past five years.
FINANCIAL PERFORMANCE FOR
OUR SHAREHOLDERS
With delivering superior investment per-
formance as our guiding principle, our
revenue grew by 5% to reach a record
level. Our results were strong across
regions and channels and benefited from
our fortress balance sheet, the Global
Private Bank's (GPB) robust deposit
ASSET & WEALTH MANAGEMENT
55
franchise, J.P. Morgan Asset Manage-
ment's (JPMAM) investment prowess,
and a sizable number of new clients turn-
ing to J.P. Morgan for advice and guidance.
While pre-tax income was lower in 2022
than the previous year, it reflected our
purposeful investments in our world-class
talent, cutting-edge technologies and
superior client coverage. With a healthy
pre-tax margin of 33% that is among the
industry's highest, AWM has continued to
deliver operating leverage to our share-
holders over the past five years.
INVESTING IN THE FUTURE OF OUR
FRANCHISE
One of our most significant investments
has been in our effort to increase our ros-
ter of high-quality GPB advisors. Our
commitment in this area yielded results,
and in 2022, for the first time, we sur-
passed 3,000 GPB advisors. Once hired,
our advisors go through our world-class
training programs to set them on a path
to success and help them grow through
each stage of their career.
We also saw progress in our systematic
efforts to expand our capabilities to meet
client demand. We have invested heavily
in JPMAM's active exchange-traded fund
(ETF) business, which in just a few years
has grown from two solutions with
$237 million in AUM to 78 U.S. and UCITS
ETFs, representing more than $54 billion
in AUM. With a lineup that includes two of
the industry's largest and top-performing
active ETFS - JPMorgan Equity Premium
Income ETF (JEPI) and JPMorgan Ultra-
Short Income ETF (JPST) - JPMAM ended
2022 ranked #2 in global active ETF AUM.
In addition to organic growth, AWM has
made several acquisitions in recent years,
each of which is making valuable contri-
butions to our business:
• 55ip, our customized tax-loss harvest-
ing engine, built new, more highly
scalable platforms to handle separate
accounts, along with additional
tax-managed strategies.
FINANCIAL PERFORMANCE²
ASSETS UNDER SUPERVISION
REVENUE
Global Active ETF AUM
($ in billions)³
+228x
$54.1
$0.2
15%
GROSS TOTAL RETURN (1Y)
Global Shares
~1M'
TOTAL CLIENTS
OPTIMISTIC FOR THE FUTURE
We know there will always be unexpected
volatility in the broader environment. As
a fiduciary, we constantly stress test port-
folios to prepare clients for those scenar-
ios. Recent events in 2023's first quarter
have reminded us of those risks. Today's
financial system is stronger than any time
before, and it will emerge even more
resilient as we apply lessons learned to
the future. As tough as 2022 was on mar-
kets, the good news is the starting point
for the next 10 to 15 years of future
return assumptions has increased nearly
70%, from 4.3% last year to 7.2%³.
I am so proud of the breadth and consis-
tency of our success in delivering value to
our clients and shareholders. We remain
relentlessly focused on being the advisor
of choice to the world's most prominent
institutions, pension funds, central banks,
individuals and families. Our commitment
to doing first-class business in a first-class
way for these clients is what makes AWM
a special gem inside JPMorgan Chase.
I also take great pride in how we helped
clients and our shareholders navigate the
challenges of 2022 and across past mar-
ket cycles, and I am optimistic about the
opportunities ahead and our role in help-
ing to deliver the best possible outcomes
for all our stakeholders.
STEPPING UP OUR SUPPORT FOR UKRAINE
Президен
J.P. Morgan is the #1 issuer for Ukraine
sovereign debt and has been since 2010,
raising over $25 billion. When the war broke
out in February 2022, we worked swiftly
to give a two-year payment deferral to
help do our part during the conflict. As we
approached the one-year mark of the war,
J.P. Morgan sent a delegation traveling 11 hours
by train into Kyiv to sign a memorandum of
understanding for J.P. Morgan to advise on
rebuilding, financial stabilization, sovereign
credit ratings and economic ties to Europe.
We are committed to helping with the road
map to recovery for Ukraine and its people.
Pictured (clockwise): Volodymyr Zelenskyy, President of Ukraine; Yulia Svyrydenko, First Deputy Prime Minister
of Ukraine and Minister of Economic Development and Trade; Anton Pil, JPMAM Global Head of Alternatives;
Stefan Weiler, JPM Head of Debt Capital Markets in Central and Eastern Europe, the Middle East and Africa;
Vincent La Padula, JPM Head of Workplace; and Rostyslav Shurma, Deputy Head of the Office of the President
of Ukraine. Photo from J.P. Morgan Summit broadcast of meeting in Kyiv (February 10, 2023).
цвет
Mary Callahan Erdoes
CEO, Asset & Wealth Management
ASSET & WEALTH MANAGEMENT
57
Corporate Responsibility
Corporate Responsibility at JPMorgan
Chase takes a robust, holistic approach to
driving inclusive economic growth in com-
munities around the world. Combining our
philanthropy, research, policy recommen-
dations and advocacy, while working with
leaders at every level of government and
business, we advance strategies to help
move the needle on significant challenges
affecting the communities we serve, from
closing the racial wealth gap and tackling
the skilled labor shortage to making the
economy and communities more resilient.
At the core of our integrated model is
a focus on outcomes. Bringing together
our resources - including our expertise
and community network - we work to
generate solutions that benefit custom-
ers, communities and the economy at
large. We see this in how JPMorgan
Chase develops banking products,
supports clients and communities,
and powers the economy.
Promoting financial health. Far too many
people lack access to the products and
services they need to improve their finan-
cial health, including checking and savings
accounts. To help close America's wealth
gap, we looked to consumer data, social
entrepreneurs and our long-standing com-
munity partners for insights, which influ-
enced the design of products like Chase
Secure BankingSM, an affordable and safe
account option serving nearly 1.5 million
customers, and Autosave, a tool used by
1.9 million consumers to simplify and auto-
mate savings. With nonprofits like the
Cities for Financial Empowerment Fund,
we helped establish national standards
for products similar to Secure Banking so
more people can access low-cost banking
services. And with Autosave, we leveraged
insights from the JPMorgan Chase Institute
58
CORPORATE RESPONSIBILITY
and collaborated with consumer advocates
and community leaders to understand the
most effective strategies to help even
more customers meet their savings goals
and set aside money for unexpected
expenses like car repairs or medical bills.
Increasing access to economic opportu-
nity. We believe that when communities
thrive, businesses thrive. In Seine-Saint-
Denis (SSD), just outside of Paris where
30% of young people live in poverty, we
are putting our model to work to help
spur economic growth. Nearly five years
ago, we made a $30 million philanthropic
commitment to support communities in
Greater Paris, particularly in SSD. We
started by collaborating with government
agencies and nonprofits on skills training
and small business growth, assessing and
updating our strategy along the way. This
effort reached people like Fatou, an
entrepreneur who, with the assistance of
our nonprofit partner Adie, learned how
to win public and private contracts for her
security company. She was able to get
her business off the ground and grow her
client network. Fatou is one of more than
6,700 entrepreneurs and 600 local busi-
nesses who have received such support
in addition to the 23,000 SSD residents
who have received necessary skills train-
ing to advance their careers. We are
continuing to learn from the outcomes
of our work in Greater Paris, coordinating
closely with local policymakers and
organizations as we plan to enhance our
commitment going forward.
Supporting global growth and security.
The war in Ukraine has upended millions
of lives and created a significant shortage
of energy supplies. Over the past year, we
have worked closely with leaders across
our company, clients and policymakers to
navigate these unprecedented social, eco-
nomic and energy security challenges.
Once again, we are taking a comprehen-
sive approach, informing business deci-
sions to advance energy security and scale
clean technology solutions while providing
$10 million in philanthropic capital to
address critical humanitarian needs and
help launch career training and upskilling
programs for Ukrainian refugees in
Poland. And we are thinking toward the
future, advising the Ukrainian government
on its plan for a postwar recovery. This is a
pivotal moment for the global economy,
and we will continue to leverage our wide
range of expertise and insights to navigate
complex global dynamics.
Generating impact is a business impera-
tive. Improving our products, strength-
ening communities, and supporting a
more inclusive and secure global econ-
omy are inextricably tied to the success
of our company. Even as we seek to
manage uncertainty and market distress
to promote a sound financial system, it
remains the responsibility of both the
public and private sectors to come
together to identify solutions that will
lead to greater prosperity.
Demetrios
Demetrios Marantis
Global Head of Corporate Responsibility
CampbellGlobal
For many years, I have written about the
importance of being an active investor,
as the world is constantly evolving -
yesterday's leading opportunities are
not guaranteed to be tomorrow's. In
2022, these principles were reinforced,
as actively managed portfolios - an area
in which J.P. Morgan has long excelled
proved their value in delivering strong
returns for clients.
AND CLIENT REPORTING
OpenInvest
$1.5B
2017
2022
Rank
#20
#2
LAUNCHED
15 NEW ETFs
GLOBALLY
MANAGED LARGEST
ACTIVE ETFS
(JEPI AND JPST)
1 For footnote, refer to page 43 footnote 33 in this Annual Report.
AWARDED ETF SUITE
OF THE YEAR
(ACTIVE ETFs)5
2 In the fourth quarter of 2020, the firm realigned certain wealth management clients from AWM to CCB.
Prior-period amounts have been revised to conform with the current presentation. Percentage increases
represent compound annual growth rates.
3 Includes U.S.-domiciled ETFS and European-domiciled ETFS with UCITS labels.
4 U.S. and UCITS ETFS, including four ETFs in Australia.
5 Award by With Intelligence in 2022.
6 Sustainable Equity Strategy Assets.
7 Projected by 1H23.
8 Any forecasts, figures and opinions set out are for information purposes only, based on certain
assumptions and current market conditions and are subject to change without prior notice.
56
ASSET & WEALTH MANAGEMENT
•
•
Campbell Global, our timber- and
forestry-focused investment manager,
had notable new investment flows.
Additionally, several other alternative
funds started with newly acquired
teams of experts in their various fields.
OpenInvest, our customized invest-
ment preference screener, delivered
several new screening capabilities to
our advisors and clients.
Global Shares, our cloud-based pro-
vider of equity share plan management
to public and private companies, ended
2022 with nearly 1 million employee
• We achieved a significant milestone
in 2022 when we became the first bank
able to accept government deposits in
all 50 U.S. states, allowing us to bring
participant clients and continues to
onboard new companies and their
respective employees at a record pace.
To ensure we can scale our growth, we
are investing in operational excellence
across all that we do, with a particular
focus on trade processing flows and client
transactions/money movement, strong
controls and protection around client
activities, and ease of interaction. These
investments are part of our ongoing
efforts to streamline our processes and
make it easy for our clients and advisors
to work with us.
We continue to focus on delivering digital, personalized and ESG solutions to our clients.
55ip
7x AUM
SINCE ACQUISITION
ALIGNED TO OPENINVEST INSIGHTS
INVESTMENT PERFORMANCE FOR
OUR CLIENTS
DELIVERING VALUE THROUGH M&A
and comprehensive controls over all
our activities has helped us guide and sup-
port our clients throughout the years -
especially during more challenging times.
$3.0
2020
2021
2022
2020
2021
2022
RECORD RESULTS IN 2022
$11.5B
TOTAL
REVENUE
m
$5.9B
TOTAL PAYMENTS
REVENUE
$3.3
~2,300
$
~$224B
AVERAGE
LOAN BALANCES
across the firm to provide a full suite of
capabilities, including capital raising,
strategic advisory and a differentiated
set of digital solutions.
• We created a new team of bankers
across 20 U.S. cities that is focused
on understanding and supporting the
unique journeys of diverse, women and
veteran business owners and working to
help their businesses grow and succeed.
The community impact from this team
has been very positive, and we are look-
ing for more ways to serve this import-
ant segment of our economy.
NOTABLE 2022 RECOGNITION
#1
Multifamily Lender in the United
States³
• Multifamily Lender in New York City
and Washington, D.C.³
•
Primary Bank Market Share in
Middle Market4
• In Middle Market syndicated
lending5
3 Home Mortgage Disclosure Act data, United States
Consumer Financial Protection Bureau.
CLIENT
ACQUISITIONS
$205.0
$5.1
$223.7
As fiduciaries for millions of clients, and
with more than $4 trillion of their assets,
we never take for granted the trust and
confidence they place in us, and we work
tirelessly to re-earn it each and every day.
($ in billions)
•
our services to more local governments
and their residents.
Outside the United States, we
expanded into Denmark, Finland,
Norway and Sweden and now have 80
bankers calling on more than 2,000
prospective, non-U.S.-headquartered
clients in 24 countries.
We're thoughtfully growing our team
to support several high-potential
opportunities:
• We've maintained our focus on middle
market companies with revenue less
than $100 million and added bankers
to serve more than 12,000 companies
in this important segment, doubling
our client relationships since 2018.
• Both in the United States and EMEA,
we continued building our Green Econ-
omy and Innovation Economy teams to
provide tailored support to these criti-
cal sectors that are advancing eco-
nomic growth and sustainability. CB is
well-positioned to serve clients from
startup to IPO and beyond, partnering
MIDDLE MARKET EXPANSION
TOTAL PAYMENTS REVENUE
$1.5
$5.9
$3.8
$3.8
$1.2
$0.9
2020
2021
2022
2021
2022
INVESTMENT BANKING REVENUE
1 Represents total JPMorgan Chase revenue from investment
banking products provided to CB clients.
2 Commercial & Industrial and Commercial Real Estate
groupings for CB are generally based on client segments
and do not align with regulatory definitions.
