2017
ANNUAL REPORTFinancial Highlights
As of or for the year ended December 31,(in millions, except per share, ratio data and headcount)			

2017			2016			2015

Reported basis(a)Total net revenue$
Total noninterest expense 			Pre-provision profit 			Provision for credit losses 			Net income$

99,624 		 $95,668		 $93,54358,434 			55,771 			59,014
41,190			39,897			34,529
5,290			5,361			3,827
24,441		 $24,733		 $24,442Per common share data
Net income per share:
Basic$
Diluted 			Cash dividends declared 			Book value 			Tangible book value (TBVPS)(b) 			

6.35		$
6.24		 $6.056.31			6.19			6.00
2.12			1.88			1.72
67.04			64.06			60.46
53.56			51.44			48.13

Selected ratios
Return on common equity 			Return on tangible common equity (ROTCE)(b) 			
Common equity Tier 1 capital ratio(c) 			
Tier 1 capital ratio(c)			
Total capital ratio(c) 			

10%		
10%		
11%
12			
13 			
13
12.1			12.2			11.6
13.8			13.9(d)		 13.3
15.7			15.2 			14.7

Selected balance sheet data (period-end)
Loans$ 930,697		
$ 894,765		
$ 837,299
Total assets
2,533,600 		 2,490,972			 2,351,698
Deposits
		 1,443,982			1,375,176			1,279,715
Common stockholders’ equity
		 229,625			228,122			221,505
Total stockholders’ equity 			 255,693			254,190			247,573
Market data
Closing share priceMarket capitalization
Common shares at period-end$ 106.94$
86.29		 $66.03		 366,301 		307,295			241,899
		 3,425.3 		3,561.2			3,663.5

Headcount			

252,539			 243,355			 234,598(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except whereotherwise noted.
(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, see Explanation andReconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 52–54.
(c) The ratios presented are calculated under the Basel III Advanced Fully Phased-In Approach, and they are key regulatory capital
measures. For further discussion, see “Capital Risk Management” on pages 82-91.
(d) The prior period ratio has been revised to conform with the current period presentation.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.5 trillion and operations worldwide. The firm is a leader in investment banking,financial services for consumers and small businesses, commercial banking, financialtransaction processing, and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States andmany 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.

46.7

$900+

$1.75

$200

46.7 million digital customers
make us the #1 most visitedbank website with the mostmobile banking customers$900+ billion in debit
and credit card sales
volume$1.75 billion inphilanthropic investments
over the next five years$200 billion in clean
energy financing
by 2025TOP
EMPLOYER

#1

400

100%

Named a top company by
LinkedIn for where people
want to work

#1 on Fortune’s
Change the World list

Opening 400 new branches
in 15-20 markets over the
next five years

Renewable energy for
100% of the firm’s global
power by 2020

$5

$1.3

$5 trillion daily valueof wholesale payments
across 120 currencies$1.3 trillion in assets undermanagement shifted to
J.P. Morgan by BlackRock aspart of the largest custody
mandate in history

MILLION DIGITAL CUSTOMERSTRILLIONBILLION

TRILLIONBILLIONTOP

50

Top 50 metro areas covered
by Commercial Banking
following expansion into
new locations

BILLION86%
86% of long-term mutualfund assets undermanagement ranked in
top two quartiles over
10-year period

Dear Fellow Shareholders,Jamie Dimon,
Chairman andChief Executive Officer

Once again, I begin this letter with a sense of pride about JPMorgan Chase. As I
look back on last year — in fact, the last decade — it is remarkable how well ourcompany has performed. And I’m not only talking about our strong financial
performance — but also about how much we have accomplished to help our clients,
customers and communities all around the world. Ours is an exceptional company
with an extraordinary heritage and a promising future.
We continue to make excellent progress around technology, risk and controls,
innovation, diversity and reduced bureaucracy. We’ve helped communities large
and small — by doing what we do best (lending, investing and serving our clients);
by creatively expanding certain flagship Corporate Responsibility programs,
including the Entrepreneurs of Color Fund, The Fellowship Initiative and our Service
Corps; and by applying our successful Detroit investment model to neighborhood
revitalization efforts in the Bronx in New York City, Chicago and Washington, D.C.
Throughout a period of profound political and economic change around the world,
our company has been steadfast in our dedication to the clients, communities andcountries we serve while earning a fair return for our shareholders.
212017 was another record year across many measures for our company as we addedclients and customers and delivered record earnings per share. We earned $24.4
billion in net income on revenue1 of $103.6 billion (if we exclude the tax charge
at year-end, 2017 net income would have been a record $26.9 billion), reflecting
strong underlying performance across our businesses. We now have delivered
record results in seven of the last eight years, and we have confidence that we willcontinue to deliver in the future.

Represents
managedrevenue

Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004–2017($ in billions, except per share and ratio data)



24%



$19.0
$17.4

$15.4



15%

$14.4



10%
$11.7





$8.5

$4.00

$4.33

6%

15%

15%






$5.19

$4.48

$6.00
$6.00


$6.19
$6.19

$24.4

Reported net income

$17.9
11%



13%


$5.29



$6.99
$6.31






13%

13%

12%

2015

2016

2017



13.6% Adjusted ROTCE1

$4.34



$5.6

$2.35



$4.5
$1.52
2004



$3.96










10%

15%



$24.7

Adjusted net income1

$21.7

$21.3

22%

$24.4

$26.9

$2.26

$1.35
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

 Net income  Diluted earnings per share  Return on tangible common equity (ROTCE)
1

Adjusted results exclude a $2.4 billion decrease to net income as a result of the enactment of the Tax Cuts and Jobs Act (TCJA)

Tangible Book Value and Average Stock Price per Share
2004–2017
High: $ 108.46
Low: $ 81.64$58.17$38.70$43.93$36.07$47.75

$35.492005$40.36 $39.36 $39.22






2006

 Tangible book value$21.96 $22.52

2007

2008

$27.092009$30.12

2010$33.622011

$38.68 $40.72

2012

2013



$63.83 $65.62








$39.83

$18.88$15.35 $16.45
2004$51.88$92.01$44.602014$48.13

2015$51.44 $53.56

2016

2017

 Average stock price3

As you know, we believe tangible book value per share is a good measure of thevalue we have created for our shareholders. If our asset and liability values areappropriate — and we believe they are — and if we can continue to deploy thiscapital profitably, we now think that it can earn approximately 17% return on
tangible equity for the foreseeable future. Then, in our view, our company should
ultimately be worth considerably more than tangible book value. The chart on thebottom of page 3 shows that tangible book value “anchors” the stock price.
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500
Bank One(A)

S&P 500(B)

Relative Results(A) — (B)

Performance since becoming CEO of Bank One(3/27/2000—12/31/2017)1

Compounded annual gain

11.8%

5.2%

6.6%

Overall gain

566.3%

147.3%

419.0%

JPMorgan Chase & Co.
(A)

S&P 500(B)

Relative Results(A) — (B)

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004—12/31/2017)

Compounded annual gain

12.7%

8.8%

3.9%

Overall gain

403.5%

210.4%

193.1%

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 after-tax number assuming all dividends were retained vs. the Standard & Poor’s 500 Index (S&P 500), which is a pre-tax number
with dividends reinvested.
1

On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.

In the last five years, we have bought back nearly $40 billion in stock. In prioryears, I explained why buying back our stock at tangible book value per share wasa no-brainer. Six years ago, we offered an example of this, with earnings per shareand tangible book value per share being substantially higher than they otherwise
would have been just four years later. While we prefer buying back our stock at
tangible book value, we think it makes sense to do so even at or above two times
tangible book value for reasons similar to those we’ve expressed in the past. If webuy back a big block of stock this year, we would expect (using analyst earnings
estimates for the next five years) earnings per share in five years to be 2%­—3%higher and tangible book value to be virtually unchanged.
4

We want to remind our shareholders that we much prefer to use our capital to growthan to buy back stock. Buying back stock should only be considered when we either
cannot invest (sometimes that’s a function of regulatory policies) or when we are
generating excess, unusable capital. We currently have excess capital, but due torecent tax reform and a more constructive regulatory environment, we hope, in the
future, to use more of our excess capital to grow our businesses, expand into newmarkets and support our employees.
Stock total return analysis
Bank OneS&P 500

S&P Financials Index

12.4%
691.5%

5.2%
147.3%

4.1%
102.8%

JPMorgan Chase & Co.

S&P 500

S&P Financials Index

10.7%
294.2%

8.8%
210.4%

3.6%
61.6%

26.7%
22.7%
12.0%

21.8%
15.8%
8.5%

22.1%
18.2%
3.7%

Performance since becoming CEO of Bank One(3/27/2000—12/31/2017)1

Compounded annual gain
Overall gain

Performance since the Bank One
and JPMorgan Chase & Co. merger(7/1/2004—12/31/2017)

Compounded annual gain
Overall gain
Performance for the period ended
December 31, 2017

Compounded annual gain
One year
Five years
Ten years

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) 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.

Our stock price is a measure of the progress we have made over the years. This
progress is a function of continually making important investments, in goodtimes and not-so-good times, to build our capabilities — people, systems andproducts. These investments drive the future prospects of our company andposition it to grow and prosper for decades. Whether looking back over five
years, 10 years or since the Bank One/JPMorgan Chase merger (approximately 13
years ago), our stock has significantly outperformed the Standard & Poor’s 500
Index (S&P 500) and the S&P Financials Index. And this growth came during atime of unprecedented challenges for banks — both the Great Recession and the5extraordinarily difficult legal, regulatory and political environment that followed.
We have long contended that these factors explained why bank stock price/earnings ratios were appropriately depressed. And we believe the anticipatedreversal of many negatives and an increasingly more favorable businessenvironment, coupled with our sustained, strong business results, are among thereasons our stock price has done so well this past year.
We do not worry about the stock price in the short run, and we do not worry about
quarterly earnings. Our mindset is that we consistently build the company — ifyou do the right things, the stock price will take care of itself. In the next section,
I discuss in more detail how we think about building shareholder value for the longrun while also taking care of customers, employees and communities.
JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember thatin almost all cases, the ultimate owner is an individual. Well over 100 million
people in the United States own stocks, and a large percentage of them, in one
way or another, own JPMorgan Chase stock. Many of these people are veterans,
teachers, police officers, firefighters, retirees, or those saving for a home, schoolor retirement. Your management team goes to work every day recognizing theenormous responsibility that we have to perform for our shareholders.
In this letter, I discuss the issues highlighted below — which describe many of our
successes and opportunities, as well as our challenges and responses.

6

I.

JPMorgan Chase Business Strategies

Page 81.

How has the company grown?

Page 82.

How will the company continue to grow? What are the organic growth
opportunities?

Page 103.

Why is organic growth a better way to grow — and why is it sometimes difficult?

Page 124.

Is there a conflict between building shareholder value vs. serving customers,
taking care of employees and lifting up communities?

Page 13

Transparency, financial discipline and a fortress balance sheet. Why is thisdiscipline so important?

Page 18

6.

What risks worry us the most? And what could go wrong?

Page 217.

How is the company dealing with bureaucracy and complacency that often
infect large companies?

Page 26

What are the firm’s views on succession?

Page 28

5.

8.

II. Public Policy

Page 29

1.

What has gone wrong in public policy?

Page 30

2.

Poor public policy — how has this happened?

Page 323.

We can fix this problem through intelligent, thoughtful, analytical andcomprehensive policy.

Page 33

4.

The need for solutions through collaborative, competent government.

Page 34

5.

A competitive business tax system is a key pillar of a growth strategy.

Page 35

6.

We should reform and expand the Earned Income Tax Credit and invest
in the workforce of the future.

Page 37

7.

America’s growing fiscal deficit and fixing our entitlement programs.

Page 39

8.

Why is smart regulation vs. just more regulation so important?

Page 41

9.

Public company corporate governance — how would you change it? And
the case against earnings guidance.

Page 43

10. Global engagement, trade and immigration — America’s role in the worldis critical.

Page 447

I. J P M ORG AN CHA S E BUS IN ESS ST R AT EGI E S
Since our business leaders describe their businesses later in this report, I am not going to be
repetitive within this section. I encourage you to read their letters following this Letter toShareholders. Instead, in this section, I deal with some critical themes around how we run
this company – in good times and in bad times – and how we are continuing to build forwhat we think will be a bright future.
1. How has the company grown?
Below is a powerful representation of how
we have grown and built client franchises
over time.

You can see from the numbers circled within
the chart below that we have grown ourmarket share fairly substantially in most of
our businesses. In some cases, these market

Client Franchises Built Over the Long Term
2006

2016

2017

Deposits market share# of top 50 Chase markets
		 where we are #1 (top 3)
Average deposits growth rate
Active mobile customers growth rate
Credit card sales market share2
Merchant processing volume3 ($B)
# of branches
Client investment assets ($B)
Business Banking primary market share24

3.6%

8.3%

8.7%

11 (25)
8%
NM
15.9%
$661
3,079
~$80
5.1%

14 (38)
10%
16%
21.5%
$1,063
5,258
$235
8.5%

16 (40)
9%
13%
22.4%
$1,192
5,130
$273
8.7%

Global Investment Banking fees4
Market share4
Total Markets revenue5
Market share5
FICC5		Market share5
Equities5
		Market share5
Assets under custody (AUC)($T)

#2
8.7%
#8
6.3%
#7
7.0%
#8
5.0%
$13.9

#1
7.9%
#1
11.2%
#1
11.7%
#2
10.1%
$20.5

#1
8.1%
#1
11.0%
#1
11.4%
co–#1
10.3%
$23.5

 >80% of Fortune 500 companies do business with us #1 in both N.A. and EMEA Investment Banking fees17
 #1 in Global Long-Term Debt and Loan Syndications17
 #1 in FICC productivity18
 Top 3 Custodian globally with AUC of $23.5T19
 #1 in USD payment volumes with 20% share in 201720
 In Total Markets, J.P. Morgan has ranked #1 in eachyear since 201225
 Equities and Prime are now ranked co-#125
 J.P. Morgan Research ranked as the #1 Global
Research Firm26

Commercial
Banking# of top 50 MSAs with dedicated teams
Bankers
New relationships (gross)
Gross Investment Banking revenue ($B)
Average loans ($B)
Average deposits ($B)
Multifamily lending7

26
1,203
NA
$0.7
$53.6
$73.6
#28

47
1,642
911
$2.3
$179.4$174.4
#1

50
1,766
1,062
$2.3
$198.1$177.0#1

 Top 3 in overall Middle Market, large Middle Market
and Asset Based Lending Bookrunner21
 Industry-leading credit performance — 6th straightyear of net recoveries or single digit NCO rate

Asset & WealthManagement

Mutual funds with a 4/5 star rating8
Ranking of long-term client asset flows9
Active AUM market share10
North America Private Bank (Euromoney)
Client assets ($T)
Client assets market share11
Average loans ($B)
# of Wealth Management client advisors

119
NA
1.8%
#1
$1.3
3%
$26.5
1,506

220
#2
2.5%
#1
$2.5
4%
$112.9
2,504

235
#2
2.4%
#1
$2.8
4%
$123.52,605

 86% of 10-year long-term mutual fund assets undermanagement (AUM) in top 2 quartiles22 #2 in 5-year cumulative long-term client asset flows
among publicly traded peers
 #1 Private Bank in N.A. and LatAm23
 Revenue and long-term AUM growth >90% since 2006

1

Consumer &Community
Banking

Corporate &Investment
Bank Relationships with ~50% of U.S. households Industry-leading deposit growth12
 #1 U.S. credit card issuer13
 #1 U.S. co-brand credit card issuer14
 #1 U.S. credit and debit payments volume15
 #2 merchant acquirer16

For information on footnotes 1–23, refer to slides 105-106 in the 2018 JPMorgan Chase Strategic Update presentation, which is available on JPMorgan Chase & Co.’s website(https://www.jpmorganchase.com/corporate/investor-relations/document/3cea4108_strategic_update.pdf), under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2018 Investor Day, and on Form 8-K as furnished to the U.S. Securities and Exchange Commission (SEC) on February 27, 2018, which is available on the SEC’s
website (www.sec.gov).
24
Source: Barlow Research Associates, Primary Bank Market Share Database as of 4Q17. Rolling eight quarter average of small businesses with revenues of $100,000 – <$25 million
25
Source: Preliminary Coalition Global Industry Revenue Pool based on internal business structure, 201726
Source: Institutional Investor magazine survey of large investors, 2017
NM = Not meaningful
NA = Not available
FICC = Fixed Income, Currencies and Commodities
N.A. = North America

8

EMEA = Europe/Middle East/Africa
MSAs = Metropolitan Statistical Areas
LatAm = Latin America/Caribbean

B = Billions
T = Trillions

I. JPMORG AN CHAS E BUS INESS STRATEGIES

share increases were due to our acquisitionsof Bear Stearns and Washington Mutual. But
in all cases, this growth is driven by consistent and disciplined investment in our businesses. The chart below shows how we try
to measure customer satisfaction in multiple

ways. For the most part, we have seen a risein these scores as well. It is a given that you
will not grow your share – unless you aresatisfying your customers – and we know
they can always walk across the street to beserved by another bank.

Increasing Customer Satisfaction
U.S. retail banking satisfaction1
 Chase Industry average
 Big banks2  Regional banks  Midsized banks

2011

2012

2013

2014

2015

2016

2017

Source: J.D. Power U.S. Retail Banking Satisfaction Study, 20172
Big banks defined as top six U.S. banks
1

Other important metrics
Increasing market share is a sign of increasing customer satisfaction
Consumer & Community Banking
 Chase continues to lead the big banks and the industry average in U.S. Consumer Bank Customer Satisfaction studies including
being ranked #1 in retail banking advice in the U.S. and ranked #2 in the first ever National Bank study1Customer satisfaction, measured by Net Promoter Scores (“NPS”), has continued to increase across most of our businesses
since we brought CCB together five years ago. NPS increased year over year in Merchant Services, Business Banking, Home
Lending, and Auto
Digitally-engaged customers who bank with Chase are more satisfied than all other households, with higher NPS (+19%),higher retention rates (+10 percentage points), and higher card spend (+118%)

Digitally-engaged established customers who use Chase as their primary bank also have 40% more deposits and investmentswith us
Corporate & Investment BankHighest ever client satisfaction and retention levels for Custody & Fund Services
Commercial Banking

NPS for Commercial Banking Middle Market clients increased from 35 to 45 from 2011 to 20172
#1 in overall satisfaction, perceived satisfaction, customer relationships and transactions/payments processing3
Asset & Wealth Management

J.P. Morgan has ranked as the #1 private bank in the U.S. for nine consecutive years and #1 in Latin America for fiveconsecutive years4
J.P. Morgan has ranked as the Leading Pan-European Fund Management Firm for eight consecutive years5
1

Source: J.D. Power 2018 U.S. Retail Banking Advice Study & 2017 National Bank Satisfaction Study
Source: Greenwich Associates Commercial Banking Study, 2017
Source: CFO magazine's Commercial Banking Survey, 20174
Source: Euromoney, 20185
Source: Thomson Reuters, 20172

3

9

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

2. How will the company continue to grow? What are the organic growth opportunities?

We have good market share in most businesses, but we see organic growth opportunities almost everywhere – some large andsome small. Following are a few examples:
Consumer & Community Banking• We recently announced that we will start
to expand the consumer branch business
into cities like Boston, Philadelphia andWashington, D.C. Over the next five years,
we hope to expand to another 15-20 new
markets. We know the competition is
tough, but we have much to offer. When
JPMorgan Chase comes to town, we comenot just with our consumer branches but
also with mortgages, investments, credit
cards, private banking, small and midsizedbusiness banking, government businessand corporate responsibility initiatives tosupport our communities.
• In addition, this year we are rolling out
many new exciting products and havemade several improvements around thecustomer’s experience, including a fully
mobile bank pilot (Finn), digital accountopenings, facial recognition in our app,the Amazon Prime Rewards Visa card anda simpler online application for BusinessBanking customers.
• We also are adding many tools that will
help our customers manage their financial
affairs. For example, in the credit card business, we will be allowing our customers
to review and decide how and where theywant their cards and credit lines to be used.
In Consumer Banking, we are adding financial planning tools and insights that help
customers make the most of their money –and there’s more coming.

Corporate & Investment Bank

• We see growth opportunities even in
Fixed Income, Currencies and Commodities, where we already have the #1 market
share at 11.4%. There may be some underlying growth as the capital markets of theworld grow, even though this is partially
offset by declining margins like wehave experienced over the last 30 years.
However, we see opportunities to gain
share in various products and in certain
regions where we have low share.
• This opportunity would be true for Investment Banking, too. Country by country
and industry by industry, there are still
plenty of opportunities to increase our low
market share. For example, we have 10%
share in the United States but less than
5% share in Asia.
• In Treasury Services and Custody, where
our market shares are 4.7% and 8.0%,
respectively, we believe we can growsignificantly by adding bankers, building
better technology, entering new countries,
building better products and continuing to
do a great job for clients. In this business,while you make large initial investments
in order to grow, when you gain clients,
they usually stick with you for a long time.
• Over time, we do expect to expand ourCorporate & Investment Bank into new
countries, which will benefit all the businesses within this franchise.
Commercial Banking• This past year, Commercial Banking has
completed its expansion into the top 50
markets in the United States – this will
drive growth for decades. And remember,when Commercial Banking opens its
doors, it also helps drive the growth of
our Private Bank and the Corporate &Investment Bank businesses.
• Commercial Banking has added many
specialized industry bankers to better
serve those specific segments.

10

I. JPMORG AN CHAS E BUS INESS STRATEGIESAsset & Wealth Management• In the United States, our share of theultra-high-net-worth market ($10 million
or greater) is 8%. We believe we have asuperior business and that we can growour share by essentially adding bankers,
branches and better products.
• In the high-net-worth business ($3 million
to $10 million) and the Chase affluent
business ($500,000 to $5 million), ourmarket shares are only 1% and 4%, respectively. We have no doubt that we can growby adding bankers and locations, particularly because we have some exciting new
products coming soon. There is no reason
we can’t more than double our share overthe next 10 years.
• We are also adding new products, likeindex funds and exchange-traded funds(ETF), that we believe will help drive
growth.
Across the company

In addition, we are undertaking many
initiatives across the company that will help
grow our businesses and better serve ourcustomers.
• On the payments front, we have developed multiple products to make wholesale
payments better, easier and faster. We
are rolling out these products across ourplatforms, and they should help us solidify
and grow our position.
• On the consumer side, we have introduced Chase Pay, the digital equivalent
to using a debit or credit card, whichallows customers to pay online or in-store
with their mobile phone. We also introduced Zelle, a real-time consumer-toconsumer payments system, whichallows customers to easily, safely and
immediately send money to their friends
and family. We expect these products
to drive lots of customer interactions
and make our payments offerings
compelling, even as some very smart
fintech competitors emerge.

• Across the company – not just in technology – we have thousands of employees
who are data scientists or have advanced
degrees in science, technology, engineering and math. Of the nearly 50,000
people in technology at the company,
more than 31,000 are in development andengineering jobs, and more than 2,500
are in digital technology. Think of thesetalented individuals as driving change
across the company.
• Artificial intelligence, big data and machinelearning are helping us reduce risk andfraud, upgrade service, improve underwriting and enhance marketing across thefirm. And this is just the beginning.
• Our shared technology infrastructure– our networks, data centers, and the
public and private cloud – decreases costs,
enhances efficiency and makes all ourbusinesses more productive. In addition,
this allows us to embrace the fact thatevery business and merchant has its own
software and also wants easy, integrated
access to our products and services. We
are delivering on that through the creationof a common JPMorgan Chase API (application programming interface) store thatallows customers to add simple, secure
payments to their software. And we arebuilding everything digital – both for individual customers and large corporations –from onboarding to idea generation.
• Increasingly, the management teamsof Consumer & Community Banking,Corporate & Investment Bank,
Commercial Banking and Asset & WealthManagement share ideas, share platforms
and serve each other’s customers. The
success of any one business almost always
helps the other three.

11

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

• Privacy and safety – we spend an enormous amount of resources to protect
all of our clients and customers fromfraud, cybersecurity risk and invasionof their privacy. These capabilities are
extraordinary, and we will continue torelentlessly build them. As part of this, wehave consistently warned our customers
about privacy issues, which will become
increasingly critical for all industries
as consumers realize the severity ofthe problem. Last year, we wrote abouta new arrangement with Intuit thatbears repeating – it briefly described
the problem and presented a solution,
which we hope might set a standard forprotecting customers while giving them
control of their data.
For years, we have been describing therisks – to banks and customers – that arise
when customers freely give away theirbank passcodes to third-party services,
allowing virtually unlimited access totheir data. Customers often do not know
the liability this may create for them if
their passcode is misused, and, in manycases, they do not realize how their data
are being used. For example, access tothe data may continue for years after
customers have stopped using the thirdparty services.
We recently completed a newarrangement with Intuit, which we think
represents an important step forward.
In addition to protecting the bank, thecustomers and even the third party (inthis case, Intuit), it allows customers toshare data – how and when they want.
Under this arrangement, customers canchoose whatever they would like to shareand opt to turn these selections on or off
as they see fit. The data will be “pushed”
to Intuit, eliminating the need for sharing
bank passcodes, which protects the bankand our customers and reduces potential
liabilities on Intuit’s part as well. We arehoping this sets a new standard for datasharing relationships.
Events from the past year underscore theimportance of efforts like this. As questions
are raised about how consumers’ information is shared and protected, I strongly
believe that data privacy and security should
be a way in which we and other businesses
compete to serve customers.

3. Why is organic growth a better way to grow — and why is it sometimes difficult?
Organic growth is all about hiring andtraining bankers, opening branches,
improving or innovating new products andbuilding new technology. It is hard work.
In fact, institutionally, there is often a lotof resistance to it. It’s easier not to add
expenses, even when they are good for thebusiness. And growing any sales force isusually met by some opposition from – guess
who? – the existing sales force. Sometimes
people are afraid the change will take awayfrom their compensation pool or their clientbase. And it’s hard work to properly recruitand train salespeople. Building new products
and services is sometimes in conflict withexisting products and services. All of these12efforts require huge team coordination. So
it’s no surprise that it’s sometimes easier
not to push organic growth. However, if you
build the right culture, where management
teams are intensely analytical and critical of
their own business’ strengths, weaknesses
and opportunities, you can create great
clarity about what those opportunities are. If
you have strong leaders, they have the discipline and fortitude to develop and execute a
forward-looking growth plan.

I. JPMORG AN CHAS E BUS INESS STRATEGIES

4. Is there a conflict between building shareholder value vs. serving customers, taking careof employees and lifting up communities?
Keeping JPMorgan Chase a healthy andvibrant company is the best thing we cando for our shareholders, our customers, ouremployees and our communities. Building
shareholder value is the primary goal of abusiness, but it is simply not possible to dowell if a company is not properly treating
and serving its customers, training andmotivating its employees, and being a good
citizen in the community. If they are alldone well, it enhances shareholder value.
Let me explain.
We cannot be a healthy and vibrant company if
we are not both delivering financial success andinvesting for the future.

Show me a company that is not financiallysuccessful (in the long run), and I willshow you an unsuccessful company. This isparticularly true for a bank, where confidence in its stability is critical. I should
caution, however, that financial success is alittle more complex than short-term profits– and many investors are completely awareof this.

capital. Diligent management teams
understand the difference between thetwo scenarios and invest in a way that will
make the company financially successful
over time. You need to invest continuallyfor better products and services so you canserve your customers in the future.
A bank cannot simply stop serving its clientsor halt investing because of quarterly or
annual earnings pressures. It does not workwhen long-term investing is changed becauseof short-term pressures – you cannot stopstart training programs and the developmentof new products, among other investments.
You need to serve your clients and makeinvestments while explaining to shareholders
why certain decisions are appropriate at thattime. Earnings results for any one quarter oreven the next few years are fundamentallythe result of decisions that were made years
and even decades earlier.

Do not confuse financial success with profits
in a quarter or even in a year. All businesses
have a different customer and investment
life cycle, which can be anywhere from one
year to 30 years – think of building newrestaurants to developing new airplanes orbuilding electrical grids. Generally, anything
our business does to grow will cost moneyin the short term (whether it’s opening
branches or conducting research and development (R&D) or launching products), but
it does not mean that it is not the rightfinancial decision. A company could be
losing money on its way to bankruptcy oron its way to a very high return on invested

13New and Renewed Credit and Capital for Our Clients
at December 31,
Corporate clients($ in trillions)
$1.1

$1.1

2008

2009

$1.4

$1.2

2010

2011

2013

2014

$1.7
$1.4

2015

2016

$556

2009
$ 7

2010
$ 11

 Card & Auto

121

83

83

91

 Commercial/Middle market

104

77

93

110

 Asset & Wealth management

51

56

67

100

 Mortgage/Home equity

187

156

165

156

$523

2011
$ 17

2012
$ 20

2013
$ 18

2014
$ 19

2015
$ 22

2016
$ 24

2017
$ 22

82

92

108

122

131

185

116

149

148

188

207

141

165

127

163

173

218
195

191

177

84

112

111

105

at December 31,
Deposits and client assets1($ in billions)$730$3,255$439$755$4,227$3,617$3,740

$464

$503

$824

$861

$3,633$558$722$3,802

$660

$618
$784
$757
$2,783$1,8832011$2,0612012$2,427$2,329$2,376$2,353

2013

2014

2015

2016

2017

 Client assets  Wholesale deposits  Consumer deposits

Assets under custody2($ in trillions)
$16.9

2011

$18.8

2012

$20.5

$20.5

$19.9

$20.5

2013

2014

2015

2016

Represents assets under management, as well as custody, brokerage, administration and deposit accounts
2
Represents activities associated with the safekeeping and servicing of assets
1

14

$688

$601

$583

Assets Entrusted to Us by Our Clients

$398

2017

$419

2008
$ 16

$3,011

$1.6

$474
$379

 Small business

2012

$1.6

$664

Consumer and Commercial Banking($ in billions)
$479

$1.3

$1.5

$23.5

2017

I. JPMORG AN CHAS E BUS INESS STRATEGIESWe have to be there for our clients in good times
and bad. And we have to continuously improve
the products and services we provide to them.

If you are a bank, your clients rely on you toalways be there, regardless of the environment – banks are the lender of last resort.
Contrary to public opinion, most banks
consistently extended credit to their clients(without dramatically raising lending rates)
throughout the Great Recession. The chartson page 14 show how we have consistently
been there for our clients and that they trust
us to hold their assets.
We simply cannot deliver to our shareholders
what they deserve if we do not have high-quality,
motivated, committed employees.

Talented, diverse employees deliver lifelong– and satisfied – customers. They also deliver
innovative products, excellent training andoutstanding ideas. Basically, everything we
do emanates from our employees. And allof this creates shareholder value. We do
not try to get the last dollar of profit off ofour employees’ or customers’ backs. We
want long-tenured employees and satisfied
customers who stay with us year after year.
We would rather earn a fair return and growour businesses long term than try to maximize our profit over any one time period.
Great employees are the result of a healthy,
open and respectful environment andcontinual investment in training. And great
employees are the result of management
teams that are humble enough to recognize that they don’t know everything theiremployees do and, therefore, are always
seeking out constructive feedback.
While keeping JPMorgan Chase a healthy andvibrant company is the best thing we can do for
our communities, there’s a lot more we can do.

It is important to explain both what we do andwhy it is so important for our communities.
As the primary engine of economic growth,
the private sector has an important role toplay in making sure the benefits are widely
shared. The future of business and the healthof our communities are inextricably linked.
We believe that making the economy work
for more people is not simply a moral obligation – it’s a business imperative.
Using our unique capabilities, we can doeven more for our communities to help lift
them up. We have broad and unique knowledge around how communities can develop,
how work skills can be successfully implemented, how businesses can be started, howinequality can be addressed, how financial
health can be secured, and how more families can find jobs and affordable housing.
We continue to step up our efforts to help
communities. In 2017, we were honored to
be ranked by Fortune magazine as the #1
company changing the world in recognition of
our work in Detroit and other communities.
We do extensive investing to help ourcommunities, such as providing affordable
housing, lending to lower income households
and helping advise governments in economic
development. Our philanthropic efforts
are only a part of what we do – but a very
important part. This year, we announced wewill increase our philanthropic investments
by 40%. Over the next five years, we will
spend $1.75 billion to help drive inclusive
growth in communities around the world.
Our head of Corporate Responsibility talks
about our significant progress and specificmeasures in more detail in his letter, but I
would like to highlight a few initiatives:• We are helping communities realize theirpotential as engines of growth and sharedprosperity. In 2014, we launched our mostcomprehensive corporate responsibility
initiative to date to try to help Detroit,
an iconic city that was long engulfed ineconomic turmoil and then bankruptcy. Weview our initiative in Detroit as validationof our firm’s model for driving inclusive
growth. Three years in, we exceeded our
initial $100 million commitment, and we
now expect to invest $150 million in thecity by 2019. We see the results on the
ground – people are moving back into thecity, small businesses are being created and15

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

expanded, and for the first time in 17 years,
property values are on the rise. Our workin Detroit has taught us many importantlessons, and this past year, we extended ourmodel for impact to communities in needin Chicago and Washington, D.C.
• Helping people develop the skills they needto compete for today’s jobs can transform
lives and strengthen economies. JPMorgan

Chase is investing more than $350 million
to support demand-driven skills training
around the world. Through New Skills for
Youth, we launched additional innovationsites to expand high-quality, career-focused
education programs in cities across theUnited States and around the world.
• The path to opportunity begins at an earlyage, but too many young people, particularly
from disadvantaged backgrounds, do not geta fair shot at economic opportunity. Highschool graduation rates for young men ofcolor are dangerously low, and many who
do graduate lack the skills they need tobe successful in college or their careers.
Through programs like The Fellowship
Initiative (TFI), we are working to address
barriers to opportunity. TFI engages
young men of color in a comprehensive
program that includes academic support,
leadership development and mentoring
during their critical high school years.
This past year, we expanded this program
to Dallas and recruited new classes ofFellows in Chicago, Los Angeles and
New York. One hundred percent of thesestudents are graduating from high school,
and, combined, they have been accepted
into more than 200 colleges and universities across the country.
• Supporting re-entry programs is an importantpart of our effort to create opportunity thatstrengthens communities and results in astronger economy. The overwhelming

majority of Americans who are incarcerated return to their communities
after they are released. Reducing recidivism is not only important to returning
citizens and their families – it can also
have profound implications for public
16

safety. New research from The Brookings
Institution shows that, not surprisingly,
joblessness and incarceration are related.
Barriers to hiring returning citizens comein different forms, and some are imposedfrom the outside. This year, we welcomed
the Federal Deposit Insurance Corporation’s proposed changes to allow banks
more flexibility in hiring returning citizens. Our responsibility to recruit, hire,
retain and train talented workers extends
to this population. Earlier this year, I
visited one of our partnering organizations, the North Lawndale Employment
Network in Chicago, which gives formerly
incarcerated Americans a path to wellpaying jobs. The network also builds apipeline of trained mechanics for Chicago’s growing transportation sector. This isa win-win for workers, employers and theeconomy as a whole.
• We are expanding innovative models thatenable more people to share in the rewardsof a growing economy. Small businesses are

growing fastest among people of color,yet, despite their critical role in boosting
economic growth, these businesses
receive only a fraction of traditional loanscompared with non-minority entrepreneurs. In Detroit, a city with the fourthlargest number of minority-owned small
businesses, we quickly saw the need toaddress the challenges facing minority
entrepreneurs. Therefore, in 2015, we
helped launch the Entrepreneurs of Color
Fund in Detroit to provide underserved
entrepreneurs with greater access to thecapital and assistance they needed. Seeing
the tremendous success this program has
had in Detroit, we decided to scale thismodel to the South Bronx in New York
City, as well as San Francisco – cities thatare experiencing similar challenges.

Our Diverse Workforce
I believe the door to diversity opens when you
run a great company where everyone feels they
are treated fairly and with respect – this is what
we strive to create at JPMorgan Chase. We are
devoted to diversity for three reasons, and eachreason stands on its own – combined, they are
powerful. First, it is the right thing to do from amoral perspective. Second, it is better for business to include a group of people who represent
the various communities where we operate. And
third, if I can pick my team from among all diverse
people, I will have the best team.
We have more than 252,000 employees globally,
with over 170,000 in the United States. Women
represent 50% of our employees. Recently, Oliver
Wyman, a leading global management consulting
firm, issued a report stating that it would be
30 years before women reach 30% executive
committee representation within global financial
services companies. So you might be surprised tolearn that, today, 50% of the Operating Committee
members reporting to me are women as areapproximately 30% of our firm’s senior leader-

ship globally. They run major businesses – several
units on their own would be among Fortune 1000
companies. In addition to having five women on
our Operating Committee – who run Asset & WealthManagement, Finance, Global Technology, Legaland Human Resources – some of our other businesses and functions headed by women include
Consumer Banking, Credit Card, U.S. Private Bank,
U.S. Mergers & Acquisitions, Global Equity CapitalMarkets, Global Research, Global Custody, Regulatory Affairs, Global Philanthropy, our U.S. branch
network, our Controller and firmwide Marketing.
I believe we have some of the best women leadersin the corporate world globally. In addition togender diversity, 48% of our firm’s population is
ethnically diverse in the United States.
We are proud of JPMorgan Chase’s industry recognition for its diversity and inclusion efforts. In 2017,
we received more than 50 awards that recognize the firm and represent the diversity of ouremployees.

Advancing Black Leaders
In 2016, we introduced Advancing Black Leaders(ABL), an expanded diversity strategy focusedon increased hiring, retention and developmentof talent from within the black community. This
specifically recognized that — with this population — we should and could do more. We set up a
separate group whose sole purpose is to help dothis better. From training to retention to recruiting
and hiring new employees, our intensified efforts
are starting to pay off.
Two years into this initiative, we are seeing
encouraging results. At executive levels, we closed
2017 with a noticeable increase in headcount (97black managing directors globally, up from 83 ayear earlier), driven by recruiting new talent andpromoting existing talent. In addition, we areseeing positive headcount gains in our pipeline

for mid-level managers over the last two years,
with executive director representation up 30%,
emerging talent with vice president representation
up 17% and student talent up 7%. To encourage
dialogue and engage our people, more than 85,000
employees were invited to participate in ABL
Dialogues — a series of interactive panel discussions facilitated by local leaders in 10 U.S. strategichubs.
We recently developed a few additional plans andgoals for this effort, which we believe will improvethese results dramatically.

17

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

5. Transparency, financial discipline and a fortress balance sheet. Why is this discipline
so important?
We are fanatical about measuring our results— financial and operational. We set targets forourselves, and we always compare ourselves withour competitors.

Our bank operates in a complex and sometimes volatile world. We must maintain afortress balance sheet if we want to continually invest and support our clients throughthick and thin. A fortress balance sheet
also means clear, comprehensive, accurate
financial and operational reporting so we canproperly manage the company, particularly
through difficult times.

These targets are what we hope to achieve
over the medium term and after making
proper investments for the future, such asadding bankers and enhancing technology.
The chart below shows that we generallycompare well with our best-in-class peers (wenever expect to be best-in-class every year

JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
Efficiency
JPM 2017
overheadratiosConsumer &Community
Banking

Returns
Best-in-classpeer overheadratios1

JPM medium-termtarget overheadratio

JPM 2017
ROTCE

52%

50%+/-

17%

56%

BAC–CB

Corporate &Investment
Bank

56%

53%

39%

Asset & WealthManagement

72%

42%

22%

54%+/-

14%

20%+/-

25%+

14%

14%+/-~17%15%+/-~18%

25%+/-~35%

BAC–GB & GM

35%+/-

17%

16%

PNC

63%

JPM medium-term target ROTCE
Year-ago
Current4

BAC–CB

BAC–GB & GM

Commercial
Banking

Best-in-classpeer ROTCE2, 3

FITB

70%+/-

25%

CS–PB & TROW

24%
BAC–GWIM & TROW

JPMorgan Chase compared with peers5
Overhead ratios
Target~55%

JPM

ROTCE6
JPM

56%

BAC

62%

BAC

WFC

65%

WFC

C
GS
MS

C

57%
65%
73%

13.6%
11.1%

Target4
~17%

11.3%
8.1%

GS

11.3%

MS

11.2%

1

	 Best-in-class overhead ratio represents comparable JPMorgan Chase (JPM) peer business segments: Bank of America Consumer Banking (BAC-CB),Bank of America Global Banking and Global Markets (BAC–GB & GM), PNC Corporate and Institutional Banking (PNC), Credit Suisse Private
Banking (CS–PB) and T. Rowe Price (TROW)
Best-in-class ROTCE represents implied net income minus preferred stock dividends of comparable JPM peers and peer business segments whenavailable: BAC–CB, BAC–GB & GM, Fifth Third Bank (FITB), Bank of America Global Wealth and Investment Management (BAC-GWIM), and TROW
3
Given comparisons are at the business segment level, where available, allocation methodologies across peers may be inconsistent with JPM’s
4
	Each of our businesses has revised its medium-term return targets up, reflecting the benefit of tax reform and growth. We also increased our Firmwide
ROTCE target to 17%, up from 15% last year. While competitive dynamics will impact our ultimate results, we believe this target is achievable in themedium-term, reflecting higher revenue in a normalized rate environment and our disciplined investment agenda
5Bank of America Corporation (BAC), Wells Fargo & Company (WFC), Citigroup Inc. (C), Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS)6
ROTCE is a non-GAAP financial measure and has been adjusted for the impact of the enactment of the TCJA
2

18

I. JPMORG AN CHAS E BUS INESS STRATEGIES

in every business). You should assume wedo this internally at a far more detailed level
than what is presented here.
We need a fortress balance sheet so we cancontinue to do our job — regardless of theenvironment.

The chart below and the one on page 20
show the extraordinary strength of ourbalance sheet. We have always believedthat maintaining a strong balance sheet(including liquidity and conservative
accounting) is an absolute necessity.

We have said this before, and it remains
true: JPMorgan Chase has to be prepared tohandle multiple, complex, global and interrelated types of risk. We do this in many ways
– let me share a few:
The Federal Reserve’s Comprehensive
Capital Analysis and Review (CCAR) stresstest estimated what our losses would bethrough a severely adverse event lasting overnine quarters – an event that is worse thanwhat actually happened during the GreatRecession; e.g., high unemployment andOur Fortress Balance Sheetat December 31,

2008

1

CET1

7.0%3

+570 bps

12.7%4TCE/
Total assets1

4.0%+340 bps

7.4%

Tangiblecommon equity

$84B

+$99B

$183B

Total assets$2.2T+$300B$2.5T

RWA$1.2T3+$200B$1.4T4

Operational risk RWA$0+$400B$400B5Liquidity~$300B+~$256B$556B6

Fed funds purchased and securities loaned
or sold under repurchase agreements

$193B

–$34B

$159B

Long-term debt andpreferred stock2

$303B

+$7B

$310B

Excludes goodwill and intangible assets.
Includes trust preferred securities.
3
Reflects Basel I measure; CET1 reflects Tier 1 common.
4
Reflects Basel III Advanced Fully Phased-in measure.
5
Operational risk RWA is a component of RWA.
6
Represents the amount of high quality liquid assets (HQLA) included in the liquidity coverage ratio.
For additional information, see LCR and HQLA on page 93.
2

201717.5% excluding
operational risk RWA$186B eligible
for TLAC

B = Billions
T = Trillions
bps = basis points

CET1 = Common equity Tier 1 ratio
TCE = Tangible common equity
RWA = Risk-weighted assets
HQLA = High quality liquid assets predominantly includes cash on deposit at central banks, U.S. agency mortgage-backed securities,
U.S. Treasuries and sovereign bonds
Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
TLAC = Total loss absorbing capacity
19

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

Loss Absorbing Resources of U.S. SIFI Banks Combined($ in billions)$2,270$1,749$1,262%˜5$1,2742x
˜$1,008

$386
$111

$203
$183

34 CCAR banks 2017
projected pre-tax net losses(severely adverse scenario)

2017 JPMorgan Chase only

$475
20071

20171

 Loan loss reserves, preferred stockand TLAC long-term debt

 Tangible common equity
1	Includes only the 18 banks participating in CCAR in 2013, as well as Bear Stearns,
Countrywide, Merrill Lynch, National City, Wachovia and Washington Mutual
Source: SNL Financial; Federal Reserve Bank, February 2018
SIFI = Systemically important financial institution
CCAR = Comprehensive Capital Analysis and Review
TLAC = Total loss absorbing capacity

counterparty failures. The Fed estimatedthat in such a scenario, we would lose $18
billion over the ensuing nine quarters, whichis easily manageable by JPMorgan Chase’s
capital base. My view is that we would
make money in almost every quarter in that
scenario, and this is supported by our having
earned approximately $30 billion pre-tax
over the course of the nine quarters during
the actual financial crisis of 2009.
We are believers in the CCAR stress testingprocess, although our view is that it could
be simplified and improved. Our shareholders should know that the CCAR stresstest is only an annual test. To explain
how serious we are about stress testing,you should know that we run several
hundred tests a week – including a numberof complicated, potentially disastrous
scenarios – to prepare our company foralmost every type of event. While we neverknow exactly how and when the next major
crisis will unfold, these rigorous exercises
keep us constantly prepared.

20

The chart above shows just how muchcapital is retained by the CCAR banks.
To remind you, CCAR forecasts the lossesof each bank over the next nine quarters as
if all of them went through a crisis worse
than the crisis in 2009 and that each bankperformed as poorly as the worst bankthroughout that crisis. The chart above also
shows that even in the extremely unlikely
event that it could happen this way (i.e.,that each bank is the worst bank), there isplenty of capital in the system to absorb
these events. This does not include thefact that the new regulatory requirements
would appropriately force any bank to takecorrective action long before it gets into
serious trouble.

I. JPMORG AN CHAS E BUS INESS STRATEGIES

6. What risks worry us the most? And what could go wrong?
The global economy across Asia and Japan,
Latin America and Europe, and the UnitedStates has been doing well – better than mostwould have expected a year ago. The UnitedStates in particular may be strengthening
as we speak. The competitive tax system,a more constructive regulatory environment, and very high consumer and business
confidence are increasing indications thatthe economy will likely expand. Unemployment may very well drop to 3.5% this year,
and there are more and more signals thatbusiness will improve capital expendituresand raise payrolls. Credit is readily available(though still not enough in some mortgage markets). Wages, jobs and household
formation are increasing. Housing is in short
supply. Underlying consumer and corporate credit have been relatively strong. All
these signs lead to a positive outlook for the
economy for the next year or so.
I will not spend time dwelling on geopolitics
here, which can – but rarely does – upset the
global economy. In the next section, I talkabout serious policy issues that could harm
economic growth, including America’s relationship with China and potential disruptions to global trade. In this section, I focus
on some of the risks in the financial systemand how we go about managing them.
We will be prepared for Brexit.

So far, it has turned out pretty much like we
expected: It’s complex and hard to figure
out, and the long-term impact to the United
Kingdom is still uncertain. Last year, we
spoke about whether Brexit would cause theEuropean Union to unravel or pull together– and it appears, particularly with the newleadership in France and the steady handin Germany, that the countries might pull
together. As for JPMorgan Chase, fortunately,
we have the resources to be prepared fora hard Brexit, as we must be. It essentiallymeans moving 300-400 jobs around Europe
in the short term and modifying some of ourlegal entities to be able to conduct businessthe day after Brexit. What we do not know
– and will not know until the negotiations

are complete – is what the end state will
look like. Although unlikely, there is thepossibility that we could stay exactly as weare today. Unfortunately, the worst outcome
would be much of London’s financial center
moving to the Continent over time. We hopefor all involved that this outcome will not be
the case.
We cannot do enough as a country when it comesto cybersecurity.

I cannot overemphasize the importance ofcybersecurity in America. This is a criticalissue, not just for financial companies but
also for utilities, technology companies, electrical grids and others. It is an arms race, andwe need to do whatever we can to protect theUnited States of America.
Our bank is extremely good at cybersecurity
and client protection. However, cyber law
in the United States is inadequate regardingbanks and government entities. We need
to be allowed to work even closer with ourgovernment in real time to properly protect
the financial system. In addition, we needto have better international cyber laws (andinclude them in trade agreements) like we
do in maritime and aviation laws. Countries
should know what they are responsible for– and what redress companies or countries
have – when either a bad state actor or criminals in a state cause extreme problems.
In the financial markets, we must be prepared forthe full range of possibilities and probabilities.

We strive to try to understand the possibilities and probabilities of potential outcomesso as to be prepared for any outcome. We
analyze multiple scenarios (in addition to
the stress testing I wrote about earlier inthis section). So regardless of what you
think about the probabilities, we need to beprepared for the possibilities, including theworst case. In essence, we try to manage thecompany such that all possibilities, including
the “fat tails” (the worst-case scenarios),
cannot hurt the company.

21

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

We try to intelligently, thoughtfully andanalytically make decisions and manage risk
(and not overly rely on models).

When I hear people talk about banks taking
risks, it often sounds as if we are taking
big bets like you would at a casino or a
racetrack. This is the complete opposite ofreality. Every loan we extend is a proprietaryrisk. Every new facility we build is a risk.
Whether we are adding branches or bankers– or making markets or expanding operations – we perform extensive analytics andstress testing to challenge our assumptions.
In short, we look at the best- and worst-casescenarios before we “take risk.” Much of what
we do as a bank is to mitigate or manage
the risk being taken. I think you would be
impressed by the thoroughness and risk-mitigating approach demonstrated at our risk
committee meetings. At these meetings,
we have lawyers, compliance, risk management, bankers and technologists – folks withdecades of experience who challenge eachother and ensure we have thought about
every possible angle. And since we know wewill be wrong sometimes, we almost always
look at the worst possible case – to ensure
JPMorgan Chase can survive any situation.
This is not risk taking on the order of taking
a guess – it is intelligent, thoughtful, analytical decision making.
We rely heavily on detailed and constantly
improving models as a foundational elementof that analysis. But we are cognizant of
the fact that models by their nature arebackward looking and have a difficult time
adjusting to material items, including thefollowing:• The character and integrity of those withwhom you are doing business• Changing technology as it impacts industries (including the banking industry)• Future changes in the law or even how
the law might be interpreted differently 10
years from now• Deteriorating international competiveness(as what happened to our tax code)

22• Emerging competitive threats• Changes in industrial structure; e.g., newsources of competition• Political influence and unexpected litigation• Public sector fiscal challenges, demographic changes and challenges managing
the nation’s healthcare resources
There are other items – but you get the point.
Judgment (which will never be perfect all of
the time) cannot be removed from the process.
Volatility and rapidly moving markets should
surprise no one.

We are always prepared for volatility andrapidly moving markets – they should
surprise no one. I am a little perplexed whenpeople are surprised by large market moves.
Oftentimes, it takes only an unexpectedsupply/demand imbalance of a few percent
and changing sentiment to dramaticallymove markets. We have seen that condition
occur recently in oil, but I have also seen it
multiple times in my career in cotton, corn,
aluminum, soybeans, chicken, beef, copper,
iron – you get the point. Each industry orcommodity has continually changing supply
and demand, different investment horizons
to add or subtract supply, varying marginal
and fixed costs, and different inventory andsupply lines. In all cases, extreme volatility
can be created by slightly changing factors.
It is fundamentally the same for stocks,
bonds, and interest rates and currencies.
Changing expectations, whether aroundinflation, growth or recession (yes, there will
be another recession – we just don’t knowwhen), supply and demand, sentiment andother factors, can cause drastic volatility.
One scenario that we must be prepared for isthe possibility that the reversal of quantitativeeasing (QE) by the world’s central banks — in a
new regulatory environment — will be different
from what people expect.

The United States has had subpar economic
growth over the last eight years (I believe thisis due to a lot of poor policy decisions that I
discuss in the next section), as well as new

I. JPMORG AN CHAS E BUS INESS STRATEGIES

demographic realities. Our growth cumulatively in this expansion has been about 20%,
while a more normal recovery would haveseen growth of over 40% by now. However,with recent reforms, the situation may be
improving. As inflation, wages and growth
seem to be modestly increasing, the Federal
Reserve has started to raise interest rates andreverse QE. Importantly, as long as rates arerising because the economy is strengthening
and inflation is contained, it is reasonable
to expect that the reversal of QE will not be
painful. The benefits of a strong economy
are more important than the negative impact
from modest increases in interest rates.
Since QE has never been done on this scale
and we don’t completely know the myriad
effects it has had on asset prices, confidence,
capital expenditures and other factors, wecannot possibly know all of the effects of its
reversal. We have to deal with the possibility
that at one point, the Federal Reserve andother central banks may have to take more
drastic action than they currently anticipate – reacting to the markets, not guiding
the markets. A simple scenario under which
this could happen is if inflation and wages
grow more than people expect. I believe thatmany people underestimate the possibilityof higher inflation and wages, which means
they might be underestimating the chancethat the Federal Reserve may have to raise
rates faster than we all think. While in thepast, interest rates have been lower andfor longer than people expected, they may
go higher and faster than people expect. If
this happens, it is useful to look at how thetable is set – what are all the things that are
different or better or worse than during priorcrises, particularly the last one – and try tothink through the possible effects.