52
COMMERCIAL BANKING
AVERAGE LOANS
$218.9
4 Barlow Research.
5 Refinitiv.
2020
Our ability to deliver JPMorgan Chase's
full suite of solutions remains a key com-
petitive advantage. In 2022, we continued
to make significant investments in our
capabilities, innovating to drive even
more value for our clients.
and tailored advice helped City First
Broadway become the largest Black-led
minority depository institution in the country
and extend more loans to underserved
communities.
WASHINGTON, D.C.
Community of Hope recently opened a Family
Health and Birth Center, the only free-standing
birth center in the city. CB provided a $21
million New Markets Tax Credit-qualified equity
investment to purchase and expand the center,
which has served more than 4,000 patients
since March 2022.
$19 billion in credit to vital institutions
- such as hospitals, schools and gov-
ernments - that are critical to the
health and vibrancy of our communities
• $12 billion to create or incentivize
the preservation of more than 95,000
affordable units to help thousands of
families access stable housing
• $300 million in New Markets Tax
Credit investments to support projects
such as health clinics, grocery stores
and job training facilities
• $670 million in loans to Green
Economy clients to help accelerate
decarbonization
Together with our exceptional clients
and colleagues across the firm, we're
working to advance an inclusive
economy, support local and diverse
6 Includes new credit commitment originations and
existing credit commitments that experienced a
major modification during 2022.
businesses, and create a sustainable
future for the places we call home.
LOOKING FORWARD
While we're incredibly proud of our 2022
results, we aren't standing still. 2023 is
proving to be another complex year, and
we have a responsibility to be a source of
strength and stability, especially in uncer-
tain times. As such, we remain prepared
for a wide range of economic scenarios
with our core tenets in clear view:
•
•
Partnering across our firm to deliver
value for our clients and communities
Maintaining our credit discipline and
client selection standards
Thus far, 2023 has only reinforced
my confidence in our people, who
have proved that they will rise to any
challenge. I'd like to express my sincere
gratitude to the entire CB team, as well
as our partners across the firm for
their dedication, teamwork and client
focus. I'm incredibly proud to work
alongside all of them.
Dinne
Douglas B. Petno
CEO, Commercial Banking
54
COMMERCIAL BANKING
Asset &
Wealth Management
It was an important transition year for
financial markets in 2022 as the world
adjusted to the move from near-zero
interest rates and quantitative easing -
in order to stimulate post-COVID econo-
mies - to rapid interest rate increases
and global quantitative tightening. The
unprecedented speed of this reset caused
significant market dislocations, with
higher discount rates leading to severe
asset repricing. For the first time in more
than 50 years, both stock and bond mar-
kets had negative returns, calling into
question the diversification principles of
asset allocation.
Through it all, J.P. Morgan Asset & Wealth
Management (AWM) drew upon its two
centuries of experience navigating global
markets and providing forward-looking
insights to ensure that our clients had the
planning and investment advice they
needed to sustain a long-term perspective.
Our relentless focus on risk management
CHAMPIONING OUR CLIENTS'
SUCCESS WITH POWERFUL
SOLUTIONS
INVESTMENT PERFORMANCE
The firm's multimillion dollar investment
CB has provided local developer Dantes
Partners, a division of Dumas Collective, with
financing to support six affordable housing
communities. In total, Dantes Partners has
closed and financed more than 3,000 luxury
affordable housing units in Washington, D.C.,
with a focus on seniors and low- to moderate-
income residents.
Consistently investing in our people,
technology and data
WARD 6
• We're offering new, simple digital
banking platforms and integrated pay-
ment solutions to help clients run their
businesses more effectively.
• In collaboration with our CIB partners,
we're providing clients with a more
complete set of financing alternatives
with the addition of our new direct
lending offering.
WARD 8
• We introduced Story by J.P. Morgan™,
our all-in-one property management
tool that offers multifamily property
owners and operators valuable data,
insights and an intuitive rent payments
platform to best manage their real
estate assets.
INVESTING IN TECHNOLOGY AND
DATA TO OPTIMIZE OUR BUSINESS
We continue to make excellent progress
in building a truly data-driven business,
using our unique assets to enhance our
operating processes and deliver valuable
insights to both our teams and clients.
The impact from this effort has been
quite exciting, and the investments we
are making will drive tremendous benefit
for years to come.
⚫ CB continued to scale and optimize
our cloud-based data platform and
expanded our team of data scientists to
help unlock even more value and embed
business intelligence into all we do.
•
collaboration tools promote connectiv-
ity across the firm, enabling us to serve
clients with greater precision and
foster new relationships.
Using insights from our operating
data, we markedly improved client
satisfaction scores by enhancing and
streamlining both our onboarding
process and client service experience.
DEEPENING OUR FOCUS ON
COMMUNITY IMPACT
While growth and innovation are essen-
tial to CB's success, perhaps just as
important is our focus on being a pur-
pose-driven business. Our firm has long
championed the essential role of bank-
ing in a community, a concept that is
deeply woven into the strategy and cul-
ture of our franchise. In CB, we are using
the power of our business - doing what
we do best every day - to drive real
outcomes in our communities.
Across our local markets, our teams
deliver critical resources, specialized
expertise and tailored solutions to help
communities thrive. Collectively, in 2022
CB financed:
COMMERCIAL BANKING
• Our robust customer relationship
management platform and
SPOTLIGHT ON WASHINGTON, D.C.
53
WARD 2
WARD 1
WARD 3
WARD 7
WARD 5
WARD 4
MARYLAND
VIRGINIA
BANK OF DC
CITY FIRST
As Howard University's primary operating
bank, we've helped them increase efficiency,
reduce costs and mitigate risk so they can
focus on providing scholars, staff and the
greater community with access to education
and economic opportunity.
Our work helps strengthen thousands of communities every day, including Washington, D.C. CB currently serves nearly 300
clients in D.C. and has extended more than $1.2 billion in financing to affordable housing developers, vital institutions and local
businesses in the district since 2018.
6
Total net revenue was $128.7 billion, up 6%, reflecting:
Net interest income of $66.7 billion, up 28%, driven by
higher rates and loan growth, partially offset by lower
Markets net interest income. Net interest income
excluding Markets was $62.4 billion, up 40%.
JPMorgan Chase reported net income of $37.7 billion for
2022, down 22%, earnings per share of $12.09, ROE of
14% and ROTCE of 18%.
Firmwide overview
Comparisons noted in the sections below are for the full year
of 2022 versus the full year of 2021, unless otherwise
specified.
(a) The ratios reflect the CECL capital transition provisions. Refer to
Capital Risk Management on pages 86-96 for additional information.
(b) NII and NIR refer to net interest income and noninterest revenue,
respectively. Markets consists of CIB's Fixed Income Markets and
Equity Markets businesses.
•
$ 132,277 $ 125,304
(23)
6
27,394
•
53,412
40
62,355 $ 44,498
40,938
28,984
•
Markets"
(b)
Total net revenue - managed
basis
•
•
Noninterest expense was $76.1 billion, up 7%, driven by
higher structural expense and continued investments in
the business, including compensation, technology and
marketing, partially offset by lower volume- and revenue-
related expense.
47
NIR excluding Markets (b)
•
• TBVPS grew by 2%, ending 2022 at $73.12.
SLR was 5.6%.
•
JPMorgan Chase & Co./2022 Form 10-K
respectively.
CET1 capital was $219 billion, and the Standardized and
Advanced CET1 ratios were 13.2% and 13.6%,
Noninterest revenue of $62.0 billion, down 11%,
driven by lower Investment Banking fees, $2.4 billion
of net investment securities losses in Treasury and CIO,
lower net production revenue in Home Lending and
lower auto operating lease income, largely offset by
higher CIB Markets revenue and a $914 million gain on
the sale of Visa Class B common shares ("Visa B
shares") in Corporate.
Selected capital and other metrics
- growth in CCB from existing and new accounts, and net
inflows in AWM resulting from the residual effects of
certain government actions, partially offset by the
impact of growth in customer spending in CCB and
migration into investments in AWM, and
Firmwide average deposits of $2.5 trillion were up 5%,
reflecting:
Firmwide average loans of $1.1 trillion were up 6%,
driven by higher loans across the LOBS.
The Firm's nonperforming assets totaled $7.2 billion at
December 31, 2022, a net decrease of $1.1 billion,
predominantly driven by lower consumer nonaccrual
loans, reflecting improved credit performance and loan
sales.
The total allowance for credit losses was $22.2 billion at
December 31, 2022. The Firm had an allowance for loan
losses to retained loans coverage ratio of 1.81%,
compared with 1.62% in the prior year.
The prior year provision was a net benefit of $9.3 billion,
reflecting a net reduction to the allowance for credit
losses of $12.1 billion.
- $2.9 billion of net charge-offs.
a net addition of $3.5 billion to the allowance for credit
losses, consisting of $2.3 billion in wholesale and $1.2
billion in consumer, driven by loan growth and
deterioration in the Firm's macroeconomic outlook,
partially offset by a reduction in the allowance related
to a decrease in uncertainty associated with borrower
behavior as the effects of the pandemic gradually
recede, and
The provision for credit losses was $6.4 billion,
reflecting:
reductions in CIB and CB due to attrition driven by the
rising interest rate environment.
$
(21)
Memo:
23
18
Return on tangible common
equity
Return on common equity
Selected ratios and metrics
15.36
12.09
Diluted earnings per share
(22)
48,334
37,676
Net income
4
NM
(9,256)
6,389
Provision for credit losses
50,306
Management's discussion and analysis
52,555
Book value per share
NII excluding Markets (b)
$
$ 88.07
Total capital
•
•
2
3 2
16.8
16.8
15.0
14.9
13.1 %
13.2 %
19 %
14 %
Tier 1 capital
CET1 capital
Capital ratios (a)
71.53
73.12
Tangible book value per share
90.29
As of December 31, 2022, the Firm had average eligible
High Quality Liquid Assets ("HQLA") of approximately
$733 billion and unencumbered marketable securities
with a fair value of approximately $694 billion, resulting
in approximately $1.4 trillion of liquidity sources. Refer
to Liquidity Risk Management on pages 97-104 for
additional information.
approximately $73 billion, market dependent.
Pre-provision profit, ROTCE, TCE, TBVPS, NII and NIR
excluding Markets, and total net revenue on a managed
basis are non-GAAP financial measures. Refer to
Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures on pages 58-60 for a further
discussion of each of these measures.
•
JPMorgan Chase & Co./2022 Form 10-K
Markets to be approximately $74 billion, market
dependent.
Management expects net interest income excluding
Management expects net interest income to be
•
•
Full-year 2023
JPMorgan Chase's current outlook for full-year 2023 should
be viewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopolitical
environment, the competitive environment, client and
customer activity levels, and regulatory and legislative
developments in the U.S. and other countries where the
Firm does business. Each of these factors will affect the
performance of the Firm. The Firm will continue to make
appropriate adjustments to its businesses and operations in
response to ongoing developments in the business,
economic, regulatory and legal environments in which it
operates.
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management, speak only as of the date of this Form 10-K,
and are subject to significant risks and uncertainties. Refer to
Forward-Looking Statements on page 154, and the Risk
Factors section on pages 9-32 of this Form 10-K for a further
discussion of certain of those risks and uncertainties and the
other factors that could cause JPMorgan Chase's actual
results to differ materially because of those risks and
uncertainties. There is no assurance that actual results in
2023 will be in line with the outlook information set forth
below, and the Firm does not undertake to update any
forward-looking statements.
Outlook
• On January 17, 2023, JPMorgan Chase announced that
Alicia Boler Davis had been elected as a director of the
Firm, effective March 20, 2023. Ms. Davis serves as Chief
Executive Officer of Alto Pharmacy.
• On January 20, 2023, JPMorgan Chase announced that
J.P. Morgan Asset Management had received regulatory
approval from the China Securities Regulatory
Commission to complete its acquisition of China
International Fund Management Co., Ltd.
Recent events
JPMorgan Chase & Co./2022 Form 10-K
48
Refer to the Business Segment Results on pages 61-62 for a
detailed discussion of results by business segment.
(b) Users of all mobile platforms who have logged in within the past 90
days.
(a) Excludes Commercial Card.
Management expects adjusted expense to be
Average deposits up 14%; average loans up
9%
•
Management expects the net charge-off rate in Card
Pre-provision profit
JPMorgan Chase & Co./2022 Form 10-K
On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act
("LIBOR Act") was signed into law in the U.S. The LIBOR Act
provides a framework for replacing U.S. dollar LIBOR as the
reference rate in legacy financial contracts that may not
otherwise transition to a replacement rate upon LIBOR
Cessation. In addition, the U.K. Financial Conduct Authority is
proposing that the administrator of LIBOR be required to
continue to publish the one-month, three-month and six-
month tenors of U.S. dollar LIBOR on a "synthetic" basis
which would allow market participants to use such rates
through September 30, 2024. This proposal would apply to
contracts that are outside the scope of the LIBOR Act,
including U.S. dollar LIBOR-linked contracts that are not
governed by U.S. law. Both the LIBOR Act and the proposed
publication of "synthetic" LIBOR are intended to facilitate,
and reduce the risks associated with, the transition from
LIBOR, including the potential for disputes or litigation.
The Firm continues to make necessary changes to its risk
management systems in connection with the transition from
LIBOR, including modifications to its operational systems and
models. In addition, the Firm continues to monitor and
evaluate client, industry, market, regulatory and legislative
developments relating to the transition from LIBOR. Refer to
Part 1, Item 1A: Risk Factors on pages 9-32 of the 2022
Form 10-K and to Accounting and Reporting Developments
on page 153 for additional information.