There are many pluses (things that are better
than during the last crisis in 2009):• Far more capital and less leverage in thebanking system• Far more liquidity in the banking system• More collateral in the markets• Less total short-term secured financing,which is also more properly collateralized• Less leveraged lending• Money market funds that are far safer due
to regulatory requirements around credit
standards and liquidation• Healthier consumers in terms of both
employment and disposable income (andtheir debt burden is still modest relative
to their disposable income, while debt
service burdens are historically low)
• The absence of massive losses in themortgage markets. Mortgage underwriting
since 2009 has been rather pristine. And
while losses will go up in a recession, it
will be nothing like what happened in the
Great Recession. In the 2009 crisis, losses
totaled more than $1 trillion. The marketplace realization that financial institutions
and investors were going to experiencemassive losses is a primary reason why
there was a devastating loss of confidence
in the financial system.
And there are some modest negatives or
potentially important differences (thanduring the last crisis):• Far more money than before (about $9 trillion of assets, which represents about 30%
of total mutual fund long-term assets) is
managed passively in index funds or ETFs
(both of which are very easy to get outof). Some of these funds provide far more
liquidity to the customer than the underlying assets in the fund, and it is reasonable to worry about what would happen if
these funds went into large liquidation.

23

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

• Even more procyclicality has been built
into the system. Risk-weighted assets will
go up as will collateral requirements – andthis is on top of the procyclicality of loan
loss reserving.
• Market making is dramatically smaller thanin the past (e.g., aggregate primary dealer
positions of bonds – including Treasury
and agency securities, mortgage-backed
securities and corporates – averaged$530 billion in 2007 vs. an average of$179 billion today). While in the past that
total may have been too high, virtually
every asset manager says today it is muchharder to buy and sell securities, particularly the less liquid securities.
• Liquidity requirements, while muchhigher, now have an element of rigidity
built in that did not exist before. Banks
will be unable to use that liquidity when
they most need to do so – to make loans
or intermediate markets. They have a “redline” they cannot cross (they are required
to maintain hard and fast liquidity
requirements). As clients demand more
liquidity from their banks, the banks
essentially will be unable to provide it.
• There has been an excessive reliance onmodels (which I spoke about earlier inthis section).
• The continuous politicization of complex
policy is an issue. No one can believethat very detailed and complex global
liquidity or capital requirements should
be set by politicians.
• No banks to the rescue this time – banks
got punished for helping in the last
go-round.

It would be a reasonable expectationthat with normal growth and inflation
approaching 2%, the 10-year bond could
or should be trading at around 4%. And
the short end should be trading at around2½% (these would be fairly normal historical experiences). And this is still a little
lower than the Fed is forecasting underthese conditions. It is also a reasonable
explanation (and one that many economists
believe) that today’s rates of the 10-yearbond trading below 3% are due to thelarge purchases of U.S. debt by the Federal
Reserve (and others).
This situation is completely reversing.
Sometime in the next year or so, many ofthe major buyers of U.S. debt, including
the Federal Reserve, will either stop theirbuying or reverse their purchases (thinkforeign exchange managers or central banks
in Japan or China and Europe). So far, only
one central bank, the Federal Reserve, hasstarted to reverse QE – and even that in aminor way. However, by the end of this year,
the Fed has indicated it might reduce its
holding of Treasuries by up to $150 billion
a quarter. And finally, the U.S. government
will need to sell more than $250 billion aquarter to fund its deficit.
There are two offsetting factors to the large
sales of Treasuries. One is that as the Federal
Reserve sells, it reduces excess reserves,which requires banks to buy Treasuries tomeet liquidity requirements. But we do not
fully know the extent of this scenario, andit certainly won’t be dollar for dollar. The
second factor, as some argue, is that the U.S.
trade deficit effectively forces foreign countries to use their dollars to buy Treasuries,
although this is not completely true – they
can buy other U.S. securities or assets or sell
their dollars.
So we could be going into a situation where
the Fed will have to raise rates faster and/or sell more securities, which certainly could
lead to more uncertainty and market volatility. Whether this would lead to a recession or not, we don’t know – but even that24

I. JPMORG AN CHAS E BUS INESS STRATEGIES

is not the worst case. If growth in America
is accelerating, which it seems to be, andany remaining slack in the labor markets
is disappearing – and wages start going up,
as do commodity prices – then it is not an
unreasonable possibility that inflation could
go higher than people might expect. As aresult, the Federal Reserve will also needto raise rates faster and higher than people
might expect. In this case, markets will get
more volatile as all asset prices adjust to
a new and maybe not-so-positive environment. Remember that former Chairman of
the Federal Reserve Paul Volcker increased
the discount rate by 100 basis points on a
Saturday night back in 1979 in response to aserious double-digit inflation problem. And
when markets opened the next businessday, the Fed funds rate went up by over 200
basis points. Also remember that the Federal
Reserve is operating with extremely different
monetary transmission mechanisms thanin the past. The old “money multiplier” hasbeen superseded by the new capital andliquidity requirements. Today’s “excess
reserves” (reserves once considered inexcess of what banks were required to postin cash at the Federal Reserve – fundamentally reserves that could be lent out) are notlendable, although we still don’t completely
understand the effect of this.
There is a risk that volatile and declining markets
can lead to market panic.

Financial markets have a life of their own
and are sometimes barely connected to thereal economy (most people don’t pay muchattention to the financial markets nor do themarkets affect them very much). Volatile
markets and/or declining markets generally have been a reaction to the economic
environment. Most of the major downturns
in the market since the Great Depression
reflect negative future expectations due to apotential or real recession. In almost all ofthese cases, stock markets fell, credit losses
increased and credit spreads rose, among
other disruptions. The biggest negative
effect of volatile markets is that it can create
market panic, which could start to slow thegrowth of the real economy. The years 1929

and 2009 are the only real examples in the
United States in the past 100 years when
panic in the markets caused large reductions in investments and hiring. I wouldn’t
give this scenario very high odds – in fact, I
would give it low odds. Most people think ofthose events as one-in-a-thousand-year floods.
But because the experience of 2009 is sorecent, there is always a chance that people
may overreact.
If truly negative events started to unfold, we
could expect the Federal Reserve, with its
enormous authority and power, to take strong
action, including changing regulations, if the
Fed thought it necessary. In any event, ourshareholders should rest assured that we will
weather it all. There are a couple of things
we all could do to be more prepared for thissituation and other disruptions, which I will
discuss in the next few paragraphs.
Banks and regulators need to be more forward
looking and less backward looking — particularly
when examining risks across the system.

One day there will be another crisis, andfinancial institutions and central banks willneed to respond. The financial system is far
more safe and sound than in the past. But
in spite of all the regulations put in place,
I worry about whether we have properly
prepared for the next crisis. The Financial
Stability Oversight Council was created tooversee the whole system (as appropriate),
but we have not yet really worked collaboratively to prepare tabletop exercises about
what would happen across the system underdifficult situations.
When the next crisis begins, regardless of
where or how it starts, multiple actors in thesystem will take actions – either out of necessity (i.e., they need cash) or sentiment (i.e.,they want to reduce risk). This will happen
across passive, index and ETF funds, insurance companies, banks and nonbanks. As
individual actors stop providing credit andliquidity in the marketplace, we need to do a
better job of understanding how this might
unfold. And all this will be happening undera different regulatory regime from before.
25

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

We also need to be more forward looking
in many other areas. Doing so will create abetter and stronger system – not doing so
will actually create additional risk. Following
are a few examples:
Almost all risk and control functions(think Anti-Money Laundering, Know Your
Customer (KYC) and Compliance) could
be better performed if we worked with theregulators to streamline what we do and use
advanced techniques, like artificial intelligence and machine learning, to improve theoutcomes. The same is true for fraud prevention and customer service. We must also be
far more aggressive in protecting ourselvesfrom cybersecurity risks, both within thebanking system and across the financial
system (think of nonbanks, money managers,
clearinghouses, exchanges, etc.)

Modest regulatory reform can strengthen thefinancial system, improve the functioning of
our markets and enhance economic growth for
all Americans.

While the regulatory environment is appropriately much stricter than it once was, we
can simplify it and even strengthen it by
ensuring that it is globally fair and transparent and includes continuous, regularreview and appropriate modification.
Regulators now have begun to simplify, coordinate and reduce overlapping regulations.
I won’t repeat the details that I’ve discussed
in prior letters – many of them were also
discussed in Treasury reports issued by thegovernment. But suffice it to say, modest
regulatory reform could allow banks toexpand carefully, improve access to credit(e.g., mortgages and small business loans)and improve market making and the functioning of the money markets.

7. How is the company dealing with bureaucracy and complacency that often infectlarge companies?
I was recently at a senior leadership offsite
meeting talking about bureaucracy. We
heard bureaucracy described as “a necessary
outcome of complex businesses operatingin complex international and regulatoryenvironments.” This is hogwash. Bureaucracy is a disease. Bureaucracy drives out
good people, slows down decision making,kills innovation and is often the petri dish of
bad politics. Large organizations, in fact allorganizations, should be thought of as always
slowing down and getting more bureaucratic.
Therefore, leaders must continually drivefor speed and accuracy to eliminate waste
and kill bureaucracy. When you get in great
shape, you don’t stop exercising.

26

After years of increasing regulations, there
has been a temptation to blame some of ourbureaucracy and ridiculous processes onregulations. That, too, is (mostly) hogwash.
It is easy to find excuses not to attempt toreimagine how things could be done betterand more efficiently.
Below are five examples of how we’ve set out
to combat this condition:
Meetings. Internal meetings can be a giant
waste of time and money. I am a vocal proponent of having fewer of them. If a meetingis absolutely necessary, the organizer needs
to have a well-planned, focused agenda withpre-read materials sent in advance. The
right people have to be in the room, andfollow-up actions must be well-documented.
Just as important, each meeting should
only run for as long as it needs to and lead

I. JPMORG AN CHAS E BUS INESS STRATEGIES

to real decisions. In addition, there should
be clarity around who chairs the meeting.
The chair is responsible for making sure allissues are properly raised, facilitating effective and productive discussions and driving
to decisions.
War rooms. Just as important, we need tosimplify our processes while accelerating thepace of change and driving new innovations.
Last year, the Operating Committee createda number of “war rooms” – spanning lines ofbusiness, geographies, functions and levels– to make our firm more agile and to put alaser focus on several hot-button issues, likeclient onboarding and vendor and thirdparty management. Each war room is staffedwith a dedicated group of employees tasked
with solving specific problems within a set
number of weeks or months. You would be
amazed at how quickly our employees cancome up with new solutions when they are
galvanized around solving a problem in aconcentrated time period. These teams havebeen so successful in driving bureaucracyout of the decision-making process that weplan to deploy more war rooms when critical needs arise. These war rooms are very
similar to how we operated when we madecomplex acquisitions. Essentially, they cause
better and faster dissemination of information to those who need to know – andfaster and more productive decision making
because everyone involved is in the room.
Reimagining. You can take any part of yourbusiness and reimagine it. You can get
all the right people in the room to think
about a certain process and reimagine how
it could be done from the ground up. Our
Know Your Customer problem-solving teamis a good example of the results our reimagining and war rooms can drive. Comprising
all lines of business, the group was given
eight weeks to reimagine our KYC processes
to improve the customer experience without
sacrificing controls. By applying a sharp,
firmwide focus to the KYC protocols, theteam identified several KYC questions andprotocols that had become outdated or been
made redundant by recent controls. One
customer could be subjected to multiple
KYC processes depending on the line ofbusiness and channel used. As a result, theteam streamlined KYC questions substantially and identified a number of processes
that could be eliminated, which will allow
for a better customer experience while still
maintaining a strong control environment.
This war room team’s results not only
helped disparate lines of business identify
duplicative processes but also enabled theteam to update the firm’s priorities.
Fighting complacency by being self-critical.

Complacency is another disease. It is usually
borne out of arrogance or success, but it is aguarantee of future failure. Our competitors
are not resting on their laurels – nor can
we. The only way to fight complacency is toalways analyze our own actions and pointout our own weaknesses. It’s great to openly
celebrate our successes, but when the door
is closed, management should emphasize
the negatives.
Using agile management to create speed.

Agile technology generally means using
new forms of technology – think cloudcomputing, for example – to enable small
teams of programmers to build and properly execute new programs and products
rapidly and effectively. The concept of agile
management goes hand in hand with thisapproach. Small teams of people responsible for products and services work withtechnologists to improve the customer
experience. To do this, they must be given
the necessary authority and resources. It isalso important they understand that they
can make mistakes without punishment.

27

I. JPMOR GA N CH A SE BU S I N ESS ST R AT EG I ES

8. What are the firm’s views on succession?
Having a first-rate management team inplace is probably the Board’s highest priority.
Therefore, management succession planning
is a key focus of our Board. The Board knows
the firm’s senior leaders well, through unfettered access and significant interaction.
While the Board and I have agreed that I
will continue in my current role for approximately five more years, we both believe that,
under all timing scenarios, the firm has inplace several highly capable successors.
Early in the year, we announced that Daniel
Pinto, CEO of our Corporate & Investment
Bank, and Gordon Smith, CEO of Consumer& Community Banking, have been appointed
Co-Presidents and Chief Operating Officersof the company. In addition to their current

28

roles, Daniel and Gordon will work closelywith me to help drive critical firmwide functions. Our other outstanding CEOs, Mary
Erdoes, Asset & Wealth Management, andDoug Petno, Commercial Banking, along with
our CFO, Marianne Lake, took on expanded
responsibilities last year and have played
progressively more significant roles partnering across the firm in helping to manage
the company. I also want to say how grateful
I am to our Operating Committee and to allof the leaders of our organization for the
extraordinary job they do.

II. PU BLIC POL I CY

The following messages are worth repeatingfrom last year’s letter: The United Statesneeds to ensure that we maintain a healthyand vibrant economy. This is what fuels
job creation, raises the standard of living
and creates opportunity for those who are
hurting, while positioning us to invest in
education, technology and infrastructure– in a programmatic and sustainable way– to build a better and safer future for ourcountry and its people. And in a world withso many security threats and challenges, weneed to maintain the best military. America’s military will be the best in the world
only as long as we have the best economy
in the world.
Business plays a critical role as an engine of
economic growth – particularly our largest,
globally competitive American businesses.
As an example, the 1,000 largest companies in America (out of approximately 29
million) employ nearly 30 million people
in the United States, and nearly all of theirfull-time employees receive full medical
and retirement benefits, as well as extensive training. In addition, these companies
account for more than 30% of the roughly$2.3 trillion spent annually on capital expenditures. These expenditures and research anddevelopment spending drive productivity
and innovation, which, ultimately, drive job
creation across the entire economy.
Of the approximately 150 million people
who work in the United States, 130 million
work in private enterprise. We hold in highregard the 20 million people employed by
the government or in the public sector –teachers, police officers, firefighters andothers. But we could not pay for those jobs
if the other 130 million workers were notactively producing America’s gross domestic
product (GDP).

Small businesses are a critical engine of
economic growth. Small and large businesses are symbiotic – they are each other’scustomers, and they help drive each other’s
growth. They are integral to our large business ecosystem. At JPMorgan Chase, forexample, we support more than 4 million
small business clients, including hundreds ofsmall banks, 15,000 middle market companies, and approximately 7,000 corporations
and investor clients. Additionally, we rely on
services from nearly 30,000 vendors, manyof which are small and midsized companies.
Business, taken as a whole, is the source ofalmost all job creation. And we need to maintain trust and confidence in our businesses
as in all of our institutions. Confidence is a“secret sauce” that costs nothing, but it helps
the economy grow. A strong and vibrantprivate sector (including big companies) isgood for the average American. Entrepreneurship and free enterprise, with strong
ethics and high standards, are something toroot for – not attack.
To support this, we need a pro-growth policy
environment from the government thatprovides a degree of certainty around longstanding issues that have proved frustratingly elusive to solve. The most pressing
areas where government, business andother stakeholders can find common groundshould include tax reform, infrastructure
investment, education reform, more favorable trade agreements and a sensible immigration policy.
Let’s take another look at what is holding us
back and some solutions that could make life
better for all Americans.

29II. PUBLI C P O LI CY

1. What has gone wrong in public policy?
In the last several years, I have spent a goodamount of time – in both these letters andelsewhere – talking about public policy.
Some of the policies directly relate to
JPMorgan Chase, while others are more indirect but have a large effect on the future of
the United States of America, on the global
economy and, therefore, on our company.
With all of America’s exceptional strengths,
it seems clear to me that something isholding us back. As we have already pointed
out, our economic growth has been anemic.
Our economy has grown approximately 20%
in the last eight years, but this stands incontrast with prior average recoveries where
growth would have been more than 40%
over an eight-year period. The chart below
on the left shows this.

Last year, I laid out in detail an extensive listof things I thought were holding us back, andit bears repeating here because, just as it took
many years for these obstacles to develop, it
is going to take sustained effort over many
years to right the course. When you look at
this list in totality, it is significant and fairly
shocking. Most of these areas have become
consistently worse over the last 10 to 20
years, and it is hard to argue that they did notmeaningfully damage the country’s economic
growth. It is also important to point out that
I have never seen an economic model that
accounts for the extremely damaging aspectsof these items. (These items don’t include thetrillions of dollars we have spent on war-related expenditures. And whether you werefor or against these wars, they certainly did
not add to American productivity.) This is notsecular stagnation – this represents senselessand misguided policies.

GDP1 Growth

Bank Credit1 Growth

The present expansion relative to average
Cumulative growth since prior trough, percent

The present expansion relative to average
Cumulative growth since prior trough, percent

30%
30%

30%
30%

Current
Currentexpansion
expansionAverage
Averageexpansion
expansion

25%
25%

25%
25%

Current
Currentexpansion
expansionAverage
Averageexpansion
expansion

20%
20%
20%
20%

15%
15%
10%
10%

15%
15%

5%
5%

10%
10%

0%
0%
00
5%
5%

0%
0%
00

1616

2424

3232

–5%
–5%

88

1616

2424

3232

RecoveryRecoveryperiod
periodininquarters
quarters
1	Adjusted for inflation
Source: Bureau of Economic Analysis (BEA); National Bureau of
Economic Resource (NBER), March 2018

30

88

4040

–10%
–10%
RecoveryRecoveryperiod
periodininquarters
quarters
1	Adjusted for inflation
Source: Haver; Federal Reserve Board, March 2018

4040

II. PUBLIC POLICY• We had a hugely and increasingly uncompetitive tax system driving companies’
capital and brainpower overseas.
• Excessive regulations for both large andsmall companies reduced growth andbusiness formation. The ease of startinga business in the United States worsened,with small business formation dropping to
the lowest rate in 30 years.
• The chart on the bottom right of page
30 shows how tepid bank credit growth
was in general during this recovery.
Remember, bank credit growth directly
relates to economic growth, although it’soften difficult to figure out the cause andeffect. But there is no question that thethings that reduce credit availability, inturn, reduce growth. One area where weknow this happened was in the mortgage
market. Household formation has beenslow because many young adults have hada difficult time finding work and, with thehelp of their families, have gone back formore schooling. That is slowly reversing.
But the inability to reform mortgage
markets has dramatically reduced mortgage availability. In fact, our analysis
shows that, conservatively, more than
$1 trillion in mortgage loans might havebeen made over a five-year period.
• Labor force participation – particularly
among men aged 25-54 – dropped dramatically. An estimated 2 million Americans
are currently addicted to opioids (in2016, a staggering 42,000 Americans diedbecause of opioid overdoses), and somestudies show this is one of the major
reasons why men aged 25-54 are permanently out of work. Even worse, 70% of
today’s youth (ages 17-24) are not eligible
for military service, essentially due to alack of proper education (basic reading
and writing skills) or health issues (often
obesity or diabetes).

• Our schools are leaving too many behind.
In some inner city schools, fewer than
60% of students graduate, and of those
who do, a significant number are notprepared for employment. Additionally,
many of our high schools, vocational
schools and community colleges do notproperly prepare today’s younger generation for the available professional-leveljobs, many of which pay a multiple of theminimum wage.
• Infrastructure is a disaster. It took eight
years to get a man to the moon (from idea
inception to completion), yet it now cansometimes take a decade to simply get thepermits to build a bridge or a new solar
field. The country that used to have thebest infrastructure on the planet by mostmeasures is now not even ranked among
the top 20 developed nations according to
the Basic Requirement Index.
• Our immigration policies fail us innumerous ways. Forty percent of foreign
students who receive advanced degrees
in science, technology and math (300,000
students annually) have no legal way ofstaying 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 areforced to take the training back home.
From my vantage point, that means one of
our largest exports is brainpower.
• Our nation’s healthcare costs are twice theamount per person compared with mostdeveloped nations.
• Our litigation system is increasingly
arbitrary, capricious, wasteful and slow.

31II. PUBLI C P O LI CY

Economic analysis provides a sense of thecosts associated with misguided policies. The
Congressional Budget Office estimates thecost of failing to pass immigration reform
earlier this decade at 0.3% of GDP a year. An
International Monetary Fund study suggeststhat a 1% of GDP rise in infrastructure
investment in 2013 would have delivered asimilar boost to advanced economy GDP overthe subsequent decade. J.P. Morgan analysis
indicates that the cost of not reforming the
mortgage markets could be as high as 0.2%
of GDP a year. Taken together with the costsof excessive regulation and a depressedprime age labor participation rate, it is easy
to conclude that corrections in policy could
add more than 1% of GDP annually. And thisdoes not account for many of the items I
mentioned in the prior list.
The end result is that our economy is stillleaving many behind. Much of this isprobably self-inflicted. While a job used toprovide a ticket to the middle class, today
more people are getting stuck in low-wage
work. Historically, we’ve thought of thesejobs as providing the first rung on a career

ladder – a chance for workers to prove themselves and develop skills before moving on
to other, better paying jobs. But a growing
number of Americans are left hanging on
this first rung: During the mid-1990s, only
one in five minimum-wage workers was stillat minimum wage a year later. Today, that
number is nearly one in three.
So while the economy has not performed
badly and has done amazingly well for a
handful – low-skilled and even middle-skilledwages have gone down, leaving large swathsof Americans behind.
It is surprising that many younger people in
the United States, who are effectively going
to inherit the wealthiest nation on the planet,
seem to be pessimistic about our future
and capitalism. But falling expectations, thefailure of our economy to lift up everyone,
and the continual deprecation of society
and its leaders have led to huge amounts of
discontent and unrest.
All these issues are fixable, but we should
ask ourselves how we got it wrong in thefirst place.

2. Poor public policy ­— how has this happened?
America has been an amazingly resilient
country. And we hope it will reset and getback on track. But it is hard to look at thelast 20 years and not think that it has beengetting increasingly worse (and we should
not assume that it will get better on its own).
Before we try to address what we can do to
fix it, it is important to look at why it has
gotten worse. Here are my theories:• The world is getting faster and more
complex, making speed and analytics all
the more important. But the structure of
our political parties and institutions hasbarely changed in 100 years. They may not
be set up for success – organized in a way toenable them to deal with today’s challenges.
• Critical thinking, analysis of facts andproper policy formation have become
extremely difficult in a politicized and32

media-saturated environment. Often,
politics misuses facts to justify a position.
• We are effectively crippled when it
comes to fixing our problems even when
they are totally predictable. Puerto
Rico’s bankruptcy, Detroit’s bankruptcy,
unfunded pension plans, the job skills
gap, and crumbling bridges and tunnels
are prime examples.
• We focus too much on the short term.
For example, President Bill Clinton (andI don’t mean to pick him out specifically)usually gets credit for driving a strong
economy. But the excessive mortgage
lending, incented and promulgated by
the federal government (I am in no way
saying that banks and investors didn’t
play a part, too), is part of the reason theeconomy at that time did well. It blew up

II. PUBLIC POLICY

late in President George W. Bush’s term.
There are many examples of presidents
getting credit or blame for scenarios that
had nothing to do with their governing.
We simply learned the wrong lessons. And
in the short run, we tend to simplisticallylook for scapegoats instead of solutions.
• Rogoff and Reinhart wrote in their book,
This Time Is Different, that it takes a longtime to recover from a financial crisis. But
this was often due to poor policy or overreaction to the financial crisis, and while
history teaches us that maybe we should
expect this reaction in the next crisis, itdoes not have to be true over and over. We
have a difficult time learning from the past.
• A famous politician once said, “Don’t let agood crisis go to waste.” I think he reallymeant, “Let’s use the crisis to get somegood, important things done.” It appears

that politicians sometimes use a crisis tojustify implementing their own agenda.
• Here’s another example: We all know that
the U.S. healthcare system needs to bereformed. Many have advocated getting
on the path to universal healthcare for all
Americans. The creation of Obamacare,while a step in the right moral direction, was not well done. America has
290 million people who have insurance– 180 million through private enterpriseand 110 million through Medicare andMedicaid. Obamacare slightly expandedboth and created exchanges that insure
10 million people. But it did very little
to fix our broken healthcare system andhas, in fact, torn up the body politic over
10 years – and this tumult may go on foranother 10 years.

3. We can fix this problem through intelligent, thoughtful, analytical and comprehensive policy.
First off, we should find it rather easy torecognize that bad thinking often leads to bad
policymaking. Let me list a few of the culprits:• Binary arguments. When people argue as
if there are binary solutions, the argument
is almost always wrong. When people say
you should not do something because it
is like going down a “slippery slope,” itgenerally is not a good argument. In themodern world, there are reasons to calibrate various parts of policy instead of justdenying the argument altogether.
• “They complain too much” arguments.
When a point has been made and someone
calls it a complaint, the point is diminishedright away. When someone complains
about something, a better response is tothink about where or how the person
might be right or partially right.
• Not listening to one another. I tell my
liberal friends to read columnists like
Arthur Brooks and George Will. And I tell
my conservative friends to read writers
like Tom Friedman.

• Not asking what outcomes you really wantto achieve.
• Not working with experts who know themost about a subject.
• Trying to create too many zero-tolerance
environments when they are often not
merited. Examples include situations
where people need to be able to communicate with each other and work throughmiscommunications and mistakes of judgment rather than criminal and unethicalbehavior, where a zero-tolerance standard
should be applied equally to all.
• This way of thinking also applies to institutions. We should not destroy the credibilityor the effectiveness of institutions – public
or private – for the mistakes or misdeeds ofa few. This may feel good in the short term
but will not serve us well over the long term.
We all generally know what a gooddecision-making process looks like – andwe applaud it – whether in business orin Congress.
33

II. PUBLI C P O LI CY

4. The need for solutions through collaborative, competent government.
People don’t think about the challenges intheir everyday lives as being Democratic
or Republican issues – and our politicalleaders need to stop thinking that way. We
need a well-performing, competent government to thrive as a nation. Clearly, there
are things that only the government cando – and must do well – such as having astrong military and ensuring an efficient andproperly functioning justice system. The
federal government maintains most of ournation’s transportation systems, and we needstate and local governments to do a goodjob in terms of education, policing and otherimportant functions. Some argue that the
government should be doing more. But whenmany Americans think of the government
delivering services, they think of the endlessbureaucracy and paperwork associated with
the Internal Revenue Service, the U.S. Postal
Service and the Department of Veterans
Affairs – none of which would consistently
get high marks.
We all can agree that the lack of true collaboration and an unwillingness to address ourmost pressing policy issues have contributed
to the divisive and polarized environment wehave today. Certainly there is plenty of blame
to go around on this front. However, rather
than looking back, it now is more important
than ever for the business community andgovernment to come together to find meaningful solutions. This cannot be done by
government or business alone.
By collaborating and applying some good old
American can-do ingenuity, there is nothing
we can’t accomplish. By working together,business, government and the nonprofit
sector can ensure and maintain a healthy andvibrant economy into the future – creating
jobs, fostering economic mobility and maintaining sustainable economic growth. Ultimately, this translates to an improved qualityof life and greater financial security for thosein the United States struggling to make ends
meet. It also represents a significant step in34

restoring public faith in two of our greatest
democratic institutions in the United States:
business and government. Working together
will allow us to move toward a prosperous
future for all Americans.
Many examples of business and government
working together already have produced
positive outcomes. Businesses have playeda large role in trying to help Detroit recover.
Businesses started the Veteran Jobs Mission.
With a goal of 1 million jobs, the coalitionof businesses has already helped 400,000
U.S. veterans get work, and the number isstill growing. Many businesses have worked
closely with the education system (mostly
locally) to support charter schools, vocational schools and community colleges toprovide skills training that prepares students
for productive employment. We believethat collaboration can create even better
outcomes in education, healthcare and job
creation while shoring up pension plans andrebuilding our cities and communities acrossthe nation.
Our Founding Fathers studied and worked
hard to design a strong and permanent
democracy. They perfected a Constitution toprotect our basic liberties, building in protections to temper some of our worst attributes
and incent our best ones. If they were herewith us today, I believe they would recognizethat our government institutions are stuckin the mud – too slow and inadequate forthe job at hand. Therefore, they would study
and work hard within the Constitution toredesign and reformulate how government
should function so that it works properly.
We will eventually need to do the same.

II. PUBLIC POLICY

5. A competitive business tax system is a key pillar of a growth strategy.
It isn’t easy to stay competitive in an increasingly global marketplace, and national tax
policy was one critical area where we werefalling behind. Over the last 20 years, as
the world reduced its tax rates, America did
not. Our previous tax code was increasingly
uncompetitive, overly complex, and loadedwith special interest provisions that createdwinners and losers. This was driving down
capital investment, reducing productivity
and causing wages to remain stagnant. The
good news is that the recent changes in the
U.S. tax system have many of the key ingredients to fuel economic expansion: a business tax rate that will make the U.S. competitive around the world; provisions to free
U.S. companies to bring back profits earned
overseas; and, importantly, tax relief for the
middle class.
The passage of tax reform is critical because
strong businesses create jobs and higher
wages. Before tax reform was passed, 76%of the CEOs of leading U.S. companies said
they would increase hiring if tax reform
were enacted, and 82% would increase
capital spending – and we already are seeing
these effects. Hundreds of companies likeours are stepping up by investing in theiremployees and in initiatives to address
challenges facing communities.
I must confess I don’t understand how
anyone could believe an uncompetitive tax
system would be good for the United States– whether the current economic environment was good or bad. The damage has
been cumulative. Here is one example: A
recent study by the accounting firm Ernst& Young found that under a 20% corporate
income tax rate, U.S. companies would

have acquired $1.2 trillion in cross-borderassets during 2004-2016 instead of losing$510 billion in such assets to foreign buyers.
Simply put, this means the United States
would have kept 4,700 companies under U.S.
ownership during the past 13 years if they
had paid taxes at a rate competitive withother countries that have modernized theircorporate tax codes. Today’s competitive
U.S. corporate tax rate will reduce incentives
for U.S. companies to relocate abroad or bepurchased by foreign companies.
There is a reason why it has taken 30 years
for comprehensive tax reform to take placein this country: It is complicated work, andnavigating competing interests is hard. I
am pleased that we did the right thing – notthe easy thing. Congress took a historic stepin 2017 to reform America’s broken andoutdated tax code. Coming together to getthat work done shows that we can take on
tough issues that have been holding us back.
I believe tax reform will have both shortand long-term benefits. In the short term,
we already are seeing some companies
increasing capital expenditures, hiring andraising wages. Of course, that will not beenough to offset all the immediate benefits
associated with tax reform. Some argue thatthe added cash flow going to dividends andbuybacks is a negative – it is not. It simply
represents capital finding a higher and better
use than the current owner has with it. And
that higher and better use will be reinvestment in companies, innovation, R&D orconsumption. Thinking this is a bad thing isjust wrong. Tax reform’s real benefit will be
the long-term cumulative effect of retained
and reinvested capital in the United States,
which means more companies, innovationand employment will stay in this country.
The United States should always aim to havea competitive business tax system. It should
not be traded off against other objectives.

35

Here is some news we announced on how JPMorgan Chase is immediately puttingsome of the benefits of tax reform to good work.

Along with a more constructive regulatory andbusiness environment and our strong businessperformance, this reform has led our company
to recently announce a $20 billion, five-year
comprehensive investment to help its employees
while supporting job and local economic growthin the United States.
JPMorgan Chase plans to build up to 400 Chasebranches in 15-20 new markets and hire up to
4,000 additional employees over the next five
years. These employees will support our branch
growth and more lending to small businesses andhomeowners. Today, Chase has roughly 5,100
branches across 23 U.S. states, and, for a long time,
we have wanted to expand beyond our current footprint. The heart of our company is our branches.
We serve 61 million U.S. households — one out of
every two U.S. families is a Chase customer. Nearly
every line of business operates out of our branches
in some way. We are not in some major markets,
including Boston, Philadelphia and Washington,
D.C., but Consumer Banking has started the formal
application process for national expansion.
As I previously said, when Chase enters a community, it enters with the full force of JPMorgan
Chase behind it. We hire people. We lend to andsupport local businesses. We help customers withbanking, lending and saving. And our philanthropic
programs help make these communities stronger.
Our company has made a significant economic
impact in all the communities in which we operate,
and we’re excited to become an even more relevant
part of many others.
We’re also investing in our employees. We wantto have the best people, period. We know happy
customers start with happy employees, and wewant to be the best place to work everywhere we
do business. For the second time in two years,
we’re raising wages for 22,000 employees. For
employees making between $12 and $16.50 anhour, we will raise hourly wages to between $15
and $18, depending on the local cost of living.

36

This is the right thing to do, and we believe it puts
us well above the average hourly wage for mostmarkets. These increases are on top of the valueof the firm’s full benefits package, which averages$12,000 for employees in this pay range. But the
improvements won’t stop there. We’re reducing
medical plan deductibles by $750 per year for
employees making less than $60,000 — this essentially makes the deductible $0 for those employees
who take care of themselves by meeting minimalwellness and preventative program requirements.
Credit is essential to a healthy economy andgrowth, and our new investments include sizable
increases in lending to small businesses andhomeowners. Through Commercial Banking andBusiness Banking, we will hire 500 new bankers
and help expand small business lending by 20% —or $4 billion — over three years while entering newmarkets. We’re also doubling the investment in our
Small Business Forward initiative to $150 million
over five years to help provide small businesses run
by women, minorities and veterans get both thecapital and technical assistance they need to grow.
We will also help more families live their dream ofowning a home by increasing home lending in lowand moderate-income communities by 25% — to$50 billion — over the next five years. To do so,
we will hire up to 500 new Home Lending advisors
across our current markets and in some new ones. In
addition, we will increase lending to finance affordable rental housing to $7 billion over five years.
Today, our company is strong and growing, andwhen we grow, so do the communities where we dobusiness. We’re excited to welcome new employees,
new customers and new communities to JPMorgan
Chase and to look forward to a bright future.

II. PUBLIC POLICY

The need for rational, thoughtful, consistenttax policy.

The best long-term tax policy should havethe following attributes:• The business tax system should becompetitive – always – and not be traded
off against anything else. I would consider
this table stakes for having a healthy
economy in the long run.
• We should build the infrastructure weneed. (We should consider this tablestakes, too.) There are many reports thathighlight how less expensive it is in thelong run to have better infrastructure. In
fact, some studies show it is even more
expensive to have bad infrastructure.
• We should have a progressive tax system(helping people on the lower end) that
progressively taxes higher incomes, likemine. And, of course, no one wants tothink about their money being misspent.
Therefore, it is critical for Washington toshow the American public that their money
will be used wisely – and that includes
canceling or modifying programs that
don’t work and not using money to pay off
special interest groups. If we need to raise
taxes on the more well-off, I would hope themore affluent would recognize that they
will do better if the country does better.
• The tax policy should be consistent in
the long term for businesses to maximize
their productivity and growth.
This is the best way to permanently drive
growth and become a far wealthier and fairer
society. There are two things I would do
immediately to improve income inequality
and create a much healthier society as
explained below.

6. We should reform and expand the Earned Income Tax Credit and invest in the workforce ofthe future.
The Earned Income Tax Credit (EITC)
supplements low- to moderate-income
working individuals and couples, particularly
with children. For example, a single motherwith two children earning $9 an hour (approximately $20,000 a year) could get a tax creditof more than $5,000 at year’s end. A single
male without children (also making approximately $20,000 a year) does not get any
money for a tax credit under this program.
Last year, the EITC program cost the UnitedStates about $65 billion, and 27 million individuals received the credit. This program has
lifted an estimated 9 million people above thepoverty line. (The federal poverty guideline
is determined by household size. For a fourperson household, the poverty level is $25,100
or approximately $11 an hour.)
There are some problems with the EITC. Paid
as a tax credit at the end of the year, 21% of
the people who are entitled to it don’t file for
it – mostly because they don’t know about it.
Additionally, there is some fraud involved.

We should convert the EITC into more of anegative income payroll tax, which would
spread the benefit, reduce fraud and get it
into more people’s hands. (Both Democrats
and Republicans favor a move like this.)
We should also dramatically expand the tax
credit and even make it more available toworkers without children.
Of the 150 million Americans working today,
approximately 21 million earn between $7.25
an hour (the prevailing federal minimumwage) and $10.10 an hour. Approximately
42% of American workers make less than
$15 an hour. It is hard to argue that you
can live on $7-$10 an hour, particularly forfamilies (even if two are working in thathousehold). Decades ago, workers with very
limited skills could earn a living wage tosupport themselves and their family. In thisnew highly technical world – where work
skills are so greatly valued – the “natural”
wage for unskilled workers may no longer
lead to a living wage. This is an area thatdeserves more study.
37

II. PUBLI C P O LI CY

Jobs are a wonderful thing. Jobs bring dignity.
That first job is often the first rung on theladder. People like working, and studies showthat once people start working, they continue
working. Jobs and living wages lead to bettersocial outcomes – more household formation,
more marriages and children, and less crime,
as well as better health and overall well-being.
As society creates an enormous amount ofwealth, expanding the EITC would be a very
productive way to share it. If a large portionof the American population cannot earn aliving wage, then we will create a situation of
permanent social turmoil.
We need to improve work skills and training thatlead to better jobs — this will help both low- andmiddle-income workers. It is also the cure for
rapid technological change.

Many high schools and vocational schools do
not provide the education our students need
– the ability to graduate and get a decent job.
We should be ringing the alarm bell, signalingthat inner city schools are failing our children– often minorities and mostly lower income
students. In many inner city schools, fewer
than 60% of students graduate, and many of
those who do are not prepared for employment. We are creating generations of citizens who never had a chance in this land of
dreams and equal opportunity. Unfortunately,
it’s self-perpetuating.
And we all pay the price. According to anassessment of math and science scores that
the Organisation for Economic Co-operation
and Development (OECD) conducted in 35
advanced industrialized countries, the UnitedStates ranks, on average, #24. Making theinvestment to improve our performance tothe level of the OECD average would increase
the U.S. gross domestic product by 1.7% overthe next 35 years.
America used to be one of the best at training
our workforce for good jobs. We know what
to do to regain that mantle. We need to ensurethat our high schools, vocational schools, technical schools and community colleges work
together with local businesses to properly
train these students so they can get wellpaying jobs upon graduation; then we need38

to make sure proper apprenticeships andcertifications (including college credits) are
widely available. These students can continue
to work or have the opportunity to go backto college, if they so choose. Doing this well
will help the lower skilled and middle-income
workers in the new world. The best way tooffset any negatives associated with tradeor technology is through continued education and training so that well-paying jobs are
replaced with other well-paying jobs.
We know that technological advancements are
displacing certain industries. Driverless cars,
for example, are getting closer to mainstream
use every day. Technology will bring innovation, but it will also change the employment
opportunities available to hundreds of thousands – perhaps even millions – of people. We
have the opportunity, now, to start preparing
for and addressing potential future job losses.
Anticipating problems that may arise fromnew technologies – and developing plansto responsibly minimize them – should beconsidered the final phase of our R&D process.
We, as a country, must also change the way
we think about education. In less mutabletimes, a degree meant that formal learning
was complete. You had acquired what you
needed for a successful career in your field.
A degree in today’s world cannot mean theend of your studies. New discoveries, newadvancements, new technologies and new
terminology all mean that a degree will notcarry you as far into the future as it once
did. We must place a higher premium on
lifelong learning. Corporations can do a lot to
encourage and foster such a shift.
We should celebrate the benefits of technology,
and we should also prepare for its challenges.

Overall, technology is the greatest thingthat has ever happened to mankind. It is
the reason why we enjoy our high living
standard. It is staggering how our lives havechanged when compared with 100 years
ago. We live longer and work less; we arehealthier and safer; and during that time
period, billions of people have been pulled
out of poverty. People legitimately worry
that technology will eliminate jobs as artificial intelligence replaces drivers, call center

II. PUBLIC POLICY

operators, etc. And this is no doubt true. But
this has actually been happening for a longtime. For instance, back in 1900, 41% of the
U.S. workforce made their living in agriculture. Today, it is under 2%. This is only
one example, but our vibrant economy has
always found a way to adjust to job loss bycreating new jobs and sometimes changing
the way we work by reducing work days andwork hours.

We know technology has been a great force,and for the benefit of mankind, that force
should be left unleashed. In the event that it
creates change faster in the future than it hasin the past – and the economy is unable toadjust jobs fast enough – the best protection
is continual workforce training, education
and re-education, supplemented by income
assistance and relocation.

7. America’s growing fiscal deficit and fixing our entitlement programs.
America’s net debt currently stands at 77%
of GDP (this is already historically high but
not unprecedented). You can see in the chart
below that the debt level continues to getworse, but at an accelerated pace over theensuing decades. We have time to fix it, so
I am not immediately concerned. But thisproblem will not age well, and the sooner westart to fix it, the better. If we don’t fix thegrowing deficit situation, it will adjust itself
and in a way we won’t like.

The chart below also shows the Congressional Budget Office’s estimate of the total
U.S. debt to GDP, assuming a 2% real GDP
growth rate. Hopefully, with the right policies we can grow faster than 2%. We estimate if we got the growth rate even a little
bit higher (i.e., 2½%), then the debt burden
gets a little lighter but does not disappear.

U.S. Government Public1 Debt as a Percentage of GDP
160%+37ppts

140%
120%
100%

+24ppts80%+26ppts60%+12ppts40%
20%+17ppts+6ppts

0%

2017

2027

2037

2047

 Debt held by public(% of GDP growth at 2.0%)

77%

89%

113%

150%

 Debt held by public(% of GDP growth at 2.5%)

77%

83%

100%

126%

1	
Debt issued in the financial markets, but not held by any U.S. government agency or fundSource: Congressional Budget Office, March 2017
ppts = percentage points

39II. PUBLI C P O LI CY

The real problem with our deficit is theuncontrolled growth of our entitlement programs.

We cannot fix problems if we don’t acknowledge them. The extraordinary growth ofMedicare, Medicaid and Social Security isjeopardizing our fiscal situation. We have toattack these issues. I am not going to spend
a lot of time talking about Social Security.
I think fixing it is within our grasp – forexample, by changing the qualification age
and means testing, among other things.
When President Franklin Delano Roosevelt
astutely put Social Security in place in 1935,
American citizens would work and pay into
Social Security until they were 65 years old.
At that time, when someone retired at age
65, the average life span after retirement was
13 years. Today, the average person retires
at age 62, and the average life span after
retiring is just under 25 years.
The core issue underpinning the entitlements problem is healthcare in the UnitedStates. Here are just a few places where weknow we can do better:• The United States has some of the best
healthcare in the world, including ourdoctors, nurses, hospitals and clinicalresearch. However, we also have some of
the worst – in terms of some outcomes
and costs.
• Administrative and fraud costs are estimated to be 25% to 40% of total healthcare spend.
• Chronic disease accounts for 75% ofspend concentrated on six conditions,which, in many cases, are preventableor reversible.
While we don’t know the exact fix to thisproblem, we do know the process that will
help us fix it. We need to form a bipartisangroup of experts whose direct charge is to fix
our healthcare system. I am convinced that
this can be done, and if done properly, it will
actually improve the outcomes and satisfaction of all American citizens.

40

JPMorgan Chase, along with our partners
Amazon and Berkshire Hathaway, recently
formed a joint venture that we hope will
help improve the satisfaction of our healthcare services for our employees (that could
be in terms of costs and outcomes) andpossibly help inform public policy for thecountry. The effort will start very small, butthere is much to do, and we are optimistic.
We will be hiring a strong management
team to start working on some of these
critical problems and issues:• Aligning incentives systemwide – theUnited States has the highest costs associated with the worst outcomes because
we’re getting what we incentivize.
• Studying the extraordinary amount ofmoney spent on waste, administration andfraud costs.
• Empowering employees to make better
choices and have the best options available
by owning their own healthcare data withaccess to excellent telemedicine options,where more consumer-driven health initiatives can help.
• Developing better wellness programs,
particularly around obesity and smoking– they account for approximately 25% ofchronic diseases (e.g., cancer, stroke, heartdisease and depression).
• Determining why costly and specialized medicine and pharmaceuticals are
frequently over- and under-utilized.
• Examining the extraordinary amount ofmoney spent on end-of-life care, often
unwanted.
To attack these issues, we will be using
top management, big data, virtual technology, better customer engagement and theimproved creation of customer choice (highdeductibles have barely worked). This effort
is just beginning, and we intend to startsmall. We will report on our progress in the
coming years.

II. PUBLIC POLICY

8. Why is smart regulation vs. just more regulation so important?
It is absolutely necessary to have proper
regulation. Often, though, we confuse moreregulation with good regulation. What isreally needed is smart regulation. If you
speak with businesses, large or small, they
will give a long list of the time, effort anddocumentation it takes to run their business.
They will show you books of red tape, inefficient, outdated systems and extraordinary
delays. To start a small business today, youneed multiple licenses. We have given an
example of this with infrastructure in termsof needing up to 10 years to get a permit
to build a bridge. Please read the article on
page 42 written by a very liberal Democratic
former U.S. senator and presidential candidate about what it was like to run a small
business. The article provides excellent
advice for all of our legislators and regulators. Unfortunately, he learned these lessons
only after leaving his career in government.

The current administration is taking steps toreduce unnecessary regulation by insistingthat congressional rules around cost-benefit
analysis be properly applied. It is also actively
trying to put regulators in the right roles withthe proper authority to use commonsense
principles to make appropriate changes.
By some estimates, approximately $2 trillionis spent on regulations annually, which isabout $15,000 per household. While webelieve much of this money is well spent(leading to cleaner water and air, and safer
highways and hospitals, for example), it ishard to imagine that all of it is well spent.
Decades of continuously expanding and overlapping regulation certainly can be streamlined and improved. There is little doubt that
excessive regulation has adversely impacted
innovation, growth and the formation ofsmall businesses. The chart below shows thedramatic reduction in the net formation ofsmall businesses. It is hard to know exactly

Annual Net Small Business Formations
Number of businesses
250,000

200,000

150,000

100,000

50,0000–50,000–100,000
1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

Source: U.S. Census Bureau, Business Dynamic Statistics, March 2018

41

42

II. PUBLIC POLICY

why this is happening, but the main culprits
are probably the cost and difficulties that
unnecessary regulations cause, coupled withthe lack of access to credit for new businesses.
Another study examines the effect poor
infrastructure has on efficiency (for example,
poorly constructed highways, congested

airports with antiquated air traffic control
systems, aging electrical grids and old water
pipes). This could all be costing us more than$200 billion a year. Philip Howard, who doessome of the best academic work on America’s infrastructure, estimates it would cost
$4 trillion to fix our aging infrastructure –and this is less than it would cost not to fix it.

9. Public company corporate governance — how would you change it? And the case against
earnings guidance.
Last year, I wrote about the decline in
the number of public companies in the
United States. Unfortunately, that trend has
continued unabated. Indeed, if anything,it’s accelerated. According to one study, thenumber of U.S. public companies has fallen
by approximately 50% over two decades(from 8,090 in 1996 to 4,331 in 2016). And
that decline, it pains me to say, is a uniquely
American phenomenon. Public company
listings in other developed markets haveincreased over the same period.
Fortunately, policymakers are sitting up andtaking notice. In a report issued in October
2017, the U.S. Treasury Department decried thedecline in the number of U.S. public companies and recommended several measures tostem the tide. Eliminating duplicative regulations, liberalizing restrictions on pre-initialpublic offering communications and removing
non-material disclosure requirements
were some of these measures. Jay Clayton,
Chairman of the U.S. Securities and Exchange
Commission, also has been quite vocal about
the decline: He says it potentially deprives“Mr. and Ms. 401(k)” of the opportunity toparticipate in much of our country’s wealthy
creation. I share Chairman Clayton’s concern.
Too many private company owners look at
the burdens tied to public company status –among them, frivolous shareholder litigation,burdensome disclosures that don’t get tothe core of investor concerns, an unhealthy
focus on short-term results and shareholder
meetings that often focus on the trivial.
Because of such factors, many private companies make a rational decision to stay private,

particularly given rules that increasingly
allow individuals to invest in private companies. Ultimately, that’s not good for America
because public companies are a powerful
economic engine for job and wealth creation.
They are also responsible for one-third of
all private sector employment, with millionsof American families depending on publiccompanies for retirement, savings for college
and home purchases, and investment.
So what can public companies do about
these issues? For one, they can continue
to engage policymakers. Second, they cancontinue to resist pressures to focus on
the short term at the expense of long-term
strategy, growth and sustainable performance. And in my mind, quarterly andannual earnings per share guidance is amajor contributor to that short-term focus.
It can cause companies to hold back on technology spending, marketing expendituresand other investments in their future inorder to meet a prognostication affected byfactors outside the company’s control, suchas fluctuations in commodity prices, stock
market volatility and even the weather.
That’s why during my time as JPMorgan
Chase’s CEO we’ve never provided quarterlyor annual net earnings guidance and why wewould support any company that considers
dropping such guidance in the future. We
totally support being open and transparent
about our financial and operational numberswith our shareholders – this includes
providing guidance or expectations aroundnumber of branches, likely expense levels,“what ifs” and other specific items.
43

II. PUBLI C P O LI CYWith their own sizable investment portfolios,
most public companies could use their power
as shareholders to urge public companies
and asset managers to take a relentlessly
long-term focus.
Of course, shareholders of all stripes – andparticularly institutional shareholders (asset
managers, as well as asset owners) – havea critical role to play in public company
corporate governance. Among other things,
they should exercise their proxy voting
rights thoughtfully, using independentjudgment even where they use proxy advisors to inform their judgment. They should
actively engage with company boards andmanagement, as appropriate, to understandthe company’s point of view and to convey
their own. And they should evaluate andcompensate their portfolio managers in amanner that reflects the investment time
horizon applicable to the portfolio they are
managing. That may mean using performance benchmarks over three-, five- andeven 10-year periods, in addition to shorter
period benchmarks.