As of December 31, 2022, the Firm had significantly reduced
the notional amount of its exposure to contracts that
reference U.S. dollar LIBOR, including in derivatives, bilateral
and syndicated loans, securities, and debt and preferred
stock issuances, and is on-track to meet both its internal
milestones for contract remediation as well as the industry
milestones and recommendations published by National
Working Groups, including the Alternative Reference Rates
Committee in the U.S. The Firm also continues to engage
with clients to assist them with transitioning their U.S. dollar
LIBOR-linked contracts to replacement rates in anticipation
of LIBOR Cessation. The majority of the Firm's remaining
LIBOR exposure is to derivative contracts. The Firm will be
participating in initiatives by the principal central
counterparties ("CCPS") to convert cleared derivatives
contracts linked to U.S. dollar LIBOR in the second quarter of
2023 which will remediate approximately 40% of the Firm's
remaining U.S. dollar LIBOR derivatives exposure. The Firm
expects that the majority of the remaining derivatives
exposure will be remediated predominantly through
contractual fallback provisions.
The Firm and other market participants are preparing for the
final stages of the transition from the use of the London
Interbank Offered Rate ("LIBOR”) and other IBORS in
accordance with the International Organization of Securities
Commission's standards for transaction-based benchmark
rates. The cessation of the publication of the remaining
principal tenors of U.S. dollar LIBOR (i.e., overnight, one-
month, three-month, six-month and 12-month LIBOR)
("LIBOR Cessation") is scheduled for June 30, 2023.
Interbank Offered Rate ("IBOR") transition
50
For purposes of this Form 10-K, “Russia” refers to exposure
to clients and counterparties of the Firm for which the
largest proportion of their assets is located, or the largest
proportion of their revenue is derived, in Russia, based on
the Firm's internal country risk management framework; and
"Russia-associated" refers to exposure to clients and
counterparties of the Firm with respect to which economic or
financial sanctions relating to the war in Ukraine have been
imposed or which have close association with Russia.
Refer to Wholesale Credit Portfolio on pages 116-126,
Allowance for Credit Losses on pages 127-129, Market Risk
Management on pages 131-138, Country Risk Management
on pages 139-140 and Operational Risk Management on
pages 142-144 for additional information.
The Firm also continues to monitor and manage the
operational risks associated with the war, including
compliance with the financial and economic sanctions and
the increased risk of cyber attacks.
The Firm's exposure to Russia and Russia-associated clients
and counterparties is not material to its financial condition
or results of operations. However, the Firm continues to
monitor potential secondary impacts of the war, including
increased market volatility, inflationary pressures and the
effects of financial and economic sanctions imposed by
various governments, that could have adverse effects on the
Firm's businesses.
The duration and potential outcomes of the war in Ukraine
remain uncertain. The Firm has taken and continues to take
steps to close positions and reduce certain of its business
activities and exposures connected with the war, and to
assist clients with fulfilling any pre-existing obligations and
managing their Russia-related risks.
War in Ukraine
Business Developments
Management's discussion and analysis
49
49
Net interest income excluding Markets and adjusted
expense are non-GAAP financial measures. Refer to
Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures on pages 58-60.
Services to be approximately 2.6%.
approximately $81 billion, market dependent.
Assets under management ("AUM") of $2.8
trillion, down 11%
•
Average deposits down 2%; average loans up
9%
Average deposits up 10%; client investment
assets down 10%
•
$1.0
Selected business metrics for each of the Firm's four LOBS
are presented below for the full year of 2022.
trillion
Credit for corporations
$1.1
billion
Credit for U.S. small businesses
$33
billion
Credit for consumers
$250
Total credit provided and capital raised
(including loans and commitments) (a)
trillion
$2.4
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided new and renewed credit and raised capital for
wholesale and consumer clients during 2022, consisting of:
Credit provided and capital raised
Business segment highlights
trillion
CCB
ROE
29%
•
Gross Investment Banking revenue of $3.0
billion, down 42%
25%
AWM
ROE
16%
•
CB
ROE
6%, with Fixed Income Markets up 10% and
Equity Markets down 2%
Total Markets revenue of $29.0 billion, up
fees with 8.0% wallet share for the year
Refer to Consolidated Result of Operations and
Consolidated Balance Sheets Analysis on pages 51-54 and
pages 55-56, respectively, for a further discussion of the
Firm's results.
#1 ranking for Global Investment Banking
14%
CIB
ROE
(a) Includes states, municipalities, hospitals and universities.
Credit and capital raised for nonprofit and
U.S. government entities (a)
Capital raised for corporate clients and
non-U.S. government entities
$65
billion
Debit and credit card sales volume (a) up 14%
Active mobile customers (b) up 9%
charge-off rate of 1.47%
Average loans up 1%; Card Services net
•
7
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are the Corporate & Investment Bank ("CIB"), Commercial
Banking ("CB"), and Asset & Wealth Management ("AWM").
Refer to Business Segment Results on pages 61-80, and
Note 32 for a description of the Firm's business segments,
and the products and services they provide to their
respective client bases.
76,140
66,656
52,555
50,306
53,295
6,389
(9,256)
17,480
46,166
71,343
59,562
8,490
11,228
6,684
$
37,676
$
48,334
$
35,815
29,131
119,951
121,649
Book value per share
Tangible book value per share ("TBVPS") (a)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity ("ROE") (b)
Return on tangible common equity ("ROTCE") (a) (b)
Return on assets ("ROA") (a)
Overhead ratio
Loans-to-deposits ratio
$
Firm Liquidity coverage ratio ("LCR") (average) (c)
Tier 1 capital ratio (d)
Total capital ratio (d)
2022
2021
2020
$
128,695
76,140
$
JPMorgan Chase Bank, N.A. LCR (average) (c)
Common equity Tier 1 ("CET1") capital ratio (d)
$
12.10
$
4.00
3.80
66.11
3.60
14 %
19 %
12 %
18
23
71.53
14
Basic
0.91
59
59
56
49
44
47
0.98
73.12
81.75
88.07
15.39
$
8.89
12.09
15.36
8.88
2,965.8
3,021.5
3.082.4
2,970.0
3,026.6
3,087.4
$
393,484
2,934.2
90.29
$
466,206
2,944.1
$
387,492
3,049.4
Common shares at period-end
Market capitalization
Market and per common share data
Diluted
Note:
139 Country Risk Management
Market Risk Management
131
106 Credit and Investment Risk Management
97 Liquidity Risk Management
86 Capital Risk Management
85 Strategic Risk Management
The following pages from JPMorgan Chase & Co.'s 2022
Form 10-K are not included herein: 1-42, 304
297 Glossary of Terms and Acronyms
Supplementary information:
Notes to Consolidated Financial Statements
164
159 Consolidated Financial Statements
156 Report of Independent Registered Public Accounting
Firm
155 Management's Report on Internal Control Over
Financial Reporting
Audited financial statements:
81 Firmwide Risk Management
292 Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
141 Climate Risk Management
142 Operational Risk Management
149 Critical Accounting Estimates Used by the Firm
Net income:
Earnings per share data
Net income
Income tax expense
Income before income tax expense
Provision for credit losses
Pre-provision profit(a)
Total noninterest expense
Total net revenue
Selected income statement data
(in millions, except per share, ratio, headcount data and where otherwise noted)
As of or for the year ended December 31,
THREE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
Financial
43
71,343
JPMorgan Chase & Co./2022 Form 10-K
154 Forward-Looking Statements
153 Accounting and Reporting Developments
61 Business Segment Results
112
58 Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures
51 Consolidated Results of Operations
59
59
CORPORATE RESPONSIBILITY
This model is being scaled across the
state, with the potential to serve 5% of
the nation's high school seniors. It is
even influencing legislation to help
districts prepare students for college
and encourage high schoolers to apply
for federal financial aid before they
graduate. Supporting this impactful
program is part of our five-year, $350
million commitment to equip people
with the skills they need for the future
of work and to meet the growing
demand for qualified workers.
Driving inclusive economic growth
Investing in the careers of tomorrow
As rapid changes in technology, automa-
tion and artificial intelligence alter
career paths, it is imperative for compa-
nies like ours to transform how we pre-
pare people to compete for well-paying
jobs. Since 2018, we've supported the
Dallas County Promise, a program help-
ing Dallas County Public School students
access postsecondary education oppor-
tunities at local colleges and universities.
Today, more than 90,000 high school
seniors in the Dallas area have benefited.
that aim to scale climate-resilient afford-
able housing models, particularly in
Black, Hispanic and Latino communities,
including in rural areas. Our most recent
$15 million philanthropic commitment
will help produce or preserve more than
1,400 units of affordable housing, incor-
porating energy-efficient features and
weatherization upgrades that offer
protection against extreme weather
and reduce utility costs.
We recognize that climate change has a
domino effect on communities, with
extreme weather impacting roughly one
in 10 homes in the United States. In
response, we're supporting programs
We also announced 2030 emissions
intensity reduction targets for three new
key sectors: iron and steel, cement and
aviation. The aggregate of these new
sectors, along with the sectors we
announced in 2021, accounts for the
majority of global emissions across both
the supply and demand sides in the
global energy system - a key consider-
ation for advancing overall decarboniza-
tion and the global path to net-zero
emissions.
Supporting small business growth
Across our company, we are taking mea-
sures to respond to the climate challenge
against the backdrop of a global energy
crisis. In December, we issued our
Climate Report outlining how we are
scaling green solutions to support our
clients' business goals, investing in new
clean energy technology that creates
local economic growth and jobs, meeting
immediate energy needs, and minimizing
our operational impact. In 2022, we
financed and facilitated $197 billion
toward our $2.5 trillion Sustainable
Development Target: $70 billion toward
green, $87 billion toward development
finance and $40 billion toward commu-
nity development. Through 2022, we
have financed and facilitated $482
billion toward this overall target,
including $176 billion toward our
$1 trillion green target.
with no credit history, and we have now
approved credit cards for roughly 15,000
new-to-credit customers. This helps
people to build credit scores and access
lower-priced mainstream credit products,
which could eventually include a mort-
gage one of America's most important
sources of generational wealth.
initiative to provide credit to customers
In 2020, we joined the Office of the
Comptroller of the Currency's launch of
Project REACH (Roundtable for Economic
Access and Change), formed to identify
and reduce barriers to full and fair par-
ticipation in the United States' banking
system and economy. We were the first
major financial institution to launch an
Safeguarding sound financial systems
The global economy is only as resilient as
its financial systems. Around the world,
we're working with policy groups, trade
associations and regulators so we can
extend loans, make capital investments
and provide services that help people
access more opportunities.
Here are some ways we bring the full
force of the firm - combining our busi-
ness resources, community and govern-
ment engagement, philanthropic capital,
data and expertise - to promote a stron-
ger, more inclusive economy.
Every day, we apply what we've learned
from supporting our customers and
clients to help build more resilient
communities. This approach allows us
to focus on the ingredients essential for
inclusive growth: jobs and skills training,
small business growth, community
development and financial health.
Average shares:
Basic
Accelerating climate and
sustainability solutions
Small businesses generate jobs and are
vital to driving local economic growth.
In the past year, we have assisted more
than 26,500 small businesses around
the world, helping them create or retain
more than 54,000 jobs and increase
revenue by over $129 million. Our
employees have been central to this
effort, committing 7,000+ volunteer
hours globally through our Founders
Forward small business mentorship pro-
gram. The program pairs entrepreneurs
with JPMorgan Chase team members to
receive consultative support on various
business challenges, covering leader-
ship, financial modeling, e-commerce,
marketing and more.
Founders Forward
Small Business Mentoring Program
47 Executive Overview
46 Introduction
Management's discussion and analysis:
45 Five-Year Stock Performance
44 Three-Year Summary of Consolidated Financial
Highlights
Financial:
Table of contents
CORPORATE RESPONSIBILITY
60
But in many cases, impacted communi-
ties need more than financial support.
When Jackson, Mississippi, a city with
more than 140,000 residents, experi-
enced periodic water shutdowns and boil
orders due to burst pipes and high lead
levels, our team worked closely with
community organizations responding
to the crisis, hosting a local training for
nonprofits working on recovery plans
while also distributing resources like
bottled water. This is just one example
of how we're bringing our expertise and
resources to Mississippi as our business
in the state continues to grow.
Extending support in times of crisis
We show up for the communities we
serve in both good and tough times. Over
the last three years, we've contributed
more than $33 million for disaster relief
through corporate donations and
employee personal donations. We've
provided support to communities through
hardships of all kinds, from catastrophic
earthquakes in Haiti, Türkiye and Syria
to the cost-of-living crisis in the United
Kingdom and tragic violence in neighbor-
hoods spanning the United States.
insurance services and raising over $80
million in follow-up funding to continue
their work. In the United States, Financial
Solutions Lab participants have helped
more than 33 million consumers. And
in emerging markets like Nigeria, the
Catalyst Fund has supported 61 startups,
helping more than 14 million customers
build savings, learn to invest and more
easily access credit.
In India, the Financial Inclusion Lab has
supported 50 early-stage startups,
serving more than 30 million consumers
who need access to savings, credit and
Policies, programs and products aimed
at improving financial health are key to
creating more inclusive economies.
Through our support of innovative, inclu-
sive fintech accelerators - the Financial
Inclusion Lab, the Financial Solutions Lab
and the Catalyst Fund - we are helping
advance the financial well-being of
underserved low- and middle-income
populations. The Labs provide capital,
mentorship and additional assistance to
create scalable fintech solutions that
enable communities to build wealth, save
money and reduce debt.