10. Global engagement, trade and immigration — America’s role in the world is critical.
Today’s world is as complex and dynamic
as ever. Things like trade, immigration,technology and social media, as well as ourability to move capital and purchase goods
with the click of a button, all are changing
how we live and how we do business. A
natural reaction to this disruption might
be to turn inward, to build walls. Such an
impulse reflects real and justifiable concerns
about whether our rush to change has
outpaced our ability to successfully adapt. At
this moment of uncertainty, however, U.S.
global engagement is needed more than ever.
Following the devastation brought on by
two world wars, the United States and otherlike-minded nations resolved to shape a newinternational order that would ensure a future
unlike the past. In the succeeding years,
America led the creation of a system definedby the rule of law and supported international institutions like the United Nations, theWorld Health Organization and the World
Trade Organization (WTO). These institutions offered states a way to work out theirdifferences around a conference table andaddress pressing economic and social challenges. Organizations like the North Atlantic
Treaty Organization (NATO) were formed toenable collective action, promote peace anddeter aggression. Treaties and coalitions wereforged to limit the spread of nuclear weapons
and to address threats such as terrorism,
disease and climate change. America undertook efforts to promote and spread democratic
44

values such as free speech and equality while
standing firm against dictators and strongmen
who would otherwise insist that “might makes
right.” There should be no doubt that these
efforts have made us all more prosperous,
secure and free.
The world has made incredible strides
since most of us were born. We have overcome challenges once thought insurmountable. More than a billion people have been
lifted out of extreme poverty in the lasttwo decades. Food security is dramatically
improving – a major driver of improving
human health – and the number of undernourished people around the world is
continuing to fall. Vaccines have almost
entirely eliminated most infectious diseases
around the globe – polio, smallpox, measles,
mumps, diphtheria, rubella. Malaria has been
eradicated in many parts of the world, anddeaths have declined significantly in Africa
and Southeast Asia over the last decade.
These achievements and numerous others
reinforce the overall positive trend line ofhuman history.
Reversing the interconnectedness built byour post-World War II institutions is neither
desirable nor feasible. As a nation, we cannot
isolate ourselves any more than we can stem
the ocean’s tide. The international systemprovides agreed-upon rules of the road – andmechanisms for enforcing them. It serves
as the basis upon which we can insist on
fairer trade practices from competitors andadequate burden-sharing from allies. It is theII. PUBLIC POLICY

means by which we can continue to improve
people’s lives and livelihoods. The system,
built at great sacrifice, continues to serve ourinterests. It should be preserved and defended– ideally under strong U.S. leadership.
Any system created by humans, however, isultimately fallible. Sustaining the current
order and ensuring its longevity meanacknowledging its flaws. We must have anhonest conversation about its strengths
and, more important, its weaknesses. Global
GDP has more than doubled since 2000,
yet too many people are being left behind– shut out of a growing economy’s rewards.
Nations with a proud history of welcoming
immigrants – including the United States, anation of immigrants – are engaged in hotly
contested debates over whether immigrationis good for one’s country or not. Recognizing
our extraordinary accomplishments is one
thing, but we should acknowledge what
has gotten worse. NATO has become lesseffective, serious issues surround trade andthe WTO is unprepared to deal with today’s
issues – and too bureaucratic and slow to fix
them. The associated loss of faith in governments and institutions has manifested itself
in a wave of political disruptions, none more
surprising than in the United States itself.
We are increasingly divided and unable towork out our disagreements.
Retreating from the world is not the solution, nor is burning down the current systemand starting anew. At the same time, wecannot and should not turn a blind eye tothe real pressures millions of families faceat the hands of globalization, technological advances and other factors. Ultimately,
governments are charged with addressing
the types of issues and popular grievancesthat led us to this moment of division anddistrust. But increasingly, the private sector
must also play a role.
Business in total has a huge amount ofcapabilities and knowledge. Business needs
to work with the government to drive good,long-term solutions. But if it is to play ahelpful role, business must be less parochial about what is good for one’s particularcompany and more helpful about what isgood for the people of our countries.

Proper resolution of serious trade issues is goodfor the United States and for the rest of the world.

We have entered a time of uncertainty overglobal trade. President Trump has rejected theTrans-Pacific Partnership (TPP) as not being
in the best interests of the United States andis renegotiating the North American Free
Trade Agreement (NAFTA). He has begun
to demand material changes in our trade
agreements with many nations and has begun
to demand that nations reduce their trade
surpluses with the United States, probably
most importantly between the United States
and China, the world’s two largest economies.
We should acknowledge many of the legitimate
complaints around trade. Tariffs and non-tariffbarriers to trade are often not fair; intellectual
property is frequently stolen; and the rights toinvest in and own companies in some countries, in many cases, are not equal. Countries
commonly subsidize state-owned enterprises.
When the U.S. administration talks about “free”
and “fair,” it essentially means the same on all
counts. This is not what has existed. It is notunreasonable for the United States to press
ahead for more equivalency.
In last year’s letter, I spoke about NAFTA
and said that while there are some clear
problems, an updated agreement should beworked out in a way that is fair and beneficial for all parties. The logic to do so iscompletely compelling.
China is far more complex – and thecomplaints are more legitimate. China hasrealized significant economic and employment gains since joining the WTO in 2001.
China was expected to continue on an aggressive path of opening up its economy, but thishas happened at a much slower pace thanmost nations expected. Now, more than 16
years later, it has the second-largest economy
in the world and is home to 20% of theFortune 500 companies, yet it still considers
itself a “developing” nation that should not
be subject to the same WTO standards as theUnited States and other “developed” countries. The Chinese government is competentand capable, and it has done an extraordinarily good job of managing its emergence as
the world’s second-largest economy. I believe45

II. PUBLI C P O LI CYthat China understands most of these issues
and wants to properly resolve them. Recently,
the United States threatened unilateral action
against China. Of course, anything that starts
to resemble a trade war creates risk and uncertainty to the global economic system. One of
the administration’s best arguments is thatnegotiation alone has not worked. But regardless of the process, here is my view on what
the best outcomes would look like:• The United States should define very clearly,
and in detail, what it wants from China.
• The United States should lay out a distinct
timeline – and determine what the reaction
would be if it is not met.
• The United States should listen closely to
China about any legitimate complaints it
may have.
• This should be done in partnership with ourlargest allies, particularly Japan and Europe.
• The United States should revisit theTrans-Pacific Partnership and fix the parts
considered unfair. The TPP could be an
excellent economic and strategic agreement
between America and its allies, particularly
Asia. This is not against China: The country
could at some point be offered the opportunity to enter the TPP if it demonstrates
a willingness to meet its standards, which
would improve upon the rules-based global
trading system under American leadership.
While the chance of having an improved tradedeal with both Mexico and Canada, as well
as a more mutually beneficial relationshipwith China, is possible and preferable, there
is always a chance that miscalculations on thepart of the various actors could lead to negative outcomes. This obviously creates higher
risk and more uncertainty until resolved.
We need to resolve immigration — it is tearing
apart our body politic and damaging our economy.

Immigration reform is important both
morally and economically. Immigration has
been a critical part of America’s economic
and cultural vitality. And there are somebasic and key principles that most Americans
seem to agree with:46• We need to have – and believe that wehave – proper border control. American
citizens have the right to complain that
we have not successfully protected ourborders since the last immigration reformin 1986. In the 1986 amnesty, 3 million
undocumented immigrants came forward,
and now we estimate there are another 11
million undocumented people domiciledin our country. If the American publicdoes not believe we have proper bordercontrol, nothing else can be accomplished.
• The “Dreamers” who came to America as
undocumented children (there are approximately 2 million of them) should get apath to legal status and citizenship.
• We need improved merit-based immigration. Those who get an advanced degree inthe United States should receive a green
card along with their diploma. We needthese skilled individuals in America. We
could also improve on other merit-based
immigration practices.
• Law-abiding, hardworking undocumented
immigrants should have a path to legal
status or citizenship. The American publicshould know this is no easy path. Backtaxes should be paid, and citizenship could
take up to 15 years.
• Finally, it is unlikely the American public
will feel comfortable with immigration if we
don’t revert to some core principles. Immigrants should be coming here because
they want to be part of our country andwho we are as a people. America was an
idea borne of freedom, with freedom ofspeech, freedom of religion, freedom ofenterprise, and equality and opportunity.
People immigrating to this country should
be taught American history, our language
and our principles. The American public
will not be pro-immigration if we don’t
address these issues.

Closing policy thoughts.

It is an absolute necessity that America
maintain a world-class economy, with worldclass companies and a world-class military.
We need to do a significantly better job ofmanaging our economy if we want it to beworld class.

And, finally, ceding America’s leadership roleon the world stage is a bad idea for everyone– inside and outside our great land. We must
all collaborate and respect each other tomake the world a better place.

I N C LO S I N G
We are devoted to earning the trust and respect ofour shareholders, customers, employees
and the communities we serve every single day.
We will never lose sight of this.
And we have an outstanding management teamleading this mission – a group of dedicated executives
with exceptional capabilities, character,
experience and wisdom.
I am humbled and honored to work at thiscompany and with its great people. It is an
extraordinary privilege and responsibility.
On behalf of JPMorgan Chase and our management
team, I want to express my deepest gratitude
to all of our people – I am proud to be their partner.

Jamie Dimon
Chairman and Chief Executive Officer
April 5, 201847

Consumer & Community Banking
2017 financial results
JPMorgan Chase had a strong year in2017. For Consumer & Community
Banking (CCB), we delivered 17%
return on equity (ROE) on net incomeof $9.4 billion and $46.5 billion inrevenue. We grew our customer baseto 61 million U.S. households –nearly half of all U.S. households dobusiness with Chase – including 4
million small businesses. Our customers have 97 million debit andcredit card accounts and spent over$900 billion on their cards in 2017.
Our active digital customers grew to
47 million, and 30 million of them
are active on mobile, the largest in
our industry.
We’ve made progress since webrought the Chase businesses together
five years ago, and we have seen
remarkable growth in our businessdrivers over that time. In Consumer
and Business Banking, our averagedeposits of $626 billion are up 60%,
and our client investment assets are
up 72%, hitting a record $273 billion.
Annual credit card sales rose to $622
billion in 2017, up 63% since five
years ago. Merchant processing volume reached $1.2 trillion, up 82%.
Home Lending average loans havegrown 16%, and our Auto loans andleases have grown 53%.
We delivered these results with asteady focus on the same four areas:customers, profitability, controls andpeople. There is no substitute for aconsistent strategy well-executed.
Here are some of the highlights from2017 for each.
Customers
Customer satisfaction is at record
highs across most of our businesses.
We will always have plenty of work
to do, but we are extremely pleased
with how far we’ve come.
48

2017 Performance Highlights
Key business drivers($ in billions, except ratios and where otherwise noted)

2017

2012

%∆

61.0
46.7
30.1

55.9
31.1
12.4

9%
50%
143%

Consumer &Community Banking

Households (millions)1
Active digital customers (millions)2
Active mobile customers (millions)3

Consumer andBusiness Banking

Average deposits
Client investment assets (end of period)
Average Business Banking loans
Business Banking net charge-off rate

$626
$273
$23
0.57%

$392
$159
$18
1.65%

60%
72%
28%
(108) bps

Home Lending

Total mortgage origination volume
Foreclosure units (thousands, end of period)
Average loans
Net charge-off rate4

$98
35
$237
0.02%

$181
312
$205
2.37%

(46)%
(89)%
16%
(235) bps

Credit Card

New accounts opened (millions)5
Sales volume5
Average loans
Net charge-off rate

8.4
$622
$140
2.95%

6.7
$381
$125
3.95%

25%
63%
12%
(100) bps

Merchant Services

Merchant processing volume$1,192

$655

82%

Auto

Loan and lease originations
Average loan and leased assets
Net charge-off rate

$33
$81
0.51%

$23
$53
0.39%

43%
53%
12 bps1

Reflects data as of November 2017
Users of all web and/or mobile platforms who have logged in within the past 90 days
3
Users of all mobile platforms who have logged in within the past 90 days
4
Excludes the impact of purchased credit-impaired loans
5Excludes Commercial Cardbps = basis points

2

The bar for what customers expectin every industry has grown muchhigher. We live in an on-demand
world. Customers can get the service,content or experience they want when
they want it on nearly any device.
They expect speed and simplicity.
Customer service in banking andpayments has improved greatly inrecent years but lags compared withcertain other industries such as travelor segments of retail. We are seeing
fintechs have success simply by
removing customer pain points thatbanks haven’t. Customers are showing us where we need to get better,
and we are paying attention. Getting
this right is important because weare a part of our customers’ everyday lives. On average, our digitally
active customers log in more than 15
times a month. Our active debit cardcustomers average 32 purchases amonth, and those who use ourATMs have an average of fivemonthly ATM transactions. Our
active credit card customers average
21 transactions each month.
In 2017, we made several improvements around the customer experience, including facial recognition in
our app, a fully mobile bank pilot(Finn), real-time payments using
Chase QuickPaySM with Zelle and asimpler online application for Business Banking customers. For those
who need our business products –deposits, credit cards and merchantprocessing – we collapsed the three
applications into one so customers
provide their information once
instead of multiple times. We didn’tchange the products – we just madeit easier for customers to get the ones
they want. The simpler application
reduces the time it takes to applyfor all three products by 45 minutes,
and we saw engagement with newBusiness Banking households withboth deposit and credit card accounts
increase 25% with this change.
We also reached many new customers
through important partnerships. In
the Card business, many consumers
want rewards for items they buy. In
2017, we completed co-brand renewals
for partner cards with Disney, Hyattand Marriott. We also launched the
popular Amazon Prime Rewards Visa
card and helped drive double-digit
year-over-year sales growth for the
Amazon portfolio. In addition to signing new, strategic Chase Pay® partnerships with PayPal and The Kroger Co.,
we launched acceptance of Chase Pay®
across merchants such as Cinemark,Wakefern Food Corporation andWalmart. And in Auto, we renewed
our contract with Subaru of America,
extending our partnership.
Profitability
We always have said short-term
growth is not our goal, but profitable
growth over the long term is. We
never make decisions to drive shortterm earnings and always focus on
investing for long-term results. We
are proud of the work we have done
to bring down our structural expense,
allowing us to invest more in our corebusinesses. The CCB overhead ratio
has gone from 61% in 2011 to 56% in
2017, with a medium-term target of
50%+/-. Delivering on that will allow
us to further increase our investments
in technology and digital, as well as tomove with greater speed to market.
These investments matter: Digital is amore efficient way to serve ourcustomers, and our digitally engaged
customers are happier with us andare more likely to stay with Chase.
Our goal is to be the easiest bank forcustomers to do business with.

Controls
Controls are the checks, balances andsafeguards we rely on to do our work
effectively. Controls help us avoid
errors and adhere to all requirements
and regulations. Controls are an ongoing discipline for us, but we believe
the worst is behind us. In 2017, threeof our consent orders were lifted.
Early in 2018, the Federal Reserve
lifted our Home Lending consent
order, recognizing the improvements
we have made since the financial
crisis; the Office of the Comptroller of
the Currency lifted its own foreclosure
consent order in 2016.
PeopleWe think we have the greatest teamon the field with our 134,000 Chase
employees. Our steady focus on creating a great employee experience andinvesting in our people has made us astronger business. We promoted morethan 15,000 people in 2017 and filledover 16,000 roles with internal candidates. During the year, the firm
invested in excess of $300 million on
employee training to keep everyone’s
skills current in a changing economy.
Our team reflects the customer basewe serve: More than 58% of ouremployees are female, and over 53%
are minorities. Although we are proudof our progress in increasing diversity
among our senior leadership, we still
have work to do.
We have also made several changes
to help support our people. For thesecond time in two years, we raised
wages for 22,000 employees to $15 to$18 an hour, depending on the local
cost of living. These increases are on
top of our full benefits package,
which averages $12,000 for employees
in this pay range and a lower medical
deductible to protect families fromsudden medical expense.
Perhaps the proudest moment of2017 came when this firm and ourpeople stepped up to help communities in need, as hurricanes, fires
and mudslides devastated several
communities in the U.S.
This is when our company is at its
best. We made more loans, extended
loan payments, waived late fees andmade investments to support thelong-term recovery in these communities. We also reached out to help
the hundreds of our employees who
were affected directly. Our employeeto-employee giving fund showed thetremendous generosity of employees
looking out for each other in timesof need. And from Houston to South
Florida to the Bay Area, you could
see the blue shirts of our Good Works
volunteers helping out distributing
food and water, clearing debris andhelping however they could. Businesshas a broader social role to play, particularly now, and it’s possible that nocompany can do as much as ours.
Looking ahead
If this organization has proved one
thing, it’s that we can move andadapt quickly for a company of oursize. We are experiencing anotherperiod of extraordinary change. The
pace of technology is accelerating
faster than most businesses canabsorb. Industry after industry is
being disrupted as emerging players
develop better customer experiences,
faster than incumbents can innovate.
API-based platforms allow softwaredevelopers to build onto experiences,and we see services converging.
We know we have an extraordinary
leadership position, and we do nottake it for granted for a second.
Across industries, the mighty havefallen – and we do not think we are
immune. The key for us now is toinvest, innovate and speed up
to serve customers. As we lookahead, we will be laser focused on49“Intelligence is the ability to adapt to change.
– STEPHEN HAWKING”

becoming the easiest bank to dobusiness with. We will do that bybeing excellent in six core areas
we deliver for customers: becoming
a customer, paying with Chase, owning a home, owning a car, growing
wealth and growing businesses.
Becoming a customer – No matter
how customers find us – in a branch,on our app, on chase.com or througha friend – we want to make it easy forthem to become a customer and staywith us throughout their lives. We
will continue to invest in having asimple, fast way to develop this relationship across Chase. Early in 2018,
we started using a simpler digitalapplication for our Consumer checking and savings products. Similar to
the Business Banking application I
mentioned earlier, we just streamlined the process to make it fast andeasy. Early results have been beyond
our expectations, requiring only a few
minutes for existing customers to add
checking or savings accounts andonly a few minutes longer for customers who are new to Chase to join us.
During one day in February, we
opened two accounts every minute.
Paying with Chase – Helping ourcustomers pay for things is at thecenter of everything we do. Whether
a customer pays an individual, purchases a product or settles a bill, it
should be simple, quick and safe.
Forty percent of Chase customers
already move money with us. We
have 48 million active credit anddebit card customers, and more than
70% of our active credit card customers use those cards in mobile wallets
or for recurring bills and merchantpayments. Zelle has been adding
nearly 100,000 users every day, and50

Chase QuickPaySM makes up morethan 50% of Zelle’s volume. We want
our customers to decide who to pay
and when, and we make sure it’s simple, safe and seamless.
Owning a home – Buying a home isone of the most emotional purchases
a family ever makes. But the processof buying one is anything but joyful.
We want to help the hundreds ofthousands of customers who will buy
a home with Chase in 2018 to do sowith ease and speed. Our partnershipwith Roostify has made our digitalmortgage process simpler and has
reduced the time it takes to refinanceby 15%.
Owning a car – Over 1 million customers will buy or lease a car with
Chase in 2018, yet many people still
don’t think to call us first if they’rebuying one. Like getting a homeloan, the experience of buying a car
can be long and daunting. We think
we can reinvent it – making it easier,less expensive and a pleasant experience. Chase Auto Direct, in partnership with TrueCar, is a step in theright direction.
Growing wealth – Our brand promise is to help customers make themost of their money. Our team ofbankers and wealth advisors has
worked with customers for decades.
In 2018, we will introduce new digital
tools to help customers invest andtrade from their phones, as well as
connect them with an advisor when
they need one. Unlike other investment apps, ours will have the teamof J.P. Morgan advisors and bankers
behind it.
Growing businesses – Few banks
can help businesses as much as
JPMorgan Chase can, from startups

to multinationals. From the beginning, we can offer banking, credit
and merchant services along with abusiness banker. We have developed
new products and services that makeit easier for our customers to manage
and grow their business. Chase Business Quick Capital®, powered by ourpartnership with OnDeck, is a great
example, offering same-day access toshort-term loans. The next step is toexpand into new markets and use
the power of Chase to help our business customers grow and thrive.
Looking ahead at our ambitions forthe year, we are grateful for our leadership position and are ready to do
more. As large as we are and as muchas we have grown, we know the bestdays are still to come. We raised our
medium-term ROE target to 25%+
from 20%+/-, in part due to the impactof tax reform. With the strength of
our products, distribution and brand,
we know we can get there.
The first step will be expanding ouralready sizable technology investment.
As a firm, we invest in excess of $10
billion annually in technology. We
have more than 31,000 technologists
at the firm in development and engineering jobs; that number has grownover time, and we expect to hire
more people in 2018. We have moved
a number of our technology teams toan agile structure, allowing them to
be closer to the product owners andspeeding up time to market. Thischange has enabled our teams to be
100% focused on their products andon delivering for our customers.
To maintain speed and adaptability,
we have to fight the institutionaldrag that slows big companies down.
Bureaucracy is like a virus. As soon

as one strain is inoculated, anotherappears. In most cases, bureaucracy
is driven by good people thinking
they’re doing the right thing. But
when we try to torture a product toperfection, we sacrifice time to market
and risk losing customers to someone
who can do it better. Jamie has asked
Daniel and me to take this on, and wehave accepted with pleasure. We areworking at cutting unnecessarycommittees, making meetings more
efficient and putting accountability on
business owners.
And last, we will expand our retailbranches into new communities.
This is perhaps the most exciting
development for 2018. The heart ofour company is our retail branches –more than 1 million customers visit
our branches each day. For years, wehave been constrained to our current
23-state footprint and unable toexpand into major markets such as
Washington, D.C., Boston, Philadelphia,
Baltimore and the Carolinas. In
January 2018, we announced that weplan to open up to 400 branches in

15-20 new markets over the next five
years. These markets represent a$1 trillion deposit opportunity. Our
new branches in these markets willlead to nearly 3,000 new jobs anddrive economic opportunity for small
businesses in those communities.

focused on how we can serve ourcustomers. Thank you for your support of this great company, and I
look forward to our best days ahead.

When we enter these markets, wewill do so with the full force ofJPMorgan Chase. We will hire. We
will lend. And we will help customers achieve milestones, like buying ahome or sending a child to college.
Our JPMorgan Chase Foundation
will support the nonprofits withinthat area to drive economic growth.
We have seen the significant impact
we have made in the communities
we are in, and we’re excited to
become an even more relevant partof many more.
I’m always an optimist, but I can honestly say I’ve never been more optimistic to be a part of this company.
We are the largest bank in America,and I don’t think we’ve ever beenstronger, more disciplined and more

Gordon Smith
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., andCEO, Consumer & Community Banking

2017 HIGHLIGHTS AND ACCOMPLISHMENTS• Consumer relationships withnearly half of U.S. households• #1 most visited banking portal in
the U.S. — chase.com• #1 U.S. co-brand credit card
issuer• #1 in primary bank relationships
within our Chase footprint• #1 in Retail Banking for five years
in a row (Kantar TNS)

• #1 in total U.S. credit and debit
payments volume• Consumer deposit volume hasgrown at a rate more than twice
the industry average since 2012

• #1 ATM network in the U.S.

• #1 wholly-owned merchantacquirer• #1 credit card issuer in the U.S.

• #2 jumbo mortgage originator• #3 bank auto lender• 2017 Bank Brand of the Year
(The Harris Poll)

Helping Customers in Times of Need
After Hurricane Harvey in Houston, a city where we have served people andbusinesses for 151 years, we provided more than $30 million in immediate
relief, worked with customers on over $1.2 billion in loans and mortgages, andwaived certain fees. After the storm, we hosted 1,400 Houston area neighbors
at community branch events where our employees helped our customers andmembers of the community.

51

Corporate & Investment Bank
During 2017, the Corporate &Investment Bank (CIB) maintained its
position as the most successful andprofitable institution of its kind.
But the seeds of our current strength
were planted years ago. As other banks
retrenched, cutting back on products
and geographies, we chose a different
path. We believed that growth would
come from being global, having scale
and maintaining a complete productoffering for clients. Those elements
anchored the profitability that enabled
us to invest consistently and to sustain our growth, all while improving
the client experience.
Staying true to our character andreputation, we also knew we had tobe open for business under all market
conditions, not just when markets
were strong. Whether in Europe,
Latin America, Asia or North America,
our teams have worked hard, built
trust and gained share in recent years.
In 2017, the CIB generated earnings
of $10.8 billion on $34.5 billion ofrevenue, resulting in a return on
equity (ROE) of 14% that allowed us
to continue our pace of investment
in our people and technology.

Our CIB franchise also benefits frombeing part of JPMorgan Chase andcollaborating with our firmwide
partners: Commercial Banking (CB),
Asset & Wealth Management(AWM) and Consumer & Community
Banking (CCB).
To cite some examples, CB’s universeof more than 20,000 clients has accessto the CIB’s treasury services andforeign exchange products as a resultof the close working relationshipthey share. On the strength of that
relationship, nearly 40% of North
America Investment Banking fees
were derived from CB clients – arecord. Family office clients served
by AWM are often interested ininvesting in the types of transactions
the CIB brings to market, and the
CCB’s relationships with majormerchants and businesses generate
opportunities as these businesses
need to raise capital, seek advisory
expertise or require payments services.
Maintaining share, and even growing
it, in recent years hasn’t been easy.
Having scale and expertise across a
set of businesses enabled us to sustain profitability under various market
conditions. And while we take pridein our standings, we aren’t compla-

cent about them. Each day, ouremployees know that J.P. Morgan has
to earn client business with innovative solutions that tap the appropriate
mix of our products. More than ever,that means delivering best-in-classideas and service through cuttingedge technology.
Providing easy-to-use technology inorder to deliver a great client experience will continue to be a majordifferentiator in the coming years.
That’s why we are always exploring
ways to offer our clients faster, betterand simpler ways to do businesswith us. The banks that don’t invest
will lose ground and will have a long,difficult catchup process.
Looking ahead, we are implementing
a set of simultaneous priorities – a
blueprint for investing that runsin parallel tracks across three time
horizons. In the immediate period,
we are focused on maintaining dayto-day discipline to support organic
growth while holding firm on costs
and integrating efficiencies.
At the same time, we are planningand preparing for the changing
industry conditions that will affectthe business over the medium term,

Sustaining Our Lead Across Three Horizons

Maintaining
day-to-day discipline
Running a best-in-classbusiness across all
dimensions
52

Optimizing ourcurrent model
Improving the way
we serve our clients

Transforming forthe future
Investing in next–
generation capabilities
and expanding
our global footprint

a period defined as the next twoto three years, and the longer term,
extending 10 years out. The mediumterm investments we’re making arealready enhancing our ability toserve clients and hold the promise oftransforming our business.
Looking five to 10 years out, the paceof technological innovation will
only quicken as artificial intelligence,robotics, machine learning, distributed ledgers and big data will all
shape our future.
We will continue the prudent expansion of our global footprint. J.P. Morgan
has been doing business in China,
India, Brazil and countries in Africa
for decades. And as global economies
grow, we are making judicious
decisions that will reaffirm ourunique position as the leading global
financial institution.
Our efforts to expand our coverageof global clients over the last eight
years are paying dividends today.
Now, with economic growth taking
hold across the globe, these clients
have turned to us for services, suchas cash management, electronic
payments and fraud detection.
On the following pages, I will discuss
the CIB’s 2017 performance in greater
detail, outlining how we intend toprepare for the industry changes thatare certain to affect our business overthe foreseeable future.
By the numbers: Working for clients
The CIB’s revenue was more than
$6 billion higher than its closest
competitor, according to industry
data provider Coalition.
That financial success is directly tiedto how well the CIB delivers for ourclients across our businesses. Their
success is our success. With theincreasingly competitive environment we inhabit today, we take pridein every client assignment and thenumber of times they choose us for
repeat business.
We kicked off 2017 announcing that
J.P. Morgan’s Custody & Fund Services
business won the largest custody
mandate in history. BlackRock is in
the process of shifting $1.3 trillion in
assets under management over to ourplatform, validating the investments
we’ve made and the resources we’ve
added to that business. As the only
global custodian with a top Markets
franchise, we’re confident that scale,technology and seamless execution
will continue to draw clients.
Custody & Fund Services built on its
momentum, as evidenced by the $3.9
billion revenue in Securities Services,which was up 9% for the year. Our
business has record assets under custody of $23.5 trillion, which increasedby 14% compared with 2016.
Treasury Services, a business that
supports clients in their cash management needs and is rolling out its
real-time payments capability, also
continued to perform well throughthe year, with revenue rising to $4.2
billion, an increase of 15% over 2016.
As it serves the needs of increasingly
global commerce, Treasury Services’state-of-the-art technology is reducing
to seconds what once took days.
Turning to investment banking,
J.P. Morgan set a record in global
Investment Banking fees, $7.2 billion,
including debt underwriting of $3.6
billion. Measured by market share,
in Mergers & Acquisitions (M&A),
Equity Capital Markets (ECM) and
Debt Capital Markets (DCM), the firm
has scored gains since 2015: M&A
share rose to 8.6% from 8.4%; ECM
was up to 7.1% from 6.9%; andDCM moved to 8.3% from 7.9%.

Our debt underwriting team closed
on the largest number of deals in its
history, up about 16% over last year.
While we witnessed an overall
decline in the number of deals over
$1 billion, J.P. Morgan still played a keyrole in the year’s biggest transactions.
We served as joint active bookrunneron AT&T’s $22.5 billion bond offering, the third largest of all time,and also served as joint active bookrunner on Amazon’s $16 billion
offering to support its acquisitionof Whole Foods Market.
J.P. Morgan was also #1 in U.S. initialpublic offering (IPO) volume andmanaged the largest number of deals
during 2017. Our equity team served
as global coordinator or helped tolead more than 40% of the IPOs over
$1 billion in size, including Pirelli at$2.8 billion, Altice at $2.1 billion andNetmarble at $2.3 billion.
Our Global M&A team completed themost M&A deals during the year, 354,
and had record post-crisis fees for its
advisory work. The firm advised on
six of the top M&A announced transactions in North America. One ofour more visible roles is our work
serving as advisor to The Walt DisneyCompany on its acquisition of portions of 21st Century Fox, including
its film and television studio.
Looking at the Markets business,after an exceptionally strong 2016,
J.P. Morgan’s 2017 share in Fixed
Income, Currencies and Commodities(FICC) decreased marginally to 11.4%
from 11.7%. However, offsetting thatslight drop, the market share in
Equities and Prime rose to 10.3% fromthe previous year’s 10.1% and shared
the top ranking for the category.
We are particularly proud of progress in Prime Services. We have acompetitive and complete platform,
53and we grew global prime balancesby 28% last year while increasing
market share to 13.8% from 11.3%
since 2015.
The CIB’s Global Research team also
continued to rank #1 worldwide andacross a broad range of equity anddebt market categories, providing
clients with actionable insights on
the markets. The regularity withwhich our analysts top the rankings
is a remarkable achievement. As
Markets in Financial Instruments
Directive regulations take on agreater impact, quality research willcontinue to set us apart.
Our fintech future
The CIB is an investment bank, butfinancial technology forms thebank’s backbone. As part of JPMorgan
Chase, the CIB benefits from being
part of a firm that draws on theexpertise of nearly 50,000 technologists and a 2017 technology budgetthat amounted to $9.5 billion. But
to underscore the firm’s overallcommitment, this year’s technology
budget totals $10.8 billion, withmore than $5 billion earmarked for
new investments.
Over the last several years, I havementioned in my annual letter
J.P. Morgan’s commitment to embracing technology. Being creativerequires a willingness to take risks.
As part of our technology culture,experimentation and failure are okay
– it is encouraged, in fact, in orderto achieve breakthroughs.
It was only a few years ago that programmers and technology graduates
seemed reluctant to build theircareers in banks; that’s not the caseat J.P. Morgan. Nearly 30% of ourrecent senior hires in technology
came from non-financial services
firms, and they’re working on find54

ing solutions to some of the mostcomplex issues in the field.
The divide between the front officeand the back office is no more. Our
technologists and our product people
work side by side, in the same rooms
and at the same tables. They’re fully
assimilated. That way, the teams areable to work in tandem to build thenext-generation systems best targeted
to meet the needs of our clients andthe business.
In the age of smartphones, whenpeople only need an app in order totrade, our mission is to make it possible for clients to trade and interact
with us easily and in whatever way
they choose. If they want to accessour top-rated research or conductbusiness with us, we want them tohave the freedom to choose theoption they prefer – whether it’s inperson or by telephone, website,
mobile app, online trading platformor third party.
On the strength of its scale and technology, J.P. Morgan processes$5 trillion in payments and trades
billions of dollars electronically everyday. In equities, nearly 100% of thetickets are handled electronically,
representing 89% of notional volume.
The macro desk, primarily foreignexchange, handles 97% of its tickets
electronically, corresponding to 46%
of its volume.
We have assembled talented teams
to drive innovation in artificial intelligence, blockchain technology, bigdata, machine learning and bots,with the objectives of improving ourefficiency and enabling us to serve
more clients with greater effectiveness, depth and sophistication. As aresult, many of our initiatives are
already showing promise in terms ofcharting their future expansion
and application.

We’re piloting several ventures totest the viability of technology inreal-world situations. Late in 2017,
J.P. Morgan’s Treasury Services andits Blockchain Center of Excellence
launched a payment network powered by distributed ledger technology
in partnership with the Royal Bankof Canada and the Australia and New
Zealand Banking Group. Called theInterbank Information Network, thepilot’s objective is to use blockchain
technology to process bank-to-banktransactions faster, alleviating situations where payments get held up due
to mismatched information.
Because our people are our greatest
strength, we value technology as atool to enhance their ability to provide
the best-in-class ideas and solutions
that our clients expect from us.
Sustainability
Before I close, I want to highlightwhat the CIB, along with the overall
JPMorgan Chase organization, isdoing to further a sustainable
environment. On behalf of the entire
organization, I have been asked tochampion our sustainability efforts.
It’s an issue that is important to me
and is one that our employees careabout deeply as well. Employees
want to work for an organization
they can be proud of and that shares
their values. Through our sustainability initiatives, the firm is demonstrating its commitment to thoseshared concerns and is taking action.
In 2017, the Operating Committee
ramped up our firmwide sustainability
efforts in a big way. Over the next
three years, JPMorgan Chase intends
to become 100% reliant on renewable
power. In our own workspace, weare executing several strategies toincrease our energy efficiency. We are
installing building managementsystems and are in the process ofretrofitting 4,500 Chase branches with
LED lighting as part of the world’s
largest LED lighting installation. We
will also produce power for someof our own buildings by developing
on-site solar power generation. We
expect that these measures will reduce
total power consumption by 15%.
Using the firm’s expertise in the
renewable power sector also enables
us to support the development of
renewable projects – and advances
our goal of 100% reliance on renewable power – in other substantive
ways. One example is the Buckthorn
wind farm, a 100-megawatt project in
Texas that came online last December.
More than half of the wind farm’s
output will be purchased by our Global
Real Estate team and the remainder
by our Commodities team. This isgood for the environment and goodfor business.
In our effort to finance green initiatives, we’ve raised the stakes, committing $200 billion for such projects
by 2025. From 2016 to year-end 2017,
we reached $60.6 billion cumulatively
toward that goal. The company plans
to increase its recycling efforts and topioneer the use of greener materials
in its products and processes.

We’ve also continued our leading roleas an underwriter of green bonds.
In 2017, Apple Inc. raised $1 billion
using green bonds – the second
green bond Apple has issued with
J.P. Morgan as an active bookrunner.
In addition, J.P. Morgan led some of
the largest clean energy transactions,such as serving as financial advisor to
Enbridge on its C$2.1 billion partnership with EnBW on the Hohe See
and Albatros offshore wind farms in
the North Sea. J.P. Morgan also was abookrunner for energy company
Iberdrola’s first issue of green hybrid
bonds on the euro­market, valued at€1 billion. The proceeds will be used
to refinance investments in various
renewable projects in the United
Kingdom.

ongoing success. I, along with theentire CIB management team,appreciate the dedication, enthusiasm
and intelligence our employees
bring with them every day.
Finally, on a personal note, I’d like toexpress my gratitude to my partners
on the Operating Committee. The
collaboration that exists throughout
the firm is the foundation that
supports our strength year after year.

Closing
The CIB has had another successful
year, gaining share and generating
healthy profits by remaining intently
focused on serving our clients andbenefiting from our scale, breadthand global reach.
J.P. Morgan is known for being aplace where people want to work,where we can attract and retain thebest talent, where their work is
recognized and where the culture iscollaborative. That is critical to ourDaniel Pinto
Co-President and Chief Operating
Officer, JPMorgan Chase & Co., andCEO, Corporate & Investment Bank

2017 HIGHLIGHTS AND ACCOMPLISHMENTS• The CIB had earnings of $10.8 billion • Equity Capital Markets was #1
on $34.5 billion of revenue, producing
in U.S. IPO volume and in thea best-in-class ROE of 14%.
number of deals.

• Institutional Investor magazine’s• Treasury Services revenue rose
survey of large investors ranked
to $4.2 billion, an increase of 15%
J.P. Morgan as the #1 Global
over 2016, and continued momenResearch Firm. Across individual
tum in Custody & Fund Services• We retained our #1 ranking in global • M&A was #1 in the number ofcategories, J.P. Morgan ranked
drove 9% growth in Securities
Investment Banking fees with an 8.1%
deals completed: 354.
#1 in All-America Fixed Income
Services revenue for the year.
market share, according to Dealogic.
Research and All-Europe Fixed• The CIB continued investing in
Income Research. It also ranked #1 ▪• Custody & Fund Services had a• Debt Capital Markets was #1 intechnology to offer clients a
record $23.5 trillion in assets
in All-America Equity Research andclosing deals, setting a record forbroader array of trading platforms
under custody while also achievranked #2 in Emerging Markets.
the highest number of deals bookwhile making it easier and fastering the highest ever client satisrun in the firm’s history.
to trade with us.
faction and retention levels.
55

Commercial Banking
Commercial Banking (CB) is the nexusof everything we do at JPMorgan
Chase. The hard work of our dedicatedteam, along with the unmatchedcapabilities across our firm, allows us
to build deep, lasting relationships
with so many great companies. We
are incredibly proud of the role weplay in the success of our clients,
and we are grateful every day for theconfidence they place in us.
One such success story is siggi’s yogurt(siggi’s), celebrated as the fastestgrowing national yogurt brand in2017. What started as selling his
unique recipe out of coolers at local
outdoor markets in New York,
founder Siggi Hilmarsson quickly
turned his humble operation into a
thriving business. Up until 2016,
Siggi and his team had fully funded
the company on their own, but when
their growth accelerated, we worked
with them to deliver their first bankcredit facility. As Siggi shaped thecompany’s plans for the future, we
provided differentiated industry
advice, and in 2017, we were selectedto advise siggi’s on the sale of thecompany – the capstone transaction
for an incredible brand and business.
At every step, we were delighted tosupport Siggi’s passion to share his
native Icelandic recipe with households around the country.
Our dedication to clients, like siggi’s,
continues to drive our strategy andhow we do business in CB. I’m
excited to share highlights of our2017 performance, the investments
we are making to deliver more value
to our clients and the steps we aretaking to reach our full potential.
2017 performanceWith strong momentum across all ofour businesses and continued focus
on executing our strategic priorities,
56

CB delivered record financial resultsfor 2017, earning $3.5 billion of net
income on revenue of $8.6 billion.
We achieved a notable return on
equity of 17% and an industry-leading
overhead ratio of 39%, even while
making significant investments
across the business.
Higher interest rates, disciplined
loan growth and outstanding credit
quality all contributed to our record
performance. We ended the yearwith record loan balances across ourCommercial & Industrial and Commercial Real Estate (CRE) businesses,
up $15 billion or 8% from the prioryear. Staying true to our provenunderwriting standards, we haveremained highly selective in growing
our loan portfolio – 2017 marked
the sixth straight year of net chargeoffs of less than 10 basis points.
This ongoing discipline is especially
important given the late stages of
the current economic cycle and competitive pressures in the market.
These record results reflect oursustained investment, the incredible
effort of the CB team and their continued focus on our clients. We arecommitted to building upon thesegreat milestones and see tremendous
potential across our franchise.
Executing our long-term, organic
growth strategy
Our strategy to grow CB remains
consistent year after year: Add greatclients and work hard to deepen
those relationships over time bydelivering valuable solutions to help
them succeed. We have been steadily
investing in the business, taking along-term disciplined approach. Since
2010, we have expanded into 33
new cities and added more than 800
bankers, helping us achieve sustainedorganic growth across our business.

Expanding into new markets

Being able to deliver the broad-based
capabilities of JPMorgan Chase at avery local level is a key competitive
advantage. In 2017, we added client
coverage in six new high-potential
markets and now have dedicatedteams in all of the top 50 metropolitan
statistical areas. We look forward
to growing our business in these
terrific locations and expanding into
additional communities in the future.
Investing in our team

Our success depends 100% on ourpeople. As such, we are making significant investments in our training
and development capabilities, allfocused on providing our bankers
with the deep expertise they need tobest serve our clients. In 2017, wehired more than 100 bankers to support the growth and expansion of ourbusiness, and we expect to add more
great bankers in the coming year.
Delivering value to our clients

Expansion is only one part of our
growth strategy – deepening our relationships with our clients is equallyimportant. Given the breadth of ourcapabilities, we can support the needsof businesses of all sizes – fast-growing
companies, like siggi’s, as well aslarge, multinational corporations.
With the quality of our team, differentiated advice, and ability to delivera full range of solutions locally, notmany other banks can serve clients theway we can. In 2017, our clients had
more than $135 billion in assets managed by our leading Asset & WealthManagement business, generated
nearly 40% of all North America
Investment Banking (IB) fees for the
Corporate & Investment Bank (CIB),
and made over 13 million transactions
in our branches.

Smart growth in our CRE businessWe have been building a CRE business that will stand the test of time.
Although we are in the late stagesof the real estate cycle, market conditions for our targeted asset classes
remain strong, and we were able togrow our CRE loan portfolio by $12
billion in 2017. Importantly, maintaining our strict underwriting standards
and conservative approach, we arefocusing only on the loans and markets we know best. If we can stay true
to these fundamentals, we believe wecan continue to selectively grow ourreal estate loan balances.
Innovating across CB
Complementing our investments todrive growth in our business, we areworking to bring new technologies
and innovation to transform how
we interact with our clients. Our
approach to innovation is anchoredon having a full understanding of
the identified, as well as unidentified,needs of our clients. Over 99% ofcompanies in the U.S. are small to
midsized businesses. We know they

have unique behaviors and concerns.
They tell us they don’t feel in control.
Small business owners and theirteams can be stretched, and theystruggle with forecasting, collecting
receivables and managing vendors.
To help, this past year we increased
our payments, technology and digital
investments and put more capitaland resources into delivering real
solutions to these challenges.
Digital

In 2017, we partnered with Consumer& Community Banking to launch a
new digital platform, Chase Connect,that is tailored to meet the needs ofsmall and midsized companies. This
platform provides our clients with asimple and convenient experience,
integrating account information, payables and receivables. Chase Connect
allows clients to see all of theiraccounts in one place, stay organizedwhen paying bills, view payment
history, approve transactions quickly
and easily from one location, andreceive customized account alerts.
We are focused on having the best

integrated, digital capabilities forclients and will continue to invest inenhancing the functionality of thisrobust platform.
Payments

Recognizing that managing payments is a major pain point for ourclients, we completed a comprehensive analysis to determine a digitalsolution. In 2017, we announced ourinvestment in and partnership with
Bill.com, the largest digital businessto-business payments network in the
U.S. Seamlessly integrated into
Chase Connect, this new automatedpayments capability will enable ourclients to easily send and receive
electronic invoices and payments,
saving them substantial time andeffort. We are very excited about thisinnovative solution and look forward
to bringing this functionality to ourclients in 2018.
Client experience

In addition to offering new capabilities, we are making great progress inre-engineering our core processes to

Sustained Growth Across Commercial Banking

 201050~1,800

$8.6B

$3.5B

35

~1,000

$6.0B

$2.1B

Markets1

Bankers2

Revenue

Earnings

 2017¹ Number of Metropolitan Statistical Areas (MSAs) with Middle Market Banking presence out of top 50 MSAs
2

Based on total count of client-facing employees

B = Billion

57make it easier for clients to do business with us. For example, we areworking to streamline and digitize
the onboarding process to ensurethat our clients’ first experience with
JPMorgan Chase is simple and transparent. Through these efforts, clients
will be able to provide informationelectronically, e-sign and upload documents digitally, and receive realtime support via online chat capabilities. Clients are at the center ofeverything we do, and our work todeliver more value and an exceptional experience has no finish line.
Looking forward
While we celebrate CB’s record 2017,
we do not take our performance for

granted. We understand that complacency and standing still in any way
will threaten the future success ofour business. As such, we remain
focused on building upon our franchise to provide even more support
to our clients. By combining the corestrength of our business with newtechnologies and innovation, we
believe we can further extend ourcompetitive advantages.
I want to thank all of our great clients,
like siggi’s, for the trust and confidence they place in JPMorgan Chase.
I also want to thank the entire CB
team for their continued dedication
to our clients and their communities.
I am excited about the direction of
the business for 2018 and beyond.

Douglas Petno
CEO, Commercial Banking

2017 HIGHLIGHTS AND ACCOMPLISHMENTS
Performance highlights• Delivered record revenue of$8.6 billion• Grew end-of-period loans 8%;
30 consecutive quarters ofloan growth• Winner of 2017 Greenwich Best
Brand Awards in Middle Market
Banking — overall, loans/linesof credit, cash management,international products/services
and investment banking• Winner of 2017 Greenwich
Excellence Awards in Middle Market• Generated return on equity of 17%
Banking: international capabilities,
on $20 billion of allocated capitalcash management online banking
functionality, cash management• Continued superior credit quality
mobile banking functionality— net charge-off ratio of 0.02%
Leadership positions

Business segment highlights• #1 U.S. multifamily lender1• Middle Market Banking — Record
gross Investment Banking
revenue3; added eight new offices• #1 in overall satisfaction,
perceived satisfaction, customer
relationships and transactions/payments processing — CFO
magazine’s Commercial Banking
Survey, 2017
• Top 3 in Overall Middle Market,
Large Middle Market and Asset
Based Lending Bookrunner2

58• Corporate Client Banking — Record
revenue, with average loans up
10% from prior year
• Commercial Term Lending —Record average loans; completedrollout of Commercial Real
Estate Origination System for
MFL business• Real Estate Banking — Record
revenue, with average loans up
27% from the prior year
• Community Development Banking— Record New Market Tax Credit
equity investment production of$1.2 billion — Financed more than
9,000 units of affordable housing
in 70+ cities through construction
lending commitments of over
$1 billion
Firmwide contribution• Commercial Banking clients
accounted for 38% of total North
America Investment Banking fees4• Over $135 billion in assets undermanagement from Commercial
Banking clients, generating morethan $475 million in investment
management revenue• $479 million in Card Services
revenue3• $3.4 billion in Treasury Services
revenue

Progress in key growth areas• Middle Market expansion — Record
revenue of $519 million; 18% CAGR
since 2012
• Investment Banking — Record grossrevenue of $2.3 billion3; 8% CAGR
since 2012
• International Banking — Revenue5 of$323 million; 8% CAGR since 20121

Rank based on S&P Global Market
Intelligence as of 12/31/17

2

Thomson Reuters LPC, FY17

3

Investment Banking and Card Services
revenue represents gross revenue
generated by CB clients

4

Represents the percentage of CIB’s North
America IB fees generated by CB clients,
excluding fees from fixed income andequity markets, which is included in CB
gross IB revenue

5

Non-U.S. revenue from U.S. multinational
clients
CAGR = Compound annual growth rate
MFL = Multifamily lendingAsset & Wealth Management
J.P. Morgan Asset & Wealth Management (AWM) has been a fiduciaryof client assets for nearly two centuries, with our roots dating back to
the earliest cross-border fund managers in the industry. Over thesemany decades, we have managed
the assets of institutions, central
banks, sovereign wealth funds andindividuals, helping them navigate
their assets from the beginningstages of cash management all
the way through complex multigenerational portfolios.
Our breadth of experience, througheconomic and geopolitical cycles,
gives us the insights to help clientsmake smart, long-term investment
decisions. It also gives our portfolio
managers and advisors the perspective
and fortitude to remain disciplined
risk managers and opportunistic
risk takers in today’s ever-evolving
market environment.

Today, while the fundamentals
of managing money still require
having the best investment minds,
they must be coupled with major
investments in technology. This
enables more comprehensive analysis of enormous data sets, fasterand more optimal execution in portfolios, and seamless delivery of allthat we do in both human and digital form. The global size and scaleof AWM, as well as its connectivity
with JPMorgan Chase’s broader
technology expertise, continue tobe competitive advantages forour teams, our clients and ourshareholders.
A record year for AWM
For investors in JPMorgan Chase,
AWM continues to be a consistentrevenue and earnings growth contributor to the company, with a verystrong return on shareholder capital.

AWM’s total client assets in 2017
grew to a record $2.8 trillion, withrevenue of $12.9 billion and pre-tax
income of $3.6 billion also hitting
their highest levels ever. However,the consistent growth trajectory
those numbers represent is just as
important. From 2012 to 2017, weachieved a 6% compound annual
growth rate (CAGR) for client
assets and a 5% CAGR for bothrevenue and pre-tax income.
Rising client assets is a critical indicator because it tells us that clients
continue to entrust even more of
their capital with us every year. In
2017, clients entrusted us with anadditional $84 billion of long-term
assets – or $1 billion to $2 billion ofincoming money every week. We
have increased net new assets every
year since 2004, with $388 billion
coming over the past five years.

Continued Strong Financial Performance in 2017
Client assets(EOP $ in trillions)

Revenue($ in billions)
CAGR

$2.8

$12.9

$12.0

$2.5

2016

2017

2012

$3.6

$2.8

$10.0

$2.1

2012

: 5%
CAGR
$3.5

: 5%

: 6%

CAGR

Pre-tax income($ in billions)

2016

2017

2012

2016

2017

CAGR = Compound annual growth rate
EOP = End of period

59Returns of S&P 500
Performance of a $10,000 investment between
January 2, 1998 and December 29, 20177.20%
returnSix of the 10 best days
occurred within two weeksof the 10 worst days
• The best day of 2015 —August 26 — was only
two days after the worst
day — August 24$40,135

3.53%
return$20,030

1.15%
return-0.91%
return$12,569$8,331
Fully
invested

Missed 10
best days

Missed 20
best days

Covering the full spectrum ofclients
AWM delivers investment
advisory expertise to clients acrossthe firm, ranging from Chasecustomers investing their first$100 to the world’s wealthiest
individuals and families. We also
manage the portfolios of many ofthe largest sovereign wealth funds,
pension funds and central banks
in the world.
Across the Wealth Managementbusiness, in addition to investments, we help clients with theirbanking needs. This ranges fromcash deposits to loans across many
areas from real estate to investment capital for a new business.
The deposit base of these privateclients has grown consistently overthe past five years, achieving a 10%60$5,669Missed 30
best days

The primary reason clients turnto J.P. Morgan to manage theirassets is because of our strong andconsistent investment performance.
In 2017, 86% of our long-term
mutual fund assets under management outperformed the peer medianin the 10-year period, including
87% for equity, 81% for fixedincome, and 90% for multi-asset
solutions and alternatives.

-2.80%
returnMissed 40
best days-4.52%
return$3,965-6.11%
return$2,834

Missed 50
best days

Missed 60
best days

Source: Prepared by J.P. Morgan Asset Management
using data from Bloomberg. Returns based on
the S&P 500 Total Return Index. For illustrative
purposes only. Past performance is not indicative of
future returns

An increasingly digital world

CAGR and reaching nearly $300
billion. On the lending side, yearend spot balances of $134 billion
represent a 9% CAGR over the past
five years. This was accomplishedwith a well-managed risk profile,resulting in strong and consistentcredit performance, and low
charge-offs of less than 10 basis
points over a cycle.

Our clients’ needs and behaviors
are changing – and we are changing
along with them.

% of J.P. Morgan Asset Management
Long-Term Mutual Fund AUM Overthe Peer Median1(net of fees)

In addition to traditional investing
and banking, AWM has developed
a full suite of solutions to meetthe complexity of our clients’ needs– from alternative investments
to trust and estate planning tophilanthropic advice. Our platform
is among the most comprehensivein the industry, enabling us toserve clients across both sides of
their balance sheet and to offer
insights and expertise into virtually
every area of their financial life.
As wealth grows around the world,
we continue to hire advisors todeliver J.P. Morgan’s capabilities tomore clients. We expect to hirein excess of 1,000 advisors over the
coming years to expand in both
new and existing markets. Our
extensive experience in hiring
and training has led our advisor
productivity to rank among the top
in the industry.