Promoting financial health and wealth
creation
With our support, the city of Syracuse
piloted and evolved its Community
Investment Framework, ultimately
attracting significant public and private
sector investments. According to the city,
these investments are creating nearly
50,000 jobs, generating almost $600
million in annual tax revenue for New
York state and spurring an additional
$500 million in public and private sector
funding that will help scale opportunities
and create economic growth for resi-
dents in Syracuse's underserved
communities.
Economic opportunity is deeply rooted in
neighborhoods. We saw this firsthand in
Syracuse, New York, where a declining
manufacturing sector contributed to an
economic downturn, job loss and popula-
tion decrease. As one of the inaugural
winners of our annual Advancing Cities
Challenge, a yearly competition that
promotes community-driven solutions
to advance local inclusive growth, we
provided $3 million over three years
and ongoing coaching to help drive
technological development in the city's
workforce, neighborhoods and small
businesses and to boost its economy.
Catalyzing community development
We also help entrepreneurs succeed
through our support of Ascend, a nation-
wide program focused on developing
customized growth strategies for small
businesses. Eighty-nine percent of partic-
ipating businesses are owned by people
of color, and this year these businesses
surpassed $2 billion in contracts. As a
result of Ascend's specialized approach,
participating entrepreneurs are able to
focus on trainings most relevant to them.
In New York City, for example, Salsa
Hospitality CEO Daniel Garcia learned
how to grow his executive team, plan
for long-term business expansion and
purchase a new facility to accommodate
business growth, ultimately increasing
sales by 56% in 2022.
55 Consolidated Balance Sheets and Cash Flows Analysis
111
1.30
151
2019
2020
2021
2022
$ 100.00
$ 93.35
$ 137.48
$ 129.89
$ 165.91
2018
$ 145.01
82.29
112.01
100.47
138.99
109.25
100.00
86.96
114.87
112.85
100.00
2017
December 31,
(in dollars)
100
10,906
5,259
0.55 %
(a) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity ("TCE") is also a non-GAAP financial measure.
Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 58-60 for a discussion of these measures.
(b) Quarterly ratios are based upon annualized amounts.
(c) For the years ended December 31, 2022, 2021 and 2020, the percentage represents average ratios for the three months ended December 31, 2022,
2021 and 2020.
(d) As of December 31, 2022, 2021 and 2020, the capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19
pandemic, including the Current Expected Credit Losses ("CECL") capital transition provisions. As of December 31, 2020, the SLR reflected the temporary
exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks, which became effective April 1, 2020 and remained in effect through March
31, 2021. Refer to Capital Risk Management on pages 86-96 for additional information.
44
14
JPMorgan Chase & Co./2022 Form 10-K
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financials Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America ("U.S.”), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P
Financials Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all
three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2017, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends were reinvested.
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financials Index
S&P 500 Index
200
175
150
125
152.20
136.17
100.00
95.61
46
JPMorgan Chase & Co./2022 Form 10-K
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2022 Form 10-K. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates affecting the Firm, this
2022 Form 10-K should be read in its entirety.
Financial performance of JPMorgan Chase
Year ended December 31,
(in millions, except per share
data and ratios)
Selected income statement
data
Noninterest revenue
2022
2021
Change
$
Net interest income
Total net revenue
61,985 $ 69,338
$ 66,710 $ 52,311
$ 128,695 $ 121,649
(11)%
28 %
6 %
Total noninterest expense
The Firm's website is www.jpmorganchase.com. JPMorgan
Chase makes available on its website, free of charge, annual
reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as
soon as reasonably practicable after it electronically files or
furnishes such material to the U.S. Securities and Exchange
Commission (the "SEC") at www.sec.gov. JPMorgan Chase
makes new and important information about the Firm
available on its website at https://www.jpmorganchase.com,
including on the Investor Relations section of its website at
https://www.jpmorganchase.com/ir. Information on the
Firm's website is not incorporated by reference into this
2022 Form 10-K or the Firm's other filings with the SEC.
0.30 %
In Corporate Responsibility, we aim to
help strengthen the global financial
system by supporting economic oppor-
tunity that is equitable and accessible.
We help identify solutions to major
global challenges thanks to the invest-
ments we've made to build a strong and
sustainable company.
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading financial services firm based in the United States of
America (“U.S.”), with operations worldwide. JPMorgan
Chase had $3.7 trillion in assets and $292.3 billion in
stockholders' equity as of December 31, 2022. The Firm is a
leader in investment banking, financial services for
consumers and small businesses, commercial banking,
financial transaction processing and asset management.
Under the J.P. Morgan and Chase brands, the Firm serves
millions of customers, predominantly in the U.S., and many
of the world's most prominent corporate, institutional and
government clients globally.
125.70
148.82
191.49
156.81
JPMorgan Chase
KBW Bank
S&P Financials
S&P 500
75
2017
2018
2019
2020
2021
2022
JPMorgan Chase & Co./2022 Form 10-K
45
Management's discussion and analysis
The following is Management's discussion and analysis of the financial condition and results of operations ("MD&A”) of JPMorgan
Chase for the year ended December 31, 2022. The MD&A is included in both JPMorgan Chase's Annual Report for the year ended
December 31, 2022 ("Annual Report") and its Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Form
10-K" or "Form 10-K”) filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on
pages 297-303 for definitions of terms and acronyms used throughout the Annual Report and the 2022 Form 10-K.
This Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase's management, speak
only as of the date of this Form 10-K and are subject to significant risks and uncertainties. Refer to Forward-looking Statements on
page 154 and Part 1, Item 1A: Risk factors in this Form 10-K on pages 9-32 for a discussion of certain of those risks and
uncertainties and the factors that could cause JPMorgan Chase's actual results to differ materially because of those risks and
uncertainties. There is no assurance that actual results will be in line with any outlook information set forth herein, and the Firm
does not undertake to update any forward-looking statements.
INTRODUCTION
JPMorgan Chase's principal bank subsidiary is JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A.”), a national banking association with U.S. branches in
48 states and Washington, D.C. JPMorgan Chase's principal
nonbank subsidiary is J.P. Morgan Securities LLC (“J.P.
Morgan Securities"), a U.S. broker-dealer. The bank and
non-bank subsidiaries of JPMorgan Chase operate
nationally as well as through overseas branches and
subsidiaries, representative offices and subsidiary foreign
banks. The Firm's principal operating subsidiaries outside
the U.S. are J.P. Morgan Securities plc and J.P. Morgan SE
("JPMSE"), which are subsidiaries of JPMorgan Chase Bank,
N.A. and are based in the United Kingdom (“U.K.”) and
Germany, respectively.
110
0.27 %
2,853
Trading assets
$
453,799
$
433,575
$
503,126
Selected balance sheet data (period-end)
Investment securities, net of allowance for credit losses
672,232
589,999
Loans
1,135,647
1,077,714
1,012,853
Total assets
8,346
2,865
3,665,743
Supplementary leverage ratio ("SLR") (c)(d)
6.9
178
160
13.2
13.1
13.1
14.9
15.0
Tier 1 leverage ratio (c)(d)
15.0
16.8
17.3
6.6
6.5
7.0
5.6
5.4
16.8
3,743,567
631,162
Deposits
Allowances for loan losses and lending-related commitments
Allowance for loan losses to total retained loans
264,928
259,289
249,291
292,332
294,127
279,354
293,723
271,025
255,351
Nonperforming assets
Net charge-offs
Net charge-off rate
2.95 %
$
22,204
$
1.81 %
18,689
1.62 %
$
30,815
$
7,247
$
Credit quality metrics
Headcount
Diluted
2,340,179
2,462,303
2,144,257
Long-term debt
295,865
301,005
281,685
Common stockholders' equity
Total stockholders' equity
3,384,757
9,941
Noncompensation expense:
expense
$46,166
Occupancy
4,516
4,449
Income tax expense
8,490
$59,562
11,228
$35,815
6,684
Technology, communications and
equipment(a)
Effective tax rate
18.4 %
18.9 %
18.7 %
9,358
4,696
10,338
Net interest income increased driven by higher rates and
loan growth, partially offset by lower Markets NII.
The Firm's average interest-earning assets were $3.3
trillion, up $133 billion, and the yield was 2.78%, up 97
basis points ("bps”). The net yield on these assets, on an
FTE basis, was 2.00%, an increase of 36 bps. The net yield
excluding Markets was 2.60%, up 69 bps.
$ 41,636 $ 38,567 $ 34,988
the absence of weather-related write-downs recorded in
the prior year on certain renewable energy investments
in CIB.
Refer to Note 2 for additional information on Visa B shares.
Professional and outside services
Refer to the Consolidated average balance sheets, interest
and rates schedule on pages 292-296 for further
information. Net yield excluding Markets is a non-GAAP
financial measure. Refer to Explanation and Reconciliation
of the Firm's Use of Non-GAAP Financial Measures on pages
58-60 for a further discussion of Net yield excluding
Markets.
52
62
JPMorgan Chase & Co./2022 Form 10-K
Provision for credit losses
Year ended December 31,
(in millions)
Consumer, excluding credit card
Credit card
Total consumer
Wholesale
Investment securities
Total provision for credit losses
2022 compared with 2021
the impact of movements in foreign exchange rates
related to net investment hedges in Treasury and CIO,
primarily as a result of the strengthening of the U.S.
dollar, and
2022
satisfaction of a loan in CB,
- proceeds from an insurance settlement in the first
quarter of 2022,
•
higher net mortgage servicing revenue, reflecting
the absence of a net loss in MSR risk management in
the prior year primarily driven by updates to model
inputs related to prepayment expectations, and
- higher operating revenue due to a higher level of third-
party loans serviced.
Refer to CCB segment results on pages 63-66, Note 6 and
15 for further information.
Card income decreased driven by higher amortization
related to new account origination costs, partially offset by
higher annual fees in CCB, and higher payments revenue on
volume growth in commercial cards in CIB and CB.
Refer to CCB, CIB and CB segment results on pages 63-66,
pages 67-72 and pages 73-75, respectively, and Note 6 for
further information.
Other income decreased reflecting:
lower auto operating lease income in CCB as a result of a
decline in volume, and
⚫ net losses on certain investments in CIB and AWM,
compared with net gains in the prior year,
partially offset by
• an increase in Other Corporate from:
•
•
•
a gain of $914M on the sale of Visa B shares,
- higher net gains related to certain other investments,
and
a gain on an equity-method investment received in partial
2021
$
2020
506 $ (1,933) $ 1,016
•
a $190 million increase in net charge-offs in Auto and
Banking & Wealth Management ("BWM") as net charge-
offs in the prior year benefited from government stimulus
and payment assistance programs, and an increase of
$76 million in CIB.
Refer to the segment discussions of CCB on pages 63-66,
CIB on pages 67-72, CB on pages 73-75, AWM on pages
76-78, the Allowance for Credit Losses on pages 127-129,
and Notes 1, 10 and 13 for further discussion of the credit
portfolio and the allowance for credit losses.
JPMorgan Chase & Co./2022 Form 10-K
53
Management's discussion and analysis
Income tax expense
Noninterest expense
Year ended December 31,
(in millions)
Compensation expense
2022
2021
2020
Year ended December 31,
(in millions, except rate)
2022
2021
2020
• a $309 million decrease in Card Services, reflecting the
ongoing financial strength of U.S. consumers. However,
median deposit balances declined in the second half of
2022, impacted by the growth in consumer spending,
offset by
Net charge-offs were $2.9 billion, flat compared with 2021,
and included:
Deterioration in the Firm's macroeconomic outlook included
both updates to the central scenario in the fourth quarter of
2022, which now reflects a mild recession, as well as the
impact of the increased weight placed on the adverse
scenarios beginning in the first quarter of 2022 due to the
effects associated with higher inflation, changes in
monetary policy, and geopolitical risks, including the war in
Ukraine.
$1.2 billion in consumer, predominantly driven by Card
Services, reflecting higher outstanding balances and
deterioration in the Firm's macroeconomic outlook,
partially offset by a reduction in the allowance related to
a decrease in uncertainty associated with borrower
behavior as the effects of the pandemic gradually recede.
The prior year included a $12.1 billion net reduction in the
allowance for credit losses.
3,353
(4,838)
10,886
3,859
(6,771)
11,902
2,476
(2,449)
Income before income tax
5,510
(36)
68
$ 6,389 $ (9,256) $ 17,480
The provision for credit losses was $6.4 billion, reflecting a
net addition of $3.5 billion to the allowance for credit
losses and $2.9 billion of net charge-offs. The net addition
to the allowance for credit losses consisted of:
.
•
$2.3 billion in wholesale, driven by deterioration in the
Firm's macroeconomic outlook, and loan growth
predominantly in CB and CIB, and
54
10,174
largely offset by
8,464
additions to goodwill associated with the acquisitions of
Renovite Technologies, Inc. in the fourth quarter of 2022,
Global Shares PLC and Figg, Inc. in the third quarter of
2022, and Frosch Travel Group, LLC and Volkswagen
Payments S.A. in the second quarter of 2022.
higher MSRS as a result of higher market interest rates and
net additions, partially offset by the realization of expected
cash flows, and
•
•
Goodwill, MSRs and other intangibles increased reflecting:
Premises and equipment, refer to Note 16 and 18 for
additional information.
Accrued interest and accounts receivable increased due to
higher client receivables related to client-driven activities in
Markets, as well as higher receivables in Payments related to
the timing of payment activities, with December 31, 2022
falling on a weekend.
Refer to Credit and Investment Risk Management on pages
106-130, and Notes 1, 2, 3, 12 and 13 for further discussion
of loans and the allowance for loan losses.
on the Consolidated balance sheets, and a $54 million
addition to the allowance for investment securities.
Management's discussion and analysis
55
JPMorgan Chase & Co./2022 Form 10-K
There was also a $121 million addition to the allowance for
lending-related commitments recognized in other liabilities
Refer to Note 15 for additional information.
$1.2 billion in consumer, predominantly driven by Card
Services, reflecting higher outstanding balances, and
deterioration in the Firm's macroeconomic outlook,
partially offset by a reduction in the allowance related to a
decrease in uncertainty associated with borrower behavior
as the effects of the pandemic gradually recede.
•
•
The allowance for loan losses increased, reflecting a net
addition of $3.3 billion to the allowance for loan losses,
consisting of:
the impact from PPP loan forgiveness in BWM.
lower mortgage warehouse loans in Home Lending as sales
outpaced originations due to higher interest rates, and
•
partially offset by
higher wholesale loans in CIB,
higher originations and revolver utilization in CB, and
consumer spending and net new originations,
higher balances in Card Services driven by higher
•
•
$2.1 billion in wholesale, resulting from deterioration in
the Firm's macroeconomic outlook, and loan growth
predominantly in CB and CIB, and
•
Other assets increased predominantly due to the impact of
securities financing activities in Markets, offset by lower auto
operating lease assets in CCB.
December 31, (in millions)
295,865
17
10,750
12,610
14
262,755
300,141
8
164,693
177,976
(18)
53,594
44,027
Selected Consolidated balance sheets data
4
202,613
(5)
2,462,303
$ 2,340,179 $
Change
2021
2022
Beneficial interests issued by consolidated variable interest entities ("VIES")
Long-term debt
Accounts payable and other liabilities
Trading liabilities
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Deposits
Liabilities
194,340
301,005
•
Refer to Corporate segment results on pages 79-80,
Investment Portfolio Risk Management on page 130 and
Notes 2 and 10 for additional information on investment
securities.
22
102,570
125,189
Accrued interest and accounts receivable
5
1,061,328
1,115,921
Loans, net of allowance for loan losses
20
(16,386)
(19,726)
Allowance for loan losses
5
27,734
1,077,714
Loans
(6)
672,232
631,162
Investment securities, net of allowance for credit losses
17
363,707
425,305
Held-to-maturity securities
(33)
308,525
205,857
largely offset by
1,135,647
Loans increased, reflecting:
27,070
60,859
the increase in HTM securities also reflected purchases
partially offset by paydowns.
largely offset by net purchases, and
$ 3,665,743 $ 3,743,567
•
The decrease in AFS securities was also due to paydowns,
as well as unrealized losses, which are recognized in
accumulated other comprehensive income ("AOCI"),
•
Investment securities decreased, driven by lower available-
for-sale ("AFS") securities, partially offset by higher held-to-
maturity ("HTM") securities, which includes the impact of the
transfer of $78.3 billion of securities from AFS to HTM in
2022, for capital management purposes.
⚫ an increase in the deployment of cash in Treasury and CIO.
Refer to Notes 2 and 5 for additional information.
higher derivative receivables, primarily in foreign
exchange, as a result of market movements, and
•
Refer to Note 11 for additional information on securities
purchased under resale agreements and securities borrowed.
Trading assets increased due to:
• an increase in the deployment of cash in Treasury and CIO.
Securities borrowed decreased driven by Markets, reflecting
lower client-driven activities and lower demand for securities
to cover short positions in Equity Markets.
higher demand for securities to cover short positions in
Fixed Income Markets, and
2
the impact of a lower level of netting on client-driven
market-making activities and on collateral requirements in
Markets,
•
Federal funds sold and securities purchased under resale
agreements increased, reflecting:
Cash and due from banks and deposits with banks
decreased primarily as a result of lower deposits across the
LOBS and loan growth. Deposits with banks reflect the Firm's
placement of its excess cash with various central banks,
including the Federal Reserve Banks.
Total assets
Other assets
Goodwill, MSRS and other intangible assets
Premises and equipment
(2)%
1
181,498
182,884
7
56,691
•
(2)
3,373,411
292,332
$ 3,665,743 $
3,449,440
2022
2021
Change
Assets
Cash and due from banks
$
Deposits with banks
27,697 $
539,537
26,438
714,396
5 %
(24)
Federal funds sold and securities purchased under resale agreements
315,592
December 31, (in millions)
261,698
Securities borrowed
185,369
206,071
(10)
Trading assets
453,799
433,575
5
Available-for-sale securities
Management's discussion and analysis
57
57
JPMorgan Chase & Co./2022 Form 10-K
21
Refer to Consolidated Balance Sheets Analysis on pages
55-56, Capital Risk Management on pages 86-96, and
Liquidity Risk Management on pages 97-104, and the
Consolidated Statements of Cash Flows on page 163 for a
further discussion of the activities affecting the Firm's cash
flows.
Selected Consolidated balance sheets data
Consolidated balance sheets analysis
Marketing
3,911
3,036
Other (b)
6,365
5,469
34,504 32,776
2,476
5,941
31,668
Total noncompensation expense
Total noninterest expense
$ 76,140 $ 71,343 $ 66,656
(a) Includes depreciation expense associated with auto operating lease
assets.
(b) Included Firmwide legal expense of $266 million, $426 million and
$1.1 billion for the years ended December 31, 2022, 2021 and 2020,
respectively.
2022 compared with 2021
The following is a discussion of the significant changes between December 31, 2022 and 2021.
Compensation expense increased driven by additional
headcount, primarily in technology and operations, as well
as front office, and the impact of inflation, partially offset
by lower revenue-related compensation in CIB.
Noncompensation expense increased as a result of:
higher investments in the business, including marketing
and technology, and
higher structural expense, including travel and
entertainment; regulatory assessments; occupancy
expense associated with higher utilities and exit costs of
certain leases; and other employee-related expense,
partially offset by
•
•
lower volume-related expense, reflecting lower
depreciation expense on lower Auto lease assets; and
lower distribution fees in AWM, partially offset by higher
operating losses and outside services, both in CCB; and
lower legal expense.
The prior year included a $550 million contribution to the
Firm's Foundation.
2022 compared with 2021
The effective tax rate decreased driven by income tax
benefits compared with income tax expense in the prior
year related to tax audit settlements, largely offset by other
tax adjustments and a change in the level and mix of
income and expenses subject to U.S. federal and state and
local taxes. Refer to Note 25 for further information.
54
JPMorgan Chase & Co./2022 Form 10-K
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
•
*
*
*
56
Stockholders' equity reflects net unrealized losses in AOCI,
predominantly driven by the impact of higher interest rates
on the AFS portfolio and cash flow hedges in Treasury and
CIO. Refer to Consolidated Statements of Changes in
Stockholders' Equity on page 162, Capital Actions on page
94, and Note 24 for additional information.
net issuances of senior debt in Treasury and CIO and
structured notes in Markets. Refer to Liquidity Risk
Management on pages 97-104 and Note 20 for additional
information.
•
fair value hedge accounting adjustments in Treasury and
CIO as a result of higher rates, and a decline in the fair
value of structured notes in Markets,
•
Beneficial interests issued by consolidated VIEs increased
driven by higher issuance of commercial paper as a result of
an increase in loan balances in the Firm-administered multi-
seller conduits. Refer to Liquidity Risk Management on pages
97-104; and Notes 14 and 28 for additional information on
Firm-sponsored VIES and loan securitization trusts.
Long-term debt decreased driven by:
Accounts payable and other liabilities increased due to
higher client payables related to client-driven activities in
Markets, including Prime Finance, as well as higher payables
in Payments related to the timing of payment activities, with
December 31, 2022 falling on a weekend. Refer to Note 19
for additional information.
Refer to Liquidity Risk Management on pages 97-104 for
additional information on deposits, federal funds purchased
and securities loaned or sold under repurchase agreements,
and short-term borrowings; and also to Notes 2 and 17 for
deposits and Note 11 for federal funds purchased and
securities loaned or sold under repurchase agreements.
Trading liabilities increased due to client-driven market-
making activities, which resulted in higher levels of short
positions in Markets. Refer to Notes 2 and 5 for additional
information.
Short-term borrowings decreased predominantly as a result
of lower financing requirements in Markets.
lower secured financing of AFS investment securities in
Treasury and CIO.
higher secured financing of trading assets in Markets,
partially offset by
Federal funds purchased and securities loaned or sold
under repurchase agreements increased due to:
JPMorgan Chase & Co./2022 Form 10-K
a decline in balances in existing accounts in CCB due to
higher customer spending, predominantly offset by net
inflows into new accounts.
⚫ net outflows into investments in AWM amid the rising
interest rate environment, and
in CB, partially offset by net issuances of structured notes
in Markets,
attrition in CB and CIB, particularly non-operating deposits
Deposits decreased reflecting:
Total liabilities and stockholders' equity
Stockholders' equity
Total liabilities
•
(2)%
3,743,567
(1)
294,127
(2)
•
Consolidated cash flows analysis
The following is a discussion of cash flow activities during
the years ended December 31, 2022 and 2021. Refer to
Consolidated cash flows analysis on page 57 of the Firm's
2021 Form 10-K for a discussion of the 2020 activities.
(in millions)
• For both periods, cash was used for repurchases of
common stock and cash dividends on common and
preferred stock.
⚫ In 2021, cash provided reflected higher deposits and net
proceeds from long- and short-term borrowings, partially
offset by a decrease in securities loaned or sold under
repurchase agreements.
The Firm's financing activities include acquiring customer
deposits and issuing long-term debt and preferred stock.
• In 2022, cash used reflected lower deposits, partially
offset by net proceeds from long- and short-term
borrowings.
Financing activities
• In 2021, cash used resulted from net purchases of
investment securities and higher net originations of
loans, partially offset by lower securities purchased under
resale agreements.
• In 2022, cash used resulted from net originations of
loans and higher securities purchased under resale
agreements, partially offset by net proceeds from
investment securities.
The Firm's investing activities predominantly include
originating held-for-investment loans, investing in the
investment securities portfolio and other short-term
instruments.
Investing activities
• In 2021, cash provided resulted from lower trading
assets and higher accounts payable and other liabilities,
partially offset by higher securities borrowed and lower
trading liabilities.
• In 2022, cash provided resulted from higher accounts
payable and other liabilities, lower securities borrowed,
and net proceeds from sales, securitizations, and
paydowns of loans held-for-sale, partially offset by higher
trading assets.
JPMorgan Chase's operating assets and liabilities primarily
support the Firm's lending and capital markets activities.
These assets and liabilities can vary significantly in the
normal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes that cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources, are sufficient to
meet its operating liquidity needs.
$(173,600) $213,225 $ 263,978
Operating activities
cash and due from banks and
deposits with banks
Net increase/(decrease) in
9,155
(16,643) (11,508)
Effect of exchange rate
changes on cash
$ (79,910)
(261,912)
596,645
(129,344)
275,993
$ 107,119 $ 78,084
(137,819)
(126,257)
Financing activities
Investing activities
Operating activities
2020
2021
2022
Year ended December 31,
Net cash provided by/(used in)
9,814
lower production revenue due to lower margins and
volume,
Less: Average Markets
interest-earning assets (b)
Investment securities gains/(losses) reflected higher net
losses on sales of U.S. GSE and government agency MBS and
U.S. Treasuries, associated with repositioning the
investment securities portfolio in Treasury and CIO. Refer to
Corporate segment results on pages 79-80 and Note 10 for
additional information.
8,374
8,243
assets excluding Markets
Net yield on average
interest-earning assets -
managed basis
Average interest-earning
Average interest-earning
assets
Net interest income
excluding Markets (a)
751,131
888,238
953,195
$ 44,498 $ 46,607
$2,779,710
$3,349,079
$ 62,355
4,789
Less: Markets net interest
income(b)
$ 67,144
Net interest income -
managed basis (a)
adjustments
Fully taxable-equivalent
$ 54,563
$3,215,942
$2,395,884
$2,327,704 $2,028,579
2.00 %
Management believes that these measures help investors
understand the effect of these items on reported results
and provide an alternative presentation of the Firm's
performance.
Pre-provision profit, which represents total net revenue
less total noninterest expense.
Adjusted expense, which represents noninterest expense
excluding Firmwide legal expense, and
•
In addition, the Firm reviews other non-GAAP measures
such as
* Represents net income applicable to common equity
Tangible common equity at period-end / Common shares at period-end
TBVPS
Net income* / Average tangible common equity
ROTCE
Net income* / Average common stockholders' equity
ROE
Reported net income / Total average assets
Total noninterest expense / Total net revenue
ROA
Overhead ratio
Common stockholders' equity at period-end /
Common shares at period-end
Book value per share ("BVPS")
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Calculation of certain U.S. GAAP and non-GAAP financial measures
1.98 %
1.64 %
$ 52,311
$ 66,710
Net interest income -
reported
2020
2,978
6,684
$29,131
NA $48,334
$48,334
14,883
3,655
11,228
2,978
35,815
63,217
3,655
59,562
17,480
NA
17,480
(9,256)
ΝΑ
(9,256)
6,389
3,582 49,748
3,582 12,072
NA $37,676
$37,676
Net income
38,793
9,662
The Firm also reviews the allowance for loan losses to
period-end loans retained excluding trade finance and
conduits, a non-GAAP financial measure, to provide a more
meaningful assessment of CIB's allowance coverage ratio.
NA $29,131
59%
2021
2022
$ 52,741 $ 54,981
418
430
434
Year ended December 31,
(in millions, except rates)
performance on a total revenue basis as offsets may occur
across revenue lines. Management believes that these
measures provide investors and analysts with alternative
measures to analyze the revenue trends of the Firm.