Total J.P. Morgan
Asset Management

10-year86%

Equity87%

Fixed Income
81%

Multi-Asset Solutions& Alternatives

1

90%

For footnoted information, refer to slide 98 in the 2018
JPMorgan Chase Strategic Update presentation, which is available
on JPMorgan Chase & Co.’s website (https://www.jpmorganchase.
com/corporate/investor-relations/document/3cea4108_strategic_
update.pdf), under the heading Investor Relations, Events &Presentations, JPMorgan Chase 2018 Investor Day, and on Form 8-K
as furnished to the SEC on February 27, 2018, which is available on
the SEC’s website (www.sec.gov)

Last year, we formed a new business,
Intelligent Digital Solutions (IDS), to
help drive our efforts around digitaltransformation and big data. This
group is unifying and optimizing ouruse of data analytics to transform
how we apply these added insights
efficiently and effectively in managing portfolios. IDS also is helping us
digitize everything we do to make iteasier for clients to gain 24/7 accessto our investment ideas, insights
and execution.
Additionally, we are building a digital
wealth offering that provides clients
access to proprietary tools that cancomplement their personal relationship with an advisor or be used
when they want to interact with us
entirely online. Ultimately, we want to
be at the intersection of human anddigitally enhanced advice.
Simplify for growth
Our goal is not to be the biggest asset
manager but rather to be the best at
what we do. Knowing that what has
made us successful in the past will notnecessarily be sustainable or sufficientfor the future, we relentlessly challenge ourselves to focus on the products and services that are mostimportant to clients and in which
we have a competitive advantage.
We bring equal parts innovationand introspection in evaluatingwhere to place our extra investment
dollars and resources to ensure wehave a differentiated offering. Last
year, we launched more than 70
new fund strategies to our platform,a third of which are in our Beta
Strategies lineup.

making to position ourselves forthe future. We have been working
for two centuries as stewards ofour clients’ wealth to continuously
refine what we do and how we do it.
We remain committed to delivering
first-class business and that in a
first-class way.

At the same time, if we aren’t convinced we have a long-lasting advantage, we realign those resources toareas in which we do. In 2017, we
liquidated or merged more than 70
funds and implemented significant
fee reductions on 58 different funds
across 235 share classes.
Above all, first-class business in a
first-class way
I am proud of what we havedelivered for our shareholders andclients and am even more excitedabout the investments we are

Mary Callahan Erdoes
CEO, Asset & Wealth Management

2017 HIGHLIGHTS AND ACCOMPLISHMENTS
Business highlights• Fiduciary mindset ingrained since
mid-1800s• Positive client asset flows every
year since 2004
• Record revenue of $12.9 billion• Record pre-tax income of$3.6 billion• Record $2.8 trillion in client assets• Record average loan balancesof $123 billion• Record average mortgagebalances of $37 billion• Retention rate of 98%
for top senior portfolio
management talent
Leadership positions• #1 Private Bank Overall in
North America (Euromoney,
February 2018)• #1 Private Bank Overall in
Latin America (Euromoney,
February 2018)• Best New Alternatives ETF andBest New Active ETF (ETF.com,
March 2017)• Best Private Bank in Asia for
Ultra-High-Net-Worth (The Asset,
July 2017)• IT Team of the Year
(Banking Technology magazine,
December 2017)• Best Asset Management Company
in Asia (The Asset, May 2017)• Social Media Leader of the Year
(Fund Intelligence, March 2017)• Top Pan-European FundManagement Firm (Thomson
Reuters Extel, June 2017)61

Corporate Responsibility
One reason for JPMorgan Chase’s
enduring success is that we havealways recognized that businesses
operate within the context of theircommunities – and when our communities thrive, our business thrives.

sector must step up and do more toensure that everyone shares in the
rewards of a growing economy.
That is precisely what JPMorgan
Chase is doing. Through our modelfor driving inclusive growth, we areundertaking significant, long-term
initiatives and are making strategic
investments focused in areas where
we can draw on our firm’s resources
and capabilities to have the greatest
impact: building skills for today’shigh-quality jobs, expanding small

Despite so much progress and somany economic gains, we know thatmany are still struggling. Millions
in our communities and throughout
the world live daily with economic
uncertainty, just one unexpected
expense from the financial edge.

“

At JPMorgan Chase, we view it as a firmwide
objective to be a positive force in society and to help
solve today’s biggest challenges.

”

Young people entering the labormarket are finding themselves stuck
in low-skill, low-wage jobs or worse,
entirely disconnected from employment, education or training. Whenso many are left behind, we all feelthe consequences: It sows division,
erodes trust in our institutions andundermines confidence in our systems. We all have a stake in creating
more widely shared prosperity.
Economic growth fuels economic
opportunity, so the momentum weare seeing in economies around theworld should be unequivocallyheralded as good news. Yet it is notpreordained that an expanding economy automatically translates into
greater opportunity for all. Rather, it
requires deliberate action and meaningful collaboration. Government
and the nonprofit sector will continue
to play vital roles, but the private
62

businesses, revitalizing neighborhoods and promoting financial health.

underserved neighborhoods. Ourcommitments to these cities are
based on the successful approach wedeveloped and refined through ourfirm’s $150 million investment in
Detroit’s economic recovery, which
Fortune magazine cited in namingus #1 on its list of companies thatare changing the world.
At JPMorgan Chase, we view it as a
firmwide objective to be a positive
force in society and to help solve
today’s biggest challenges. We are
deeply proud of the ways we aremaking a real difference in people’s
lives through our strategic philanthropic investments, but this is justone example of how we are stepping
up. Across our firm, we are leveraging our resources, capabilities andcore business to, in short, invest inopportunity – something we know
will pay dividends not only forour communities but for our firm
as well.

Our firm’s model is yielding real
results – so we are scaling it with a
40% increase in our annual community investments. Whether times aregood or tough, our firm has always
supported our communities, but thestrong and sustained performanceof our company, recent changes tothe U.S. corporate tax system, and amore constructive regulatory andbusiness environment are enabling
us to do even more. The net result isthat JPMorgan Chase will invest a
total of $1.75 billion over the next five
years to help drive inclusive economic
growth in local communities.
In 2017, for example, we announced
comprehensive, multi-year initiatives
to expand opportunity for the
residents of Chicago’s South andWest sides and Washington, D.C.’s

Peter L. Scher
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region

Investing in opportunity
JPMorgan Chase believes there is a pressing
need to expand access to opportunity and help
more people move up the economic ladder.
Through our proven model for driving inclusive
growth, we are taking a strategic, data-driven
approach to doing just that.
Our efforts are focused on what our experiencehas shown are universal pillars of opportunity,
and we are undertaking significant, long-term
global initiatives that directly leverage our firm’s
worldwide presence, expertise and resources.

Extending our model for impact

Advancing sustainability for ourclients and within our operations
As a company with clients and operations
around the world, JPMorgan Chase is in aunique position to leverage our expertise topromote sustainable business practices
and help clients capitalize on opportunities
arising from the transition to a more sustainable global economy.
While JPMorgan Chase has a long-standing
commitment to protect the environment andadvance sustainability for our clients andwithin our own operations, we recognize thattoday’s challenges call for an even greatercommitment.

We refined this model through our work in
Detroit, where, in 2014, we launched our mostcomprehensive initiative to date. Combining
philanthropic investments and our corebusiness expertise, we have been working toaddress some of Detroit’s biggest economic
challenges, from catalyzing commercial
development and boosting small businessgrowth to revitalizing neighborhoods andequipping Detroiters with the skills to securewell-paying jobs.
Meaningful collaboration among the city’s
leaders, business community and nonprofit
sector has been the fundamental driver ofthe progress we are seeing to date and has
allowed us to accelerate our initial investment.
In just three years, and two years ahead ofschedule, we exceeded our initial $100 million
commitment and now expect to invest $150
million in the city by 2019.
Our comprehensive efforts in Detroit haveyielded important insights, which we are turning
into action in other communities that are facing
similar challenges. In 2017, we extended ourmodel for impact to Chicago and Washington,
D.C. Our comprehensive, multimillion-dollar
commitment to each city will focus on driving
inclusive growth in underserved neighborhoods,
where economic opportunity is increasingly
out of reach.

will help scale the impact of sustainability
efforts among more than 20,000 corporate
and investor clients in the U.S. and acrossthe world.
The size, scope and global reach of our firm
allow us to take on big challenges and to drive
progress that few can match.

Harnessing the power of data
Delivering data and analyses is central to ourmodel for impact. The JPMorgan Chase Instituteis harnessing the scale and scope of one of
the world’s leading financial firms to better
understand the economy. Its mission is to help
policymakers, businesses and nonprofit leaders
use better facts, timely data and thoughtful
analysis to make smarter decisions to advance
prosperity. Drawing on JPMorgan Chase’s uniqueproprietary data, expertise and market access,the Institute frames and provides analysis of themost critical economic challenges of our time.
In 2017, the Institute shared important insights
and thoughtful analyses on:• U.S. household expense volatility, particularly in the wake of extraordinary medical
payments;

In 2017, we pledged to source renewableenergy for 100% of our global power needs
by 2020. JPMorgan Chase has offices andoperations in over 60 countries across morethan 5,500 properties, covering nearly 75 million
square feet. To increase energy efficiency, we
are retrofitting our branches with the world’s
largest LED lighting installation — a total of
1.4 million new lightbulbs. This move is likely
to cut our lighting energy consumption in
half, which is the equivalent of taking 27,000
cars off the road.
We are also developing an on-site solar
installation at the firm’s largest single-tenant
office. This will comprise up to 20 megawattsof capacity, which is enough to power theequivalent of 3,280 homes. Additionally, we aresupporting the development of new renewableassets by contracting for long-term power
off-take from wind and solar projects on thegrids from which JPMorgan Chase purchases
power. As a first step, we are purchasing powerfrom the Buckthorn wind farm, a 100-megawatt
project in Erath County, Texas.
Finally, as one of the largest financiers ofenergy in the world, we pledged to facilitate$200 billion in clean financing through 2025.
Through this commitment, JPMorgan Chase• A first-of-its-kind look into out-of-pocket
healthcare spending by U.S. consumers witha high frequency view at the state, metroand county level;• The gender gap in financial outcomes andlasting impacts of major medical payments;• The burden and dynamics of healthinsurance premium payments for small
business owners;• The challenges that U.S. small businesses facein managing payroll growth and volatility;• Resident access to everyday goods andservices in Detroit and New York City;• A full year of the Local Consumer Commerce
Index, measuring consumer spending growthwithin and across 14 U.S. cities each month;• How an anticipated drop in mortgage payments, resulting from lower interest rates,
impacted household consumption; and• The impact of payment and principal reduction on default and consumption provided
by mortgage modifications.

632017 HIGHLIGHTS AND ACCOMPLISHMENTS
FORTUNE RANKS JPMORGAN CHASE #1
ON “CHANGE THE WORLD” LIST“	Thanks to Detroit, the bank is confident that thisfull-court-press approach is a blueprint that could
work across the country — and in the next few
months, they’ll be taking components of the Motown
model nationwide.”
Excerpted from “How JPMorgan Chase Is Fueling Detroit’s Revival,”
Fortune (September 15, 2017)• JPMorgan Chase’s investment in Detroit isyielding real results. To date, we have
deployed $117 million in loans and grants
to accelerate the city’s economic recovery.
This investment is allowing more than
15,000 adults and young people to receive
skills training for in-demand jobs; supporting
development projects that have created orpreserved over 900 jobs, more than 1,300
housing units and over 177,000 square feetof commercial space; and providing morethan 2,200 entrepreneurs with technicalassistance and access to capital, creating ormaintaining more than 1,100 jobs.

includes academic support, mentoring
and leadership development at a criticaljuncture in their lives. One hundred
percent of TFI Fellows are graduating fromhigh school, and, collectively, they havebeen accepted into more than 200 colleges
and universities across the country.

launch of innovative workforce and career
pathway tools such as the Good Jobs
Index, BankingOnMyCareer.com andCredential Engine.
• Underwrote $13.5 billion in green bonds
and bonds with a sustainable use of proceeds.
• In 2017, provided $1.2 billion for wind andsolar projects in the U.S. Since 2003,
JPMorgan Chase has committed or arranged
over $18 billion in financing for wind, solar
and geothermal energy projects in the U.S.
• Announced eight financial services innovators
as winners of the third competition of the
Financial Solutions Lab (FinLab), which is
focused on improving the financial health ofoverlooked populations. To date, FinLab has
supported 26 fintech companies offering
innovative financial products to help morethan 2.5 million Americans improve theirfinancial health. Collectively, these companies
have raised over $250 million in capital sincejoining the program. More than 100 JPMorgan
Chase employees have provided mentorshipto the companies as part of the Lab.

• Scaling innovative, high-impact models tocreate opportunity for more people:◦ —	Expanded the Entrepreneurs of Color(EOC) Fund to the South Bronx in New
York City and San Francisco. We firstlaunched the EOC Fund in Detroit in 2015
to provide underserved entrepreneurs
with greater access to capital and assistance needed to grow and thrive. To date,
the fund has lent or approved nearly $4.7
million to more than 45 minority-owned
small businesses, resulting in over 600
new or preserved jobs.

◦ —	Expanded innovative apprenticeshipmodels and career-focused programs
that equip high school students with theskills and education they need to pursue
well-paying, long-term careers throughthe launch of New Skills for Youthinnovation sites in New York City’s SouthBronx and across three provinces inSouth Africa and four provinces in China.
• In the United Kingdom, we received theQueen’s Award for Enterprise for Promoting
Opportunity for the firm’s Aspiring Professionals Program, which exposes young
people from low-income backgrounds in
London to new career opportunities.
• Engaged more than 1,800 young people
in summer jobs and other work-related
experiences in 19 cities across the U.S.

◦ 	­—	Expanded The Fellowship Initiative (TFI) to
Dallas and recruited new classes of Fellows
in Chicago, Los Angeles and New York City.
This program seeks to address barriers toopportunity for young men of color andto position them for success by engaging
them in comprehensive training that64

• Invested more than $43 million in 164 job
training and career education initiatives
in 35 countries around the world — including
in Mexico, the Philippines and the United
Kingdom — to prepare people with theskills they need to be successful in growing
industries.
• Increased labor market transparency andefficiency through the development and• Engaging our employees:◦ —	We are putting the knowledge andexpertise of our people to work for ourcommunities. In 2017, 56,000 of
our employees volunteered more than383,000 hours of their time. And
through the JPMorgan Chase Service
Corps, a program that leverages theenergy and skills of top talent to assist
nonprofit partners, nearly 80 employee
volunteers from offices in more than adozen countries have contributed over
11,500 hours to help 20 organizations
address critical needs.
◦ —	We are committed to supporting thecommunities where we work and live intheir time of greatest need. In 2017, in
the wake of an unprecedented number ofnatural disasters, our firm and employees
donated $7.8 million to assist disaster
relief efforts around the world.

Table of contents

Financial:
38

Five-Year Summary of Consolidated Financial
Highlights

Audited financial statements:

39

Five-Year Stock Performance

146

Management’s Report on Internal Control Over
Financial Reporting

147

Report of Independent Registered Public Accounting
Firm

Management’s discussion and analysis:
40

Introduction

148

Consolidated Financial Statements

41

Executive Overview

153

Notes to Consolidated Financial Statements

44

Consolidated Results of Operations

47

Consolidated Balance Sheets and Cash Flows Analysis

50

Off–Balance Sheet Arrangements and ContractualCash Obligations

52

Explanation and Reconciliation of the Firm’s Use of
Non-GAAP Financial Measures and Key Performance
Measures

Supplementary information:

55

Business Segment Results

277

Selected quarterly financial data (unaudited)

75

Enterprise-wide Risk Management

278

Distribution of assets, liabilities and stockholders’equity; interest rates and interest differentials

81

Strategic Risk Management

283

Glossary of Terms and Acronyms

99

Credit and Investment Risk Management

121

Market Risk Management

129

Country Risk Management

131

Operational Risk Management

138

Critical Accounting Estimates Used by the Firm

141

Accounting and Reporting Developments

145

Forward-Looking Statements

JPMorgan Chase & Co./2017 Annual Report

Note:
The following pages from JPMorgan Chase & Co.'s 2017
Form 10-K are not included herein: 1-36, 290-301

37

Financial
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS(unaudited)
As of or for the year ended December 31,(in millions, except per share, ratio, headcount data and where otherwise noted)
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
Net income(a)Earnings per share data
Net income:
Basic
DilutedAverage shares: Basic
DilutedMarket and per common share data
Market capitalization
Common shares at period-end
Share price:(b)
High
Low
Close
Book value per share
Tangible book value per share (“TBVPS”)(c)Cash dividends declared per share
Selected ratios and metrics
Return on common equity (“ROE”)
Return on tangible common equity (“ROTCE”)(c)Return on assets (“ROA”)
Overhead ratio
Loans-to-deposits ratio
High quality liquid assets (“HQLA”) (in billions)(d)Common equity tier 1 (“CET1”) capital ratio(e)Tier 1 capital ratio(e)Total capital ratio(e)Tier 1 leverage ratio(e)Selected balance sheet data (period-end)
Trading assets
Securities
Loans
Core Loans
Average core loans
Total assets
Deposits
Long-term debt(f)Common stockholders’ equity
Total stockholders’ equity
Headcount
Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(g)Nonperforming assets
Net charge-offs(h)Net charge-off rate(h)
(a)
(b)
(c)
(d)

(e)
(f)
(g)
(h)
(i)

38

2017
$

2016

99,62458,434
41,1905,290
35,90011,45924,441

$

$

6.35
6.31
3,551.6
3,576.8

$

$

$

$

$

2015

95,66855,771
39,897
5,361
34,536
9,803
24,733

$

$

6.24
6.19
3,658.8
3,690.0

366,301
3,425.3$

108.4681.64
106.94
67.04
53.56
2.12

$

$

10%
12
0.96
59
64
556 $
12.2%
13.9
15.9
8.3
381,844249,958
930,697
863,683
829,558
2,533,600
1,443,982
284,080
229,625
255,693
252,539$

2014

93,54359,01434,5293,827
30,702
6,260
24,442

$

$

6.05
6.00
3,741.2
3,773.6

307,295
3,561.2

$

87.39
52.50
86.29
64.06
51.44
1.88

$

$

10%
13
1.00
58
65
524
(i)
12.3%
(i)
14.0
15.5
8.4
372,130
289,059
894,765
806,152
769,385
2,490,972
1,375,179
295,245
228,122254,190
243,355

$

$

2013

95,112
61,27433,8383,139
30,6998,954
21,745

$

$

5.33
5.29
3,808.3
3,842.3

$

4.38
4.34
3,832.4
3,864.9

241,899
3,663.5$

232,472
3,714.8$

219,657
3,756.1

70.61
50.07
66.03
60.46
48.13
1.72

$

63.49
52.97
62.58
56.98
44.60
1.58

$

58.55
44.20
58.48
53.17
40.72
1.44

$

11%
13
0.99
63
65
496 $
11.8%
13.5
15.1
8.5
343,839
290,827
837,299
732,093
670,757
2,351,698
1,279,715
288,651
221,505
247,573234,598

$

$

10%
13
0.89
64
56
600 $
10.2%
11.6
13.1
7.6
398,988
348,004
757,336
628,785596,823
2,572,274
1,363,427
276,379
211,664
231,727
241,359$

97,36770,467
26,900225
26,675
8,789
17,886

9%
11
0.75
72
57
522
10.7%
11.9
14.3
7.1
374,664
354,003
738,418
583,751
563,8092,414,879
1,287,765
267,446
199,699
210,857
251,196$

14,672 $
1.47%
1.27

14,854
1.55%
1.34

$

14,341 $
1.63%
1.37

14,807 $
1.90%
1.55

16,969
2.25%
1.80

$

6,426 $
5,387
0.60%

7,535
4,692
0.54%

$

7,034 $
4,086
0.52%

7,967 $
4,759
0.65%

9,706
5,802
0.81%

On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was signed into law. The Firm’s results included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional
information related to the impact of the TCJA, see Note 24.
Based on daily prices reported by the New York Stock Exchange.
TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 52–54.
HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio. For December 31, 2017, the balance represents the average of quarterly reported results per the U.S. LCR
public disclosure requirements effective April 1, 2017. Prior periods represent period-end balances under the final U.S. rule (“U.S. LCR”) for December 31, 2016 and 2015, and the Firm’s estimated amountfor December 31, 2014 prior to the effective date of the final rule, and under the Basel III liquidity coverage ratio (“Basel III LCR”) for December 31, 2013. For additional information, see LCR and HQLA on
page 93.
Ratios presented are calculated under the Basel III Transitional rules, which became effective on January 1, 2014, and for the capital ratios, represent the Collins Floor. Prior to 2014, the ratios were
calculated under the Basel I rules. See Capital Risk Management on pages 82–91 for additional information on Basel III.
Included unsecured long-term debt of $218.8 billion, $212.6 billion, $211.8 billion, $207.0 billion and $198.9 billion respectively, as of December 31, of each year presented.
Excluded the impact of residential real estate purchased credit-impaired (“PCI”) loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the
Firm’s Use of Non-GAAP Financial Measures and Key Performance Measures on pages 52–54, and the Allowance for credit losses on pages 117–119.
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%.
The prior period ratios have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report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 Financial 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 Financial
Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all threeindustry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2012, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,(in dollars)

2012

2013

2014

2015

2016

2017

JPMorgan Chase$ 100.00$ 136.71$ 150.22$ 162.79$ 219.06$ 277.62

KBW Bank Index

100.00137.76150.66151.39194.55230.72

S&P Financial Index

100.00135.59156.17

153.72

188.69230.47

S&P 500 Index

100.00132.37150.48152.55170.78208.05

December 31,(in dollars)

300

250

200

150

100

50
2012

2013

JPMorgan Chase & Co./2017 Annual Report

2014

2015

2016

2017

39

Management’s discussion and analysis
This section of JPMorgan Chase’s Annual Report for the year ended December 31, 2017 (“Annual Report”), provides Management’s
discussion and analysis of financial condition and results of operations (“MD&A”) of JPMorgan Chase. See the Glossary of Terms
and Acronyms on pages 283-289 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 forthin such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements
on page 145) and in JPMorgan Chase’s Annual Report on Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”),
in Part I, Item 1A: Risk factors; reference is hereby made to both.

INTRODUCTION
JPMorgan Chase & Co., a financial holding company
incorporated under Delaware law in 1968, is a leading
global financial services firm and one of the largest banking
institutions in the United States of America (“U.S.”), with
operations worldwide; the Firm had $2.5 trillion in assets
and $255.7 billion in stockholders’ equity as ofDecember 31, 2017. The Firm is a leader in investmentbanking, 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.

For management reporting purposes, the Firm’s activities
are organized into four major reportable businesssegments, 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 Corporate & Investment Bank (“CIB”), Commercial
Banking (“CB”), and Asset & Wealth Management (“AWM”).
For a description of the Firm’s business segments, and the
products and services they provide to their respective client
bases, refer to Business Segment Results on pages 55–74,
and Note 31.

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 associationthat is the Firm’s principal credit card-issuing bank.
JPMorgan Chase’s principal nonbank subsidiary is J.P.
Morgan Securities LLC (“JPMorgan Securities”), a U.S.
broker-dealer. The bank and non-bank subsidiaries of
JPMorgan Chase operate nationally as well as throughoverseas branches and subsidiaries, representative offices
and subsidiary foreign banks. The Firm’s principal operating
subsidiary in the U.K. is J.P. Morgan Securities plc, asubsidiary of JPMorgan Chase Bank, N.A.

40

JPMorgan Chase & Co./2017 Annual Report

EXECUTIVE OVERVIEWThis 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 the trends and uncertainties, as well as therisks and critical accounting estimates affecting the Firm andits various lines of business, this Annual Report should beread in its entirety.
Financial performance of JPMorgan Chase
Year ended December 31,(in millions, except per share data
and ratios)

2017

2016

ChangeTotal net revenue$ 99,624$ 95,668

4%

Total noninterest expense

58,43455,7715Pre-provision profit

41,19039,897

3

Selected income statement data

Provision for credit losses

5,290

5,361

(1)

Net income

24,441

24,733

(1)

6.31

6.19

2

Diluted earnings per share
Selected ratios and metrics
Return on common equity

10%

Return on tangible common equity

12

13$ 67.04$ 64.06

5

53.56

51.44

4

CET1

12.2%

12.3% (b)Tier 1 capital

13.9

14.0

Total capital

15.9

15.5

Book value per share
Tangible book value per share
Capital ratios

10%

(a)

(b)

(a) Ratios presented are calculated under the Basel III Transitional rules andrepresent the Collins Floor. See Capital Risk Management on pages 82–91
for additional information on Basel III.
(b) The prior period ratios have been revised to conform with the current
period presentation.

Comparisons noted in the sections below are calculated forthe full year of 2017 versus the full year of 2016, unlessotherwise specified.
Summary of 2017 results
JPMorgan Chase reported strong results for full year 2017with net income of $24.4 billion, or $6.31 per share, on net
revenue of $99.6 billion. The Firm reported ROE of 10%
and ROTCE of 12%. The Firm’s results included a $2.4
billion decrease to net income as a result of the enactmentof the Tax Cuts and Jobs Act (“TCJA”), driven by a deemed
repatriation charge and adjustments to the value of the
Firm’s tax-oriented investments, partially offset by a benefit
from the revaluation of the Firm’s net deferred tax liability.
For additional information related to the impact of the TCJA,
refer to Note 24.

offset by lower Fixed Income Markets and Home Lending
noninterest revenue.
• Noninterest expense was $58.4 billion, up 5%, driven byhigher compensation expense, auto lease depreciation
expense and continued investments across thebusinesses.
• The provision for credit losses was $5.3 billion, relatively
flat compared with the prior year, reflecting a decrease in
the wholesale provision driven by credit quality
improvements in the Oil & Gas, Natural Gas Pipelines andMetals & Mining portfolios, offset by an increase in the
consumer provision. The increase in the consumer
provision was driven by higher net charge-offs and ahigher addition to the allowance for loan losses in thecredit card portfolio, and the impact of the sale of thestudent loan portfolio.
• The total allowance for credit losses was $14.7 billion at
December 31, 2017, and the Firm had a loan loss
coverage ratio, excluding the PCI portfolio, of 1.27%,
compared with 1.34% in the prior year. The Firm’s
nonperforming assets totaled $6.4 billion, a decrease
from the prior-year level of $7.5 billion.
• Firmwide average core loans increased 8%.
Selected capital-related metrics• The Firm’s Basel III Fully Phased-In CET1 capital was $183
billion, and the Standardized and Advanced CET1 ratios
were 12.1% and 12.7%, respectively.
• The Firm’s Fully Phased-In supplementary leverage ratio(“SLR”) was 6.5%.
• The Firm continued to grow tangible book value per share(“TBVPS”), ending 2017 at $53.56, up 4%.
ROTCE and TBVPS are non-GAAP financial measures. Coreloans and each of the Fully Phased-In capital and leveragemeasures are considered key performance measures. For afurther discussion of each of these measures, see
Explanation and Reconciliation of the Firm’s Use of NonGAAP Financial Measures and Key Performance Measures on
pages 52–54, and Capital Risk Management on pages 82–
91.