In addition to reviewing net interest income, net yield, and
noninterest revenue on a managed basis, management also
reviews these metrics excluding CIB Markets, as shown
below. CIB Markets consists of Fixed Income Markets and
Equity Markets. These metrics, which exclude CIB Markets,
are non-GAAP financial measures. Management reviews
these metrics to assess the performance of the Firm's
lending, investing (including asset-liability management)
and deposit-raising activities, apart from any volatility
associated with CIB Markets activities. In addition,
management also assesses CIB Markets business
Net interest income, net yield, and noninterest revenue
excluding CIB Markets
JPMorgan Chase & Co./2022 Form 10-K
58
(a) Predominantly recognized in CIB, CB and Corporate.
54 %
NM
56 %
57 %
NM
59 %
58 %
NM
Overhead ratio
8,490
Net yield on average
(b)
1,224
51,662
$
2021
2022
Dec 31,
2021
2022
Dec 31,
Year ended December 31,
2,510
Period-end
Return on tangible common equity
Tangible common equity
Add: Certain deferred tax liabilities (a)
Less: Other intangible assets
Less: Goodwill
Common stockholders' equity
(in millions, except per share and ratio data)
Average
The following summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
Tangible book value per share
$
214,552 $
264,928 $ 259,289
50,315
882
2,499
210,591
JPMorgan Chase & Co./2022 Form 10-K
60
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
NA
ΝΑ
ΝΑ
71.53
73.12 $
$
14 %
23 %
18 %
NA
ΝΑ
781
2,399
$ 190,663
$ 202,982
876
2,474
47,820
2020
$ 236,865
$ 250,968
49,584
$ 253,068
50,952
1,112
2,505
$ 203,509
TCE, ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common stockholders' equity (i.e.,
total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related
deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a percentage of average TCE.
TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE, ROTCE and TBVPS are utilized by
the Firm, as well as investors and analysts, in assessing the Firm's use of equity.
TCE, ROTCE and TBVPS
Management's discussion and analysis
59
managed basis
Noninterest revenue -
2,560
3,225
3,148
adjustments
Fully taxable-equivalent
65,388
69,338 $
61,985 $
$
Noninterest revenue -
reported
2.30 %
1.91 %
2.60 %
interest-earning assets
excluding Markets
Net yield on average
1.11
0.93
0.50
assets
Mortgage fees and related income decreased driven by
Home Lending, reflecting:
Markets interest-earning
65,133 $
67,948
JPMorgan Chase & Co./2022 Form 10-K
(b) Refer to pages 70-71 for further information on CIB Markets.
amounts are used where applicable.
(a) Interest includes the effect of related hedges. Taxable-equivalent
27,394 $ 29,483
28,984 $
$
revenue
(b)
Memo: Total Markets net
46,839
40,938 $ 53,412 $
$
excluding Markets
Noninterest revenue
21,109
19,151
24,195
revenue
(b)
Less: Markets noninterest
72,563
Income tax expense
$
and commissions
Non-GAAP financial measures
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan
Chase's Consolidated Results of Operations on a reported
basis for the two-year period ended December 31, 2022,
unless otherwise specified. Refer to Consolidated Results of
Operations on pages 52-54 of the Firm's Annual Report on
Form 10-K for the year ended December 31, 2021 (the
"2021 Form 10-K") for a discussion of the 2021 versus 2020
results. Factors that relate primarily to a single business
segment are discussed in more detail within that business
segment's results. Refer to pages 149-152 for a discussion of
the Critical Accounting Estimates Used by the Firm that affect
the Consolidated Results of Operations.
Revenue
Year ended December 31,
(in millions)
2022
2021
2020
Investment banking fees
$
6,686 $
Principal transactions
19,912
Lending- and deposit-related fees
7,098
13,216 $
16,304
7,032
9,486
18,021
6,511
Asset management, administration
20,677
21,029
18,177
Investment securities gains/(losses)
(2,380)
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 159-163. That presentation, which is
referred to as "reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm's performance with the U.S. GAAP financial
statements of other companies.
In addition to analyzing the Firm's results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a "managed” basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the LOBS on a managed
basis. The Firm's definition of managed basis starts, in each
case,
with the reported U.S. GAAP results and includes
certain reclassifications to present total net revenue for the
Firm (and each of the reportable business segments) on an
FTE basis. Accordingly, revenue from investments that
receive tax credits and tax-exempt securities is presented in
the managed results on a basis comparable to taxable
investments and securities. These financial measures allow
management to assess the comparability of revenue from
year-to-year arising from both taxable and tax-exempt
sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense.
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and therefore
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. Refer to
Business Segment Results on pages 61-80 for additional
information on these non-GAAP measures. Non-GAAP
financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
69,338
$
$ 4,830
Managed
basis
Fully taxable-
equivalent
adjustments (a)
Managed
basis
(a)
Fully taxable-
equivalent
adjustments"
Reported
Managed
basis
$ 7,470
65,133
3,148
3,148
434
66,710
(345)
Net interest income
Total noninterest revenue
$
$ 4,322
Other income
Fully taxable-
equivalent
adjustments
tc 
(a)
Reported
(in millions, except ratios)
December 31,
Year ended
2021
2020
2022
61,985
67,144
802
1,250
higher net revenue in Fixed Income Markets, driven by a
strong performance in the macro businesses amid volatile
market conditions, particularly Currencies & Emerging
Markets and Rates, partially offset by lower revenue in
Securitized Products and Credit, and
higher revenue associated with Equity Derivatives and
Prime Finance in Equity Markets,
largely offset by
.
•
•
•
a loss of $836 million in Credit Adjustments & Other in
CIB, compared with a gain of $250 million in the prior
year. The loss in the current year reflected funding
spread widening and, to a lesser extent, losses on
exposures relating to commodities and Russia and Russia-
associated counterparties,
net markdowns recorded in the second quarter of 2022
on held-for-sale positions, primarily unfunded
commitments, in the bridge financing portfolio in CIB and
CB,
higher net losses on certain legacy private equity
investments in Corporate, and
net losses in Treasury and CIO related to cash deployment
transactions, which were more than offset by the related
net interest income earned on those transactions.
Principal transactions revenue in CIB may in certain cases
have offsets across other revenue lines, including net
interest income. The Firm assesses the performance of its
CIB Markets business on a total revenue basis.
Refer to CIB, CB and Corporate segment results on pages
67-72, pages 73-75 and pages 79-80, respectively, and
Note 6 for additional information.
Lending- and deposit-related fees increased due to higher
service fee volume in CCB, predominantly offset by lower
cash management fees in CB and CIB due to a higher level
of credits earned by clients and applied against such fees.
Refer to CCB, CIB and CB segment results on pages 63-66,
pages 67-72 and pages 73-75, respectively, and Note 6 for
additional information.
Asset management, administration and commissions
revenue decreased driven by:
lower asset management fees in AWM resulting from
lower average market levels, predominantly offset by the
removal of most money market fund fee waivers, and net
long-term inflows,
lower custody fees in Securities Services, primarily
associated with lower average market values of assets
under custody, and
• lower brokerage commissions, largely in AWM, reflecting
reduced volumes,
•
partially offset by
higher commissions on travel-related services and
annuity sales in CCB.
Refer to CCB, CIB and AWM segment results on pages
63-66, pages 67-72 and pages 76-78, respectively, and
Note 6 for additional information.
JPMorgan Chase & Co./2022 Form 10-K
51
Management's discussion and analysis
•
.
Principal transactions revenue increased, reflecting:
Refer to CIB segment results on pages 67-72 and Note 6 for
additional information.
2,170
3,091
Card income
4,420
5,102
4,435
Other income (a)
4,322
4,830
4,865
Noninterest revenue
61,985
Mortgage fees and related income
69,338
66,710
52,311
54,563
Net interest income
Total net revenue
$ 128,695 $ 121,649 $ 119,951
(a) Included operating lease income of $3.7 billion, $4.9 billion and $5.5
billion for the years ended December 31, 2022, 2021 and 2020,
respectively. Also includes losses on tax-oriented investments. Refer to
Note 6 for additional information.
2022 compared with 2021
Investment banking fees decreased in CIB, as volatile
market conditions resulted in:
•
lower equity and debt underwriting fees due to lower
issuance activity, and
lower advisory fees driven by a lower level of announced
deals.
65,388
52,311
Reported
$ 4,865
2,978
122,929
66,656
NA
66,656
Pre-provision profit
52,555
3,582
56,137
119,951
50,306
53,961
53,295
2,978
56,273
Provision for credit losses
6,389
ΝΑ
46,166
3,225 $ 8,055
3,225 72,563
430
3,655
125,304
71,343
Income before income tax expense
71,343
ΝΑ
2,560 $ 7,425
$
65,388
2,560
67,948
52,741
418
54,981
54,563
76,140
128,695
76,140
3,582 132,277
121,649
3,655
Total noninterest expense
Total net revenue
ΝΑ
29,131
48,334
NM
(1,750)
(3,713)
NM
NM
37,676
14%
2021
2020
2,456 $ 2,020
7,463 6,879
12%
Selected Firmwide Metrics
The following tables present key metrics for Wealth Management, which consists of the Global Private Bank in AWM and J.P.
Morgan Wealth Management in CCB; and total revenue and key metrics for J.P. Morgan Payments, which consists of payments
activities in CIB and CB. This presentation is intended to provide investors with additional information concerning Wealth
Management and J.P. Morgan Payments, each of which consists of similar business activities conducted across LOBS to serve
different types of clients and customers.
Selected metrics - Wealth Management
Year ended December 31,
Client assets (in billions)(a)
2022
$ 2,438 $
8,166
Number of client advisors
(a) Consists of Global Private Bank in AWM and client investment assets in
J.P. Morgan Wealth Management in CCB.
19%
28%
32,787
25 %
Compensation expense
13,092
Selected metrics - J.P. Morgan Payments
(in millions, except where otherwise noted)
Year ended December 31,
Total net revenue
Noninterest expense
12,312
(6,989)
3,813
Provision for credit losses
51,268
50,073
55,017
Total net revenue
33,528
81
66
6,389
(9,256)
17,480
Return on equity ("ROE")
33%
2022
$ 3,166
Merchant processing volume (in billions)
Average deposits (in billions)
2,780
Mortgage fees and related
income
1,236
2,159
3,079
Card income
All other income (a
Noninterest revenue
Net interest income
2,679
3,563
3,514
39,928
(a)
4,104
5,016
5,647
15,089
17,286
17,740
12,142
3,068
3,754
commissions
administration and
2,158.4 1,886.7 1,597.3
779
800
651
The following sections provide a comparative discussion of the Firm's results by segment as of or for the years ended
December 31, 2022 and 2021.
62
JPMorgan Chase & Co./2022 Form 10-K
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers products and
services to consumers and small businesses through
bank branches, ATMs, digital (including mobile and
online) and telephone banking. CCB is organized into
Banking & Wealth Management (including Consumer
Banking, J.P. Morgan Wealth Management and Business
Banking), Home Lending (including Home Lending
Production, Home Lending Servicing and Real Estate
Portfolios) and Card Services & Auto. Banking & Wealth
Management offers deposit, investment and lending
products, cash management, payments and services.
Home Lending includes mortgage origination and
servicing activities, as well as portfolios consisting of
residential mortgages and home equity loans. Card
Services issues credit cards and offers travel services.
Auto originates and services auto loans and leases.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Revenue
Lending- and deposit-related
fees
Asset management,
JPMorgan Chase & Co./2022 Form 10-K
2022
2021
2020
$ 3,316
$ 3,034
2021 2020
$13,909 $ 9,861 $ 9,599
11,014
⚫ Credit
18,379
Management's discussion and analysis
•
63
33
(e) Included MSR risk management results of $93 million, $(525) million
and $(18) million for the years ended December 31, 2022, 2021 and
2020, respectively.
(d) In the fourth quarter of 2022, Card & Auto was renamed Card Services
& Auto.
(c) In the fourth quarter of 2022, Consumer & Business Banking was
renamed Banking & Wealth Management.
(b) Included depreciation expense on leased assets of $2.4 billion, $3.3
billion and $4.2 billion for the years ended December 31, 2022, 2021
and 2020, respectively.
2022 compared with 2021
(a) Included operating lease income of $3.6 billion, $4.8 billion and $5.4
billion for the years ended December 31, 2022, 2021 and 2020,
respectively.
55
15 %
41 %
58
29 %
57
Return on equity
Financial ratios
$ 3,079
$ 2,159
Overhead ratio
Net income was $14.9 billion, down 29%, reflecting a net
increase in the provision for credit losses compared with a
net benefit in the prior year.
Net revenue was $55.0 billion, an increase of 10%.
Net interest income was $39.9 billion, up 22%,
predominantly driven by:
•
Refer to Note 6 for additional information on card income
and asset management, administration and commissions.
Refer to Note 15 for further information regarding changes
in the value of the MSR asset and related hedges, and
mortgage fees and related income.
higher deposit-related fees due to higher service fee
volume in BWM.
higher net mortgage servicing revenue, reflecting the
absence of a net loss in MSR risk management in the prior
year primarily driven by updates to model inputs related
to prepayment expectations, as well as higher operating
revenue on a higher level of third-party loans serviced,
higher commissions reflecting travel-related services in
Card Services and increased annuity sales in BWM, and
partially offset by
to new account origination costs partially offset by higher
annual fees in Card Services, while net interchange
income was relatively flat,
lower card income reflecting higher amortization related
lower auto operating lease income as a result of a decline
in volume, and
lower production revenue from lower margins and
volume in Home Lending,
•
•
•
•
.
•
Noninterest revenue was $15.1 billion, down 13%,
reflecting:
lower NII associated with PPP loan forgiveness in BWM,
and tighter loan spreads in Home Lending.
partially offset by
margin expansion on higher rates as well as growth in
deposits in Banking & Wealth Management ("BWM"), and
higher revolving loans in Card Services,
$ 1,236
income
Mortgage fees and related
450
$20,930
$ 14,871
Net income
2,749
56,273
6,876
4,862
Income tax expense
10,966
27,806
19,733
expense
Income before income tax
27,990
29,256
31,471
Total noninterest expense
16,976
17,114
$ 8,217
Noncompensation expense (b)
Revenue by line of business
$23,980
(56)
739
revenue
Net mortgage servicing
2,629
2,215
497
Production revenue
income details:
Mortgage fees and related
22,295
20,802
21,081
Card Services & Auto (d)
6,018
5,291
3,674
Home Lending
$22,955
Banking & Wealth Management (c) $ 30,262
53,961
3,798
66,656
Commercial
Banking
Asset & Wealth
Management
Banking
Markets &
Securities Services
Banking &
Wealth Management a
+(a)
Home Lending
Card Services &
(b)
Auto
Corporate & Investment Bank
Lending
Production
• Investment
Banking
Home
Lending
Servicing
• Consumer
Banking
⚫ J.P. Morgan
Wealth
Management
⚫ Business
• Home
Banking
• Card Services
Auto
Wholesale Businesses
JPMorgan Chase
Consumer & Community Banking
2020
2021
2022
2020
$ 49,284
$ 51,749
$47,899
$ 51,268
$ 50,073
$ 55,017
2021
2022
2020
2021
2022
•
BUSINESS SEGMENT RESULTS
The Firm is managed on an LOB basis. There are four major reportable business segments - Consumer & Community Banking,
Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management. In addition, there is a Corporate
segment.
The business segments are determined based on the products and services provided, or the type of customer served, and they
reflect the manner in which financial information is evaluated by the Firm's Operating Committee. Segment results are
presented on a managed basis. Refer to Explanation and Reconciliation of the Firm's use of Non-GAAP Financial Measures, on
pages 58-60 for a definition of managed basis.
Consumer Businesses
•
$ 11,533
Real Estate
Portfolios
• Payments
allocated based on the actual cost and use of services
provided. In contrast, certain costs and investments related
to corporate support units, technology and operations that
are not currently utilized by any LOB, are not allocated to
the business segments and are retained in Corporate.
Expense retained in Corporate generally includes costs that
would not be incurred if the segments were stand-alone
businesses, and other items not aligned with a particular
business segment.
Private Bank
• Global
Management
• Asset
JPMorgan Chase & Co./2022 Form 10-K
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
Expense Allocation
Funds transfer pricing
When business segments join efforts to sell products and
services to the Firm's clients and customers, the
participating business segments may agree to share
revenue from those transactions. Revenue is generally
recognized in the segment responsible for the related
product or service, with allocations to the other segment(s)
involved in the transaction. The segment results reflect
these revenue-sharing agreements.
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were a stand-alone business. The
management reporting process that derives business
segment results includes the allocation of certain income
and expense items. The Firm also assesses the level of
capital required for each LOB on at least an annual basis.
The Firm periodically assesses the assumptions,
methodologies and reporting classifications used for
segment reporting, and further refinements may be
implemented in future periods. The Firm's LOBS also
provide various business metrics which are utilized by the
Firm and its investors and analysts in assessing
performance.
(a) In the fourth quarter of 2022, Consumer & Business Banking was renamed Banking & Wealth Management ("BWM").
(b) In the fourth quarter of 2022, Card & Auto was renamed Card Services & Auto.
Banking
• Commercial
Real Estate
⚫ Corporate
Client
Banking
• Middle
Market
Banking
& Other
Adjustments
Revenue sharing
Funds transfer pricing ("FTP") is the process by which the
Firm allocates interest income and expense to the LOBS and
Other Corporate and transfers the primary interest rate risk
and liquidity risk to Treasury and CIO.
The funds transfer pricing process considers the interest
rate and liquidity risk characteristics of assets and liabilities
and off-balance sheet products. Periodically, the
methodology and assumptions utilized in the FTP process
are adjusted to reflect economic conditions and other
factors, which may impact the allocation of net interest
income to the segments.
As a result of the rising interest rate environment, the cost
of funds for assets and the credits earned for liabilities have
generally increased, impacting the business segments' net
interest income. During the period ended December 31,
2022, this has resulted in higher cost of funds for loans and
contributed to margin expansion on deposits.
•
Lending
Fixed
Income
Markets
• Equity
Markets
Commercial Banking
Year ended December 31,
(in millions, except ratios)
Total net revenue
Corporate & Investment Bank
Consumer & Community Banking
The following tables summarize the Firm's results by segment for the periods indicated.
Refer to Line of business equity on page 93 for additional
information on capital allocation.
The amount of capital assigned to each business segment is
referred to as equity. The Firm's allocation methodology
incorporates Basel III Standardized Risk-weighted assets
("RWA"), Basel III Advanced RWA, the global systemically
important banks (“GSIB”) surcharge, and a simulation of
capital in a severe stress environment. At least annually,
the assumptions, judgments and methodologies used to
allocate capital are reassessed and, as a result, the capital
allocated to the LOBS may change. As of January 1, 2023,
the Firm has changed its line of business capital allocations
primarily as a result of updates to the Firm's capital
requirements and changes in RWA for each LOB.
Capital allocation
Refer to Capital Risk Management on pages 86-96 for
additional information.
business segment's net income applicable to common
equity.
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the business
segments is aligned with the relevant regulatory capital
requirements and funding needs of the LOBS, as applicable.
The allocated cost of unsecured long-term debt is included
in a business segment's net interest income, and net income
is reduced by preferred stock dividends to arrive at a
Segment Results - Managed Basis
Foreign exchange risk is transferred from the LOBS and
Other Corporate to Treasury and CIO for certain revenues
and expenses. Treasury and CIO manages these risks
centrally and reports the impact of foreign exchange rate
movements related to the transferred risk in its results.
Refer to Market Risk Management on page 137 for
additional information.
Foreign exchange risk
Management's discussion and analysis
61
•
$ 10,008 $ 9,313
Total noninterest expense
Pre-provision profit/(loss)
31,471
10,919
11,829
Total noninterest expense
$ 16,957 $ 14,240 $
$17,748
2020
2021
2022
9,957
2020
Corporate
2021
2022
2020
2021
2022
(in millions, except ratios)
Total net revenue
Asset & Wealth Management
Year ended December 31,
Total
80
1,034
$ (3,483)
Pre-provision profit/(loss)
71,343
76,140
$122,929
$ 125,304
$ 132,277
$ (1,176)
1,373
(2,549)
1,802
(5,285)
(954)
22
(743)
2,992
4,737
4,365
Net income/(loss)
263
(227)
128
Provision for credit losses
4,283
6,038
5,919
11%
21%
16 %
20%
3,813
Provision for credit losses
5,515
5,967
6,814
25,746
26,424
20,812
23,278
20,817
23,546
• Securities
Services
4,041
4,719
23,538
25,325
27,087
27,990
29,256
(6,989)
56,137
12,312
(1,174)
25%
14 %
2,578
5,246
4,213
17,094
21,134
14,970
8,217
15%
41%
29%
Return on equity ("ROE")
20,930
14,871
Net income/(loss)
2,113
(947)
1,268
2,726
1,158
Noninterest expense was $31.5 billion, up 8%, reflecting:
retained (a)
expenses, predominantly driven by compensation,
technology and marketing,
$1,334,296 $1,259,896 $1,095,926
Net charge-offs/
(recoveries)
$
82
$ 6
$
370
Loans:
Loans retained (a)
Nonperforming assets:
187,642
159,786
133,296
Nonaccrual loans:
Loans held-for-sale and
loans at fair value (b)
42,304
50,386
Total assets
Credit data and quality
statistics
data (period-end)
Selected balance sheet
Credit Adjustments & Other was a loss of $836 million,
reflecting funding spread widening, and, to a lesser
extent, losses on exposures relating to commodities and
Russia and Russia-associated counterparties, compared
with a gain of $250 million in the prior year.
Noninterest expense was $27.1 billion, up 7%, driven by
higher structural expense and investments in the business,
including higher compensation, partially offset by lower
revenue-related compensation as well as lower legal
expense.
The provision for credit losses was $1.2 billion,
predominantly driven by a net addition to the allowance for
credit losses, reflecting deterioration in the Firm's
macroeconomic outlook and loan growth.
The provision for credit losses in the prior year was a net
benefit of $1.2 billion, driven by a net reduction in the
allowance for credit losses.
68
88
JPMorgan Chase & Co./2022 Form 10-K
Selected metrics
As of or for the year ended
Selected metrics
Total loans
As of or for the year ended
except headcount)
December 31, (in millions,
2022
2021
2020
except ratios)
2022
2021
2020
December 31, (in millions,
229,946
Equity
103,000
Trading assets-debt and
equity instruments
405,916
448,099
425,060
Assets acquired in loan
satisfactions
87
91
85
56
Trading assets-derivative
receivables
77,802
68,203
69,243
assets
1,949
1,835
2,811
Loans:
Total nonperforming
Securities Services revenue was $4.5 billion, up 4%,
driven by deposit margin expansion on higher rates and
growth in fees, largely offset by lower average market
values of assets under custody and lower deposits.
316
Derivative receivables
210,172
83,000
39,588
172,884
80,000
Nonaccrual loans
718
584
1,008
Nonaccrual loans held-
Selected balance sheet
for-sale and loans at
fair value (b)
296
848
1,662
data (average)
Total nonaccrual loans
1,566
1,428
2,670
Total assets
$1,406,250
$1,334,518 $1,121,942
844
Allowance for credit losses:
Equity Markets revenue was $10.4 billion, down 2%,
driven by lower revenue in Cash Equities, largely offset by
Equity Derivatives.
•
and commissions
5,065
5,024
4,721
All other income (a)
1,660
1,548
1,292
Noninterest revenue
35,999
38,209
35,120
Net interest income
11,900
13,540
14,164
Total net revenue
(b)
47,899
Asset management, administration
2,070
2,514
2,419
Securities Services
4,488
4,328
4,253
Credit Adjustments & Other (a)
(836)
250
(29)
32,636
31,972
$47,899 $51,749
51,749
33,707
$49,284
Total net revenue
(a) Consists primarily of centrally managed credit valuation adjustments
("CVA"), funding valuation adjustments ("FVA") on derivatives, other
valuation adjustments, and certain components of fair value option
elected liabilities, which are primarily reported in principal
transactions revenue. Results are presented net of associated hedging
activities and net of CVA and FVA amounts allocated to Fixed Income
Markets and Equity Markets. Refer to Notes 2, 3 and 24 for additional
information.
Investment banking fees
$ 6,929 $ 13,359 $ 9,477
Principal transactions
19,926
15,764
17,560
Lending- and deposit-related fees
Total Markets & Securities
Services
49,284
Provision for credit losses
1,158
Net income
$ 14,970 $ 21,134 $ 17,094
(a) Includes card income of $1.0 billion, $910 million and $840 million
for the years ended December 31, 2022, 2021 and 2020,
respectively.
(b) Includes tax-equivalent adjustments, predominantly due to income tax
credits and other tax benefits related to alternative energy
investments; income tax credits and amortization of the cost of
investments in affordable housing projects; and tax-exempt income
from municipal bonds of $3.0 billion, $3.0 billion and $2.4 billion for
the years ended December 31, 2022, 2021 and 2020, respectively.
JPMorgan Chase & Co./2022 Form 10-K
40
67
Management's discussion and analysis
2022 compared with 2021
5,926
Net income was $15.0 billion, down 29%.
Banking revenue was $15.3 billion, down 23%.
Investment Banking revenue was $6.5 billion, down 48%,
driven by lower Investment Banking fees, which were also
down 48%, as volatile market conditions resulted in
lower fees across products, and $251 million of
markdowns on held-for-sale positions, primarily
unfunded commitments, in the bridge financing portfolio
in the second quarter of 2022. The Firm ranked #1 for
Global Investment Banking fees, according to Dealogic.
- Equity underwriting fees were $1.0 billion, down 74%,
and debt underwriting fees were $2.8 billion, down
43%, due to lower issuance activity.
Advisory fees were $3.1 billion, down 30%, driven by a
lower level of announced deals.
Payments revenue was $7.4 billion, up 18%, and
included the net impact of equity investments. Excluding
this net impact, revenue was $7.8 billion, up 33%, driven
by deposit margin expansion on higher rates and growth
in fees on higher volumes.
Lending revenue was $1.4 billion, up 38%, driven by
higher net interest income primarily on higher loans, as
well as fair value gains on hedges of retained loans,
compared with losses in the prior year.
Markets & Securities Services revenue was $32.6 billion, up
2%. Markets revenue was $29.0 billion, up 6%.
•
•
Net revenue was $47.9 billion, down 7%.
Fixed Income Markets revenue was $18.6 billion, up
10%, driven by strong performance in the macro
businesses amid volatile market conditions, particularly
in Currencies & Emerging Markets and Rates, partially
offset by lower revenue in Securitized Products.
6,464
Income tax expense
(1,174)
2,726
Noninterest expense
Compensation expense
13,918
13,096
11,612
Noncompensation expense
13,169
4,684
12,229
Total noninterest expense
27,087
25,325
23,538
Income before income tax
expense
19,654
27,598
23,020
11,926
8,605
Loans retained (a)
145,137
U.S.
Global investment banking fees (e)
#
2
8.2 % #
2
9.6 % #
2
8.9 %
2
9.1
2
10.8
2
9.4
1
5.8
2
8.8
Global
Loan syndications
U.S.
Global
(a) Represents long-term debt and loan syndications.
League table results - wallet share
Year ended December 31,
2022
2021
2020
Rank
Share
Rank
2
Share
Share
Based on fees (a)
M&A(b)
Global
U.S.
Equity and equity-related (c)
Global
U.S.
Long-term debt(d)
Rank
8.9
1
13.9
1
12.6
1
12.3
#
1
8.0% #
1
9.3 % #
12.8
1
(a) Source: Dealogic as of January 2, 2023. Reflects the ranking of revenue wallet and market share.
(b) Global M&A excludes any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and
mortgage-backed securities ("MBS"); and exclude money market, short-term debt, and U.S. municipal securities.
(e) Global investment banking fees exclude money market, short-term debt and shelf securities.
Markets revenue
The following table summarizes selected income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
consists of principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that are
reflected at fair value in principal transactions revenue.
Refer to Notes 6 and 7 for a description of the composition
of these income statement line items.
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market-making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as "inventory-
related revenue”, which is revenue recognized from gains
and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to,
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is affected by many factors including the level
of client activity, the bid-offer spread (which is the
difference between the price at which a market participant
is willing and able to sell an instrument to the Firm and the
price at which another market participant is willing and able
to buy it from the Firm, and vice versa), market liquidity
and volatility. These factors are interrelated and sensitive
to the same factors that drive inventory-related revenue,
which include general market conditions, such as interest
rates, foreign exchange rates, credit spreads, and equity
and commodity prices, as well as other macroeconomic
conditions.
70
JPMorgan Chase & Co./2022 Form 10-K
9.1 %
9,477
1
1
2
11.7
2
12.1
1
7.0
1
8.4
1
11.1
8.8
12.2
1
12.1
1
12.8
1
11.2
1
10.9
1
172,627
13,359 $
$
losses
3,740
2,720
3,900
Headcount
73,452
67,546
61,733
Net charge-off/(recovery)
(c)
(a) Loans retained includes credit portfolio loans, loans held by
consolidated Firm-administered multi-seller conduits, trade finance
loans, other held-for-investment loans and overdrafts.
(b) Loans held-for-sale and loans at fair value primarily reflect lending
related positions originated and purchased in CIB Markets, including
loans held for securitization.
rate
0.05 %
- %
0.27 %
Allowance for loan losses to
period-end loans
retained
1.22
Total allowance for credit
80,000
83,000
103,000
135,676
Allowance for loan
Loans held-for-sale and
losses
2,292
1,348
2,366
loans at fair value(b)
46,846
0.84
51,072
219,473
196,209
33,792
169,468
Allowance for lending-
related commitments
1,448
1,372
1,534
Equity
Total loans
1.77
Allowance for loan losses to
period-end loans retained,
(in millions)
Advisory
Year ended December 31,
2022
2021
2020
$
3,051
$
Investment banking fees
4,381 $
Equity underwriting
1,034
3,953
2,758
Debt underwriting (a)
Total investment banking fees
2,844
5,025
4,351
2,368
6,929 $
Management's discussion and analysis
69
excluding trade finance
and conduits (d)
1.67
1.12
2.54
Allowance for loan losses to
nonaccrual loans
retained(a)
319
60
231
Nonaccrual loans to total
period-end loans
0.68
1.54
JPMorgan Chase & Co./2022 Form 10-K
(a) Allowance for loan losses of $104 million, $58 million and $278
million were held against these nonaccrual loans at December 31,
2022, 2021 and 2020, respectively.
(b) At December 31, 2022, 2021 and 2020, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $115 million, $281 million and $316 million,
respectively. These amounts have been excluded based upon the
government guarantee.
(c) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(d) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB's allowance
coverage ratio. Refer to Explanation and Reconciliation of the Firm's
Use of Non-GAAP Financial Measures on pages 58-60.
235
investments in the business and higher structural
10,529
Equity Markets
0.66%
1.03%
Loans:
30+ day delinquency rate
Banking & Wealth
Home Lending
(d)(e)
0.83%
1.25%
1.15%
Management
31,545
44,906
43,064
Card Services
1.45
1.04
1.68
Home Lending(c)
0.62%
(recovery) rate
$ 501,584
$489,771
(0.14)
(0.17)
(0.09)
Equity
50,000
50,000
52,000
Card Services
1.47
176,285
1.94
Selected balance sheet data
Auto
0.21
0.05
0.20
(average)
Total net charge-off/
Total assets
$497,263
2.93
181,049
197,148
Auto
1,054,956
851,390
Home Lending
867
Equity
50,000
50,000
52,000
Card Services
1,162,680
11,200
$ 1,372
1,813
17,800
Headcount
135,347
128,863
122,894
Auto
715
$ 697
660
10,250
Home Lending
$ 722
Deposits
1.01
0.64
0.69
Card Services
163,335
140,405
146,633
90+ day delinquency rate - Card
Services
0.68%
Banking & Wealth Management
0.50%
Auto
68,098
67,624
61,476
Total loans
439,263
433,984
448,321
Allowance for loan losses
0.92%
733
958,706
1,131,611
2021
2020
2022
2021
2020
Credit data and quality statistics
Nonaccrual loans (a)(b)
(f)
(f)
$ 3,899
$ 4,875
$ 5,492
(period-end)
Total assets
$ 514,085
$ 500,370
$ 496,705
Net charge-offs/(recoveries)
Banking & Wealth Management
2022
(in millions, except ratio data)
As of or for the year ended
December 31,
Selected metrics
partially offset by
lower volume- and revenue-related expenses,
predominantly driven by lower depreciation expense on
lower auto lease assets, partially offset by higher
operating losses.
The provision for credit losses was $3.8 billion, driven by:
⚫ net charge-offs of $2.7 billion, down from $2.8 billion in
the prior year and included
a $309 million decrease in Card Services, reflecting the
ongoing financial strength of U.S. consumers. However,
median deposit balances declined in the second half of
2022, impacted by the growth in consumer spending,
largely offset by
a $190 million increase in net charge-offs in Auto and
BWM as net charge-offs in the prior year benefited
from government stimulus and payment assistance
programs, and
• a $1.1 billion net addition to the allowance for credit
losses driven by
- $950 million in Card Services, reflecting higher
outstanding balances, and deterioration in the Firm's
macroeconomic outlook, partially offset by a reduction
in the allowance related to a decrease in uncertainty
associated with borrower behavior as the effects of the
pandemic gradually recede, and
- $175 million in Home Lending.
370
The prior year included a $9.8 billion reduction in the
allowance for credit losses across CCB.
64
44
JPMorgan Chase & Co./2022 Form 10-K
Selected metrics
As of or for the year ended
December 31,
(in millions, except
headcount)
Selected balance sheet data
Refer to Credit and Investment Risk Management on pages
106-130 and Allowance for Credit Losses on pages
127-129 for a further discussion of the credit portfolios
and the allowance for credit losses.
289
263
Loans:
185,175
154,296
144,216
(recoveries)
$ 2,688
$ 2,761
$ 4,503
Auto
68,191
Card Services
69,138
Net charge-off/(recovery) rate
Total loans
454,928
439,058
441,579
Banking & Wealth Management (c) 1.17%
0.64%
0.61%
Deposits
66,432
1,148,110
Total net charge-offs/
180,529
Home Lending
(229)
(275)
(169)
Banking & Wealth
(a)
Card Services
2,403
2,712
182,121
4,286
29,008
35,095
48,810
Auto
144
35
123
Home Lending (b)
172,554
Management
10,367
1,042
$13,504
Auto
Loan and lease
origination volume
$
30.4
$ 43.6
$ 38.4
Average auto
operating lease assets
14.3
19.1
22.0
(a) Users of all web and/or mobile platforms who have logged in within the
past 90 days.
(b) Users of all mobile platforms who have logged in within the past 90
days.
(c) Total payments transaction volume includes debit and credit card sales
volume and gross outflows of ACH, ATM, teller, wires, Bill Pay, PayChase,
Zelle, person-to-person and checks.
(d) Includes assets invested in managed accounts and J.P. Morgan mutual
funds where AWM is the investment manager. Refer to AWM segment
results on pages 76-78 for additional information.
(e) Firmwide mortgage origination volume was $81.8 billion, $182.4
billion and $133.4 billion for the years ended December 31, 2022,
2021 and 2020, respectively.
(f) Included origination volume under the PPP of $10.6 billion and $21.9
billion for the years ended December 31, 2021 and 2020, respectively.
The program ended on May 31, 2021 for new applications.
66
5.4
8.0
9.6
(in millions)
$ 519.2
$ 447.3
MSR carrying value
(period-end)
8.0
5.5
3.3
Card Services
Sales volume, excluding
66
commercial card
$ 893.5
$ 702.7
Net revenue rate
9.87 %
Net yield on average loans
9.77
10.51 %
9.88
10.92 %
10.42
New accounts opened
$1,064.7
JPMorgan Chase & Co./2022 Form 10-K
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a
broad suite of investment banking, market-making,
prime brokerage, lending, and treasury and securities
products and services to a global client base of
corporations, investors, financial institutions,
merchants, government and municipal entities.
Banking offers a full range of investment banking
products and services in all major capital markets,
including advising on corporate strategy and structure,
capital-raising in equity and debt markets, as well as
loan origination and syndication. Banking also includes
Payments, which provides payments services enabling
clients to manage payments and receipts globally, and
cross-border financing. Markets & Securities Services
includes Markets, a global market-maker across
products, including cash and derivative instruments,
which also offers sophisticated risk management
solutions, prime brokerage, and research. Markets &
Securities Services also includes Securities Services, a
leading global custodian which provides custody, fund
accounting and administration, and securities lending
products principally for asset managers, insurance
companies and public and private investment funds.
25
24
Revenue by business
Investment Banking
Payments
Lending
$ 6,510
$ 12,506
$ 8,871
7,376
6,270
5,560
29
1,377
1,146
Total Banking
15,263
19,777
15,577
Fixed Income Markets
18,617
16,865
20,878
1,001
$ 584.3
percentage of total net
revenue
48
Selected income statement data
Year ended December 31,
(in millions)
Revenue
2022
2021
2020
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Compensation expense as
Financial ratios
2021
2020
Return on equity
14 %
25 %
20 %
Overhead ratio
57
49
2022
Total allowance for loan
losses
serviced (period-end)
$ 113.8
63.4
Number of branches
4,787
4,790
4,908
Active digital customers
(in thousands) (a
63,136
58,857
55,274
Active mobile customers
(in thousands)
(b)
49,710
45,452
40,899
Debit and credit card
sales volume
$1,555.4
66.3
69.3
CCB households (in millions)
Business Metrics
$12,340
$22,027
(a) At December 31, 2022, 2021 and 2020, included $350 million, $5.4
billion and $19.2 billion of loans, respectively, in Business Banking
under the PPP. Refer to Credit Portfolio on pages 108-109 for a
further discussion of the PPP.
(b) At December 31, 2022, 2021 and 2020, Home Lending loans held-
for-sale and loans at fair value were $3.0 billion, $14.9 billion and
$9.7 billion, respectively.
(c) Average Home Lending loans held-for sale and loans at fair value were
$7.3 billion, $15.4 billion and $11.1 billion for the years ended
December 31, 2022, 2021 and 2020, respectively.
(a) At December 31, 2022, 2021 and 2020, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $187 million, $342 million and $558 million,
respectively. These amounts have been excluded based upon the
government guarantee. In addition, the Firm's policy is generally to
exempt credit card loans from being placed on nonaccrual status as
permitted by regulatory guidance.
(b) At December 31, 2022, 2021 and 2020, generally excludes loans that
were under payment deferral programs offered in response to the
COVID-19 pandemic. Refer to Credit Portfolio on pages 108-109 for
further information on consumer assistance. Includes loans to
customers that have exited COVID-19 related payment deferral
programs and are 90 or more days past due, predominantly all of which
were considered collateral-dependent at time of exit.
(c) At December 31, 2022, 2021 and 2020, included $350 million, $5.4
billion and $19.2 billion of loans, respectively, in Business Banking
under the PPP. The Firm does not expect to realize material credit
losses on PPP loans because the loans are guaranteed by the SBA. Refer
to Credit Portfolio on pages 108-109 for a further discussion of the PPP.
(d) At December 31, 2022, 2021 and 2020, the principal balance of loans
under payment deferral programs offered in response to the COVID-19
pandemic was $449 million, $1.1 billion and $9.1 billion in Home
Lending, respectively. Loans that are performing according to their
modified terms are generally not considered delinquent. Refer to Credit
Portfolio on pages 108-109 for further information on consumer
assistance.
(e) At December 31, 2022, 2021 and 2020, excluded mortgage loans
insured by U.S. government agencies of $258 million, $405 million and
$744 million, respectively, that are 30 or more days past due. These
amounts have been excluded based upon the government guarantee.
(f) At December 31, 2022 and 2021, nonaccrual loans excluded $101
million and $506 million of PPP loans 90 or more days past due and
guaranteed by the SBA, respectively.
$1,360.7
JPMorgan Chase & Co./2022 Form 10-K
59
Management's discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in billions, except ratios
and where otherwise noted)
2022
2021
2020
65
$1,081.2
Total payments transaction
volume (in trillions) (c)
647.1
Number of client advisors
5,029
13.9
718.1
4,725
26.6
590.2
4,417
Home Lending
Mortgage origination
volume by channel
Client investment assets (d)
Retail
Correspondent
38.5
26.9
$ 91.8
70.9
$ 72.9
40.9
Total mortgage origination
volume
$
65.4
$ 162.7
$
Third-party mortgage loans
4.3
(f)
5.6
5.0
4.0
Banking & Wealth Management
Average deposits
$1,145.7
$1,035.4
$ 832.5
Deposit margin
(f)
1.71 %
1.58 %
Business Banking average
loans
$ 22.3
$
37.5
$ 37.9
Business Banking
origination volume
1.27 %
0.68