• Net income decreased 1% driven by higher noninterest
expense and income tax expense, predominantly offset byhigher net interest income.
• Total net revenue increased by 4% driven by higher net
interest income and investment banking fees, partially

JPMorgan Chase & Co./2017 Annual Report41

Management’s discussion and analysis
Lines of business highlights
Selected business metrics for each of the Firm’s four lines ofbusiness are presented below for the full year of 2017.

CCB
ROE 17%CIB
ROE 14%

CB
ROE 17%AWM
ROE 25%• Average core loans up 9%; average depositsof $640 billion, up 9%• Client investment assets of $273 billion, up
17%• Credit card sales volume up 14% andmerchant processing volume up 12%• Maintained #1 ranking for Global Investment
Banking fees with 8.1% wallet share• Investment Banking revenue up 12%;
Treasury Services revenue up 15%; andSecurities Services revenue up 9%• Record revenue of $8.6 billion, up 15%;
record net income of $3.5 billion, up 33%• Average loan balances of $198 billion, up
10%• Record revenue of $12.9 billion, up 7%;
record net income of $2.3 billion, up 4%• Average loan balances of $123 billion, up 9%• Record assets under management (“AUM”) of$2.0 trillion, up 15%

For a detailed discussion of results by line of business, referto the Business Segment Results on pages 55–56.
Credit provided and capital raised
JPMorgan Chase continues to support consumers, businesses
and communities around the globe. The Firm provided credit
and raised capital of $2.3 trillion for wholesale andconsumer clients during 2017:• $258 billion of credit for consumers• $22 billion of credit for U.S. small businesses• $817 billion of credit for corporations• $1.1 trillion of capital raised for corporate clients andnon-U.S. government entities• $92 billion of credit and capital raised for U.S.
government and nonprofit entities, including states,
municipalities, hospitals and universities.

Recent events• On February 21, 2018, the Firm announced its intent topursue building a new 2.5 million square footheadquarters at its 270 Park Avenue location in New York
City. The project will be subject to various approvals, andthe Firm will work closely with the New York City Council
and State officials to complete the project in a mannerthat benefits all constituencies. Once the project’s
approvals are granted, redevelopment and construction
are expected to begin in 2019 and take approximately five
years to complete. The project is not expected to have amaterial impact on the company’s financial results.
• On January 30, 2018, Amazon, Berkshire Hathaway, andJPMorgan Chase announced that they are partnering on
ways to address healthcare for their U.S. employees, withthe aim of improving employee satisfaction and reducing
costs. Through a new independent company, the initial
focus will be on technology solutions that will provide U.S.
employees and their families with simplified, high-quality
and transparent healthcare at a reasonable cost.
• On January 29, 2018, JPMorgan Chase announced that
Daniel Pinto, Chief Executive Officer (“CEO”) of CIB, andGordon Smith, CEO of CCB, have been appointed CoPresidents and Co-Chief Operating Officers (“COO”) of theFirm, effective January 30, 2018, and will continue toreport to Jamie Dimon, Chairman and CEO. In addition totheir current roles, Mr. Pinto and Mr. Smith will work
closely with Mr. Dimon to help drive critical Firmwide
opportunities. Responsibilities for the rest of the Firm’s
Operating Committee will remain unchanged, with its
members continuing to report to Mr. Dimon.
• On January 23, 2018, the Firm announced a $20 billion,
five-year comprehensive investment to help its employees
and support job and economic growth in the U.S. Throughthese new investments, the Firm plans to develop
hundreds of new branches in several new U.S. markets,
increase wages and benefits for hourly U.S. employees,
make increased small business and mortgage lending
commitments, add approximately 4,000 jobs throughout
the country, and increase philanthropic investments.
• On December 22, 2017, the TCJA was signed into law. The
Firm’s results included a $2.4 billion decrease to net
income as a result of the enactment of the TCJA. For
additional information related to the impact of the TCJA,
see Note 24.
• During the second half of 2017, natural disasters caused
significant disruptions to individuals and businesses, anddamage to homes and communities in several regions
where the Firm conducts business. The Firm continues toprovide assistance to customers, clients, communities andemployees who have been affected by these disasters.
These events did not have a material impact on the Firm’s
2017 financial results.

42

JPMorgan Chase & Co./2017 Annual Report2018 outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation ReformAct 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 anduncertainties. These risks and uncertainties could cause theFirm’s actual results to differ materially from those set forth insuch forward-looking statements. See Forward-Looking
Statements on page 145 and the Risk Factors section on
pages 8–26. There is no assurance that actual results for thefull year of 2018 will be in line with the outlook set forth
below, and the Firm does not undertake to update any
forward-looking statements.
JPMorgan Chase’s outlook for 2018 should be viewed against
the backdrop of the global and U.S. economies, financial
markets activity, the geopolitical environment, thecompetitive environment, client and customer activity levels,and regulatory and legislative developments in the U.S. andother countries where the Firm does business. Each of theseinterrelated factors will affect the performance of the Firm
and its lines of business. The Firm expects that it willcontinue to make appropriate adjustments to its businesses
and operations in response to ongoing developments in thelegal, regulatory, business and economic environments inwhich it operates.
Firmwide• As a result of the change in tax rate due to the TCJA,
management expects a reduction in tax-equivalentadjustments, decreasing both revenue and income tax
expense, on a managed basis, by approximately $1.2
billion on an annual run-rate basis.

• The Firm continues to take a disciplined approach to
managing its expenses, while investing for growth andinnovation. As a result, management expects Firmwide
adjusted expense for full-year 2018 to be less than $62
billion, excluding the impact of the new revenue
recognition accounting standard.
• Management estimates the full-year 2018 effective
income tax rate to be in the 19% to 20% range,depending upon several factors, including the geographic
mix of taxable income and refinements to estimates of the
impacts of the TCJA.
• Management expects net charge-off rates to remain
relatively flat across the wholesale and consumer
portfolios, with the exception of Card.
CCB• Management expects the full-year 2018 Card Services net
revenue rate to be approximately 11.25%.
• In Card, management expects the net charge-off rate toincrease to approximately 3.25% in 2018.
CIB• Markets revenue in the first-quarter 2018 is expected to
be up by mid to high single digit percentage points whencompared with the prior-year quarter; actual Markets
revenue results will continue to be affected by market
conditions, which can be volatile.

• Management expects the new revenue recognition
accounting standard to increase both noninterest revenue
and expense for full-year 2018 by approximately $1.2
billion, with most of the impact in the AWM business. For
additional information on the new accounting standard,
see Accounting and Reporting Developments on page 141.

• Management expects first-quarter 2018 net interest
income, on a managed basis, to be down modestlycompared with the fourth quarter of 2017, driven by the
impact of the TCJA and a lower day count. For full-year2018, management expects net interest income, on a
managed basis, to be in the $54 to $55 billion range,market dependent, and assuming expected core loan
growth. Management expects Firmwide average core loan
growth to be in the 6% to 7% range in 2018, excluding
CIB loans.
• Excluding the impact of the new revenue recognition
accounting standard, management expects Firmwide
noninterest revenue for full-year 2018, on a managedbasis, to be up approximately 7%, depending on market
conditions.

JPMorgan Chase & Co./2017 Annual Report43Management’s discussion and analysis
CONSOLIDATED RESULTS OF OPERATIONSThis 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, 2017,
unless otherwise specified. Factors that relate primarily to asingle business segment are discussed in more detail withinthat business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect theConsolidated Results of Operations, see pages 138–140.
RevenueYear ended December 31,(in millions)
Investment banking fees

2017
$

7,248

2016
$

6,448

2015
$

6,751

Principal transactions

11,347

11,566

10,408

Lending- and deposit-related fees

5,933

5,774

5,694

Asset management,
administration and commissions

15,377

14,591

15,509

(66)

141

202

Mortgage fees and related income

1,616

2,491

2,513

Card income

4,433

4,779

5,924

Other income(a)

3,639

3,795

3,032

Noninterest revenue

49,52749,58550,033

Securities gains/(losses)

Net interest income

50,097

Total net revenue$ 99,624

46,083$

95,66843,510$93,543(a) Included operating lease income of $3.6 billion, $2.7 billion and $2.1
billion for the years ended December 31, 2017, 2016 and 2015,
respectively.

2017 compared with 2016
Investment banking fees increased reflecting higher debt
and equity underwriting fees in CIB. The increase in debt
underwriting fees was driven by a higher share of fees andan overall increase in industry-wide fees; and the increasein equity underwriting fees was driven by growth inindustry-wide issuance, including a strong initial public
offering (“IPO”) market. For additional information, see CIB
segment results on pages 62–66 and Note 6.
Principal transactions revenue decreased compared with astrong prior year in CIB, primarily reflecting:• lower Fixed Income-related revenue driven by sustained
low volatility and tighter credit spreads
partially offset by• higher Equity-related revenue primarily in Prime
Services, and• higher Lending-related revenue reflecting lower fair value
losses on hedges of accrual loans.
For additional information, see CIB and Corporate segment
results on pages 62–66 and pages 73–74, respectively, andNote 6.

For information on lending- and deposit-related fees, see
the segment results for CCB on pages 57-61, CIB on pages
62–66, and CB on pages 67–69 and Note 6; on securities
gains, see the Corporate segment discussion on pages 73–
74.
Mortgage fees and related income decreased driven bylower MSR risk management results, lower net production
revenue on lower margins and volumes, and lower servicing
revenue on lower average third-party loans serviced. For
further information, see CCB segment results on pages
57-61, Note 6 and 15.
Card income decreased predominantly driven by higher
credit card new account origination costs, largely offset
by higher card-related fees, primarily annual fees. For
further information, see CCB segment results on pages
57-61 .
Other income decreased primarily due to:• lower other income in CIB largely driven by a $520
million impact related to the enactment of the TCJA,
which reduced the value of certain of CIB’s tax-oriented
investments, and• the absence in the current year of gains from– the sale of Visa Europe interests in CCB,
– the redemption of guaranteed capital debt securities(“trust preferred securities”), and– the disposal of an asset in AWM
partially offset by• higher operating lease income reflecting growth in auto
operating lease volume in CCB, and• a legal benefit of $645 million recorded in the second
quarter of 2017 in Corporate related to a settlement with
the FDIC receivership for Washington Mutual and with
Deutsche Bank as trustee of certain Washington Mutual
trusts.
For further information, see Note 6.
Net interest income increased primarily driven by the net
impact of higher rates and loan growth across thebusinesses, partially offset by declines in Markets net
interest income in CIB. The Firm’s average interest-earning
assets were $2.2 trillion, up $79 billion from the prior year,
and the net interest yield on these assets, on a fully taxable
equivalent (“FTE”) basis, was 2.36%, an increase of 11
basis points from the prior year.

Asset management, administration and commissions
revenue increased as a result of higher asset management
fees in AWM and CCB, and higher asset-based fees in CIB,
both driven by higher market levels. For additional
information, see AWM, CCB and CIB segment results on
pages 70–72, pages 57-61 and pages 62–66, respectively,
and Note 6.
44

JPMorgan Chase & Co./2017 Annual Report2016 compared with 2015
Investment banking fees decreased predominantly due tolower equity underwriting fees driven by declines inindustry-wide fee levels.
Principal transactions revenue increased reflecting broadbased strength across products in CIB’s Fixed Income
Markets business. Rates performance was strong, withincreased client activity driven by high issuance-based
flows, global political developments, and central bankactions. Credit revenue improved driven by higher marketmaking revenue from the secondary market as clients’appetite for risk recovered.
Asset management, administration and commissions
revenue decreased reflecting lower asset management feesin AWM driven by a reduction in revenue related to thedisposal of assets at the beginning of 2016, the impact oflower average equity market levels and lower performancefees, as well as due to lower brokerage commissions andother fees in CIB and AWM.
Mortgage fees and related income were relatively flat, as
lower mortgage servicing revenue related to lower average
third-party loans serviced was predominantly offset byhigher MSR risk management results.
Card income decreased predominantly driven by higher
new account origination costs and the impact ofrenegotiated co-brand partnership agreements, partially
offset by higher card sales volume and other card-related
fees.
Other income increased primarily reflecting:higher operating lease income from growth in auto
operating lease assets in CCB
a gain on the sale of Visa Europe interests in CCB
a gain related to the redemption of guaranteed capitaldebt securities
the absence of losses recognized in 2015 related to theaccelerated amortization of cash flow hedges associatedwith the exit of certain non-operating deposits
a gain on disposal of an asset in AWM
partially offset by
a $514 million benefit recorded in the prior year from alegal settlement in Corporate.
Net interest income increased primarily driven by loan
growth across the businesses and the net impact of higher
rates, partially offset by lower investment securities
balances and higher interest expense on long-term debt.
The Firm’s average interest-earning assets were $2.1 trillion
in 2016, up $13 billion from the prior year, and the netinterest yield on these assets, on a FTE basis, was 2.25%,
an increase of 11 basis points from the prior year.

JPMorgan Chase & Co./2017 Annual Report

Provision for credit losses
Year ended December 31,(in millions)
Consumer, excluding credit card
Credit card
Total consumer
Wholesale
Total provision for credit losses

2017
620 $
4,973
5,593
(303)
$ 5,290 $
$

2016
467
4,042
4,509
852
5,361

$

$

2015
(81)
3,122
3,041
786
3,827

2017 compared with 2016
The provision for credit losses decreased as a result of:• a net $422 million reduction in the wholesale allowancefor credit losses, reflecting credit quality improvements in
the Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in
the prior year driven by downgrades in the same
portfolios
predominantly offset by• a higher consumer provision driven by– $450 million of higher net charge-offs, primarily in thecredit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential realestate portfolio reflecting continued improvement inhome prices and delinquencies,– a $416 million higher addition to the allowance for
credit losses related to the credit card portfolio driven
by higher loss rates and loan growth, and a lower
reduction in the allowance for the residential realestate portfolio predominantly driven by continued
improvement in home prices and delinquencies, and– a $218 million impact in connection with the sale ofthe student loan portfolio.
For a more detailed discussion of the credit portfolio, thestudent loan sale and the allowance for credit losses, see
the segment discussions of CCB on pages 57-61, CIB on
pages 62–66, CB on pages 67–69, the Allowance for Credit
Losses on pages 117–119 and Note 13.
2016 compared with 2015
The provision for credit losses reflected an increase in the
consumer provision and, to a lesser extent, the wholesale
provision. The increase in the consumer provision was
predominantly driven by:
a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the allowance
for loan losses, as well as $320 million of higher net
charge-offs, driven by loan growth (including growth innewer vintages which, as anticipated, have higher loss
rates compared to the overall portfolio), and45

Management’s discussion and analysis
a $470 million lower benefit related to the residential
real estate portfolio, as the reduction in the allowance forloan losses in 2016 was lower than the prior year. The
reduction in both periods reflected continued
improvements in home prices and lower delinquencies.
The increase in the wholesale provision was largely driven
by the impact of downgrades in the Oil & Gas and Natural
Gas Pipelines portfolios.
Noninterest expense
Year ended December 31,(in millions)Compensation expense
Noncompensation expense:
Occupancy
Technology, communications andequipment
Professional and outside services
Marketing
Other(a)(b)Total noncompensation expense
Total noninterest expense

2017$31,0092016$29,979

2015$29,750

3,723

3,638

3,768

7,706

6,846

6,193

6,840
2,900

6,655
2,897

7,002
2,708

6,256
27,425$58,434

5,756
25,792$55,771

9,593
29,264$59,014(a) Included Firmwide legal expense/(benefit) of $(35) million, $(317) million
and $3.0 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
(b) Included FDIC-related expense of $1.5 billion, $1.3 billion and $1.2 billion
for the years ended December 31, 2017, 2016 and 2015, respectively.

2017 compared with 2016
Compensation expense increased predominantly driven by
investments in headcount in most businesses, including
bankers and business-related support staff, and higher
performance-based compensation expense, predominantly
in AWM.
Noncompensation expense increased as a result of:• higher depreciation expense from growth in auto
operating lease volume in CCB• contributions to the Firm’s Foundation• a lower legal net benefit compared to the prior year
• higher FDIC-related expense, and• an impairment in CB on certain leased equipment, themajority of which was sold subsequent to year-end
partially offset by• the absence in the current year of two items totaling$175 million in CCB related to liabilities from a merchantin bankruptcy and mortgage servicing reserves.
For a discussion of legal expense, see Note 29.

46

2016 compared with 2015
Compensation expense was relatively flat predominantly
driven by higher performance-based compensation expense
and investments in several businesses, offset by the impact
of continued expense reduction initiatives, including lower
headcount in certain businesses.
Noncompensation expense decreased as a result of lower
legal expense (including lower legal professional services
expense), the impact of efficiencies, and reduced non-U.S.
tax surcharges. These factors were partially offset by higher
depreciation expense from growth in auto operating leaseassets and higher investments in marketing.
Income tax expense
Year ended December 31,(in millions, except rate)

2017

2016

2015

Income before income tax
expense$35,900$ 34,536$ 30,702

Income tax expense

11,459

9,803

6,260

28.4%

20.4%

Effective tax rate

31.9%

2017 compared with 2016
The effective tax rate increased in 2017 driven by:• a $1.9 billion increase to income tax expense
representing the impact of the enactment of the TCJA.
The increase was driven by the deemed repatriation of
the Firm’s unremitted non-U.S. earnings and adjustments
to the value of certain tax-oriented investments, partially
offset by a benefit from the revaluation of the Firm’s net
deferred tax liability. The incremental expense resulted ina 5.4 percentage point increase to the Firm’s effective tax
rate
partially offset by• benefits resulting from the vesting of employee sharebased awards related to the appreciation of the Firm’s
stock price upon vesting above their original grant price,and the release of a valuation allowance.
For further information, see Note 24.
2016 compared with 2015
The effective tax rate in 2016 was affected by changes in
the mix of income and expense subject to U.S. federal andstate and local taxes, tax benefits related to the utilizationof certain deferred tax assets, as well as the adoption of
new accounting guidance related to employee share-based
incentive payments. These tax benefits were partially offset
by higher income tax expense from tax audits. The lower
effective tax rate in 2015 was predominantly driven by$2.9 billion of tax benefits, which reduced the Firm’s
effective tax rate by 9.4 percentage points. The recognitionof tax benefits in 2015 resulted from the resolution ofvarious tax audits, as well as the release of U.S. deferredtaxes associated with the restructuring of certain non-U.S.
entities.

JPMorgan Chase & Co./2017 Annual ReportCONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Consolidated Balance Sheets Analysis
The following is a discussion of the significant changes between December 31, 2017 and 2016.
Selected Consolidated balance sheets data
December 31, (in millions)

2017

2016

ChangeAssetsCash and due from banks$

25,827$23,8738%

Deposits with banks

404,294

365,762

11

Federal funds sold and securities purchased under resale agreements

198,422229,967(14)

Securities borrowed

105,112

96,4099Debt and equity instruments

325,321308,052

6

Derivative receivables

56,52364,078(12)

Securities

249,958

289,059

(14)

Loans

930,697894,765

4(1)

Trading assets:

Allowance for loan losses(13,604)(13,776)

Loans, net of allowance for loan losses

917,093880,9894

Accrued interest and accounts receivable

67,72952,33029Premises and equipment

14,15914,131—

Goodwill, MSRs and other intangible assets

54,392

54,246—

Other assets

114,770

112,07622,490,972

2%

Total assets

Cash and due from banks and deposits with banks
increased primarily driven by deposit growth and a shift in
the deployment of excess cash from securities purchased
under resale agreements and investment securities into
deposits with banks. The Firm’s excess cash is placed withvarious central banks, predominantly Federal Reserve
Banks.
Federal funds sold and securities purchased under resaleagreements decreased primarily due to the shift in the
deployment of excess cash to deposits with banks and lower
client activity in CIB. For additional information on the
Firm’s Liquidity Risk Management, see pages 92–97.
Securities borrowed increased driven by higher demand for
securities to cover short positions related to client-driven
market-making activities in CIB.
Trading assets–debt and equity instruments increased
predominantly as a result of client-driven market-making
activities in CIB, primarily in Fixed Income Markets andPrime Services, partially offset by lower equity instruments
in Equity Markets. For additional information, refer toNote 2.
Trading assets and trading liabilities–derivative
receivables and payables decreased predominantly as aresult of client-driven market-making activities in CIB
Markets, which reduced foreign exchange and interest rate
derivative receivables and payables, and increased equity
derivative receivables, driven by market movements. For
additional information, refer to Derivative contracts on
pages 114–115, and Notes 2 and 5.

$

2,533,600$

Securities decreased primarily reflecting net sales,maturities and paydowns of U.S. Treasuries, non-U.S.
government securities and collateralized loan obligations.
For additional information, see Notes 2 and 10.
Loans increased reflecting:• higher wholesale loans driven by new originations in CB
and higher loans to Private Banking clients in AWM• higher consumer loans driven by higher retention oforiginated high-quality prime mortgages in CCB and AWM,
and higher credit card loans, largely offset by the sale ofthe student loan portfolio, lower home equity loans andthe run-off of PCI loans.
The allowance for loan losses decreased driven by:• a net reduction in the wholesale allowance, reflecting
credit quality improvements in the Oil & Gas, Natural Gas
Pipelines and Metals & Mining portfolios (compared withadditions to the allowance in the prior year driven by
downgrades in the same portfolios)
largely offset by• a net increase in the consumer allowance, reflecting
additions to the allowance for the credit card andbusiness banking portfolios, driven by loan growth in bothof these portfolios and higher loss rates in the credit card
portfolio, largely offset by a reduction in the allowancefor the residential real estate portfolio, predominantly
driven by continued improvement in home prices anddelinquencies, and the utilization of the allowance inconnection with the sale of the student loan portfolio.
For a more detailed discussion of loans and the allowance
for loan losses, refer to Credit and Investment Risk
Management on pages 99–120, and Notes 2, 3, 12 and 13.

JPMorgan Chase & Co./2017 Annual Report47

Management’s discussion and analysis
Accrued interest and accounts receivable
increased primarily reflecting higher held-for-investment
margin loans related to client-driven financing activities inPrime Services.

Other assets increased slightly as a result of higher auto
operating lease assets from growth in business volume in
CCB.
For information on Goodwill and MSRs, see Note 15.

Selected Consolidated balance sheets data
December 31, (in millions)

2017

2016

ChangeLiabilities
Deposits$

1,443,982$

1,375,179

5

Federal funds purchased and securities loaned or sold under repurchase agreements

158,916

165,666(4)

Short-term borrowings

51,802

34,44350

85,88687,428(2)(23)

Trading liabilities:
Debt and equity instruments
Derivative payables

37,77749,231

Accounts payable and other liabilities

189,383

190,543(1)

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

26,081

39,047(33)

Long-term debt

284,080

295,245(4)

Total liabilities

2,277,907

2,236,782

2

255,693

254,19012,490,972

2%

Stockholders’ equity
Total liabilities and stockholders’ equity

Deposits increased due to:• higher consumer deposits reflecting the continuation ofstrong growth from new and existing customers, and low
attrition rates• higher wholesale deposits largely driven by growth inclient cash management activity in CIB’s Securities
Services business, partially offset by lower balances in
AWM reflecting balance migration predominantly into theFirm’s investment-related products.
For more information, refer to the Liquidity Risk
Management discussion on pages 92–97; and Notes 2
and 17.
Short-term borrowings increased primarily due to higher
issuance of commercial paper reflecting in part a change inthe mix of funding from securities sold under repurchaseagreements for CIB Markets activities. For additional
information, see Liquidity Risk Management on pages 92–
97.

48

$

2,533,600$

Beneficial interests issued by consolidated VIEs
decreased due to net maturities of credit card
securitizations and the deconsolidation of the student loan
securitization entities in connection with the portfolio’s sale.
For further information on Firm-sponsored VIEs and loan
securitization trusts, see Off-Balance Sheet Arrangements
on pages 50–51 and Note 14 and 27; and for the sale of thestudent loan portfolio, see CCB segment results on pages
57-61.
Long-term debt decreased reflecting lower Federal Home
Loan Bank (“FHLB”) advances, partially offset by the net
issuance of senior debt and the net issuance of structured
notes in CIB driven by client demand. For additional
information on the Firm’s long-term debt activities, see
Liquidity Risk Management on pages 92–97 and Note 19.
For information on changes in stockholders’ equity, seepage 151, and on the Firm’s capital actions, see Capitalactions on pages 89-90.

JPMorgan Chase & Co./2017 Annual ReportConsolidated Cash Flows Analysis
Year ended December 31,(in millions)

2017

2016

2015

Net cash provided by/(used in)Operating activities$(2,501) $ 20,196$

73,466

Investing activities(10,283)(114,949)

106,980

Financing activities

14,642

98,271(187,511)

96

(135)

(276)

Effect of exchange ratechanges on cash
Net increase/(decrease) incash and due from banks

$

1,954

$

3,383

$

(7,341)

Operating activities
JPMorgan Chase’s operating assets and liabilities support
the Firm’s lending and capital markets activities. Theseassets 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 andother liquidity sources, and its capacity to generate cash
through secured and unsecured sources are sufficient tomeet operating liquidity needs.
• In 2017, cash used reflected an increase in held-forinvestment margin loans in accrued interest and accounts
receivable and a decrease in trading liabilities.
• In 2016, cash provided reflected increases in accounts
payable and trading liabilities, partially offset by cashused reflecting an increase in trading assets, an increasein accounts receivable from merchants and higher client
receivables.
• In 2015, cash provided reflected decreases in trading
assets and in accounts receivable, partially offset by cashused due to a decrease in accounts payable and otherliabilities.

Investing activities
The Firm’s investing activities predominantly include
originating held-for-investment loans and investing in the
securities portfolio and other short-term interest-earning
assets.
• In 2017, cash used primarily reflected net originations ofloans and a net increase in short-term interest-earning
assets, partially offset by net proceeds from paydowns,
maturities, sales and purchases of investment securities.
• In 2016, cash used reflected net originations of loans, anincrease in short-term interest-earning assets, anincrease in securities purchased under resaleagreements, and the deployment of excess cash.
• In 2015, cash provided predominantly reflected lower
short-term interest-earning assets, and net proceeds fromlower investment securities, partially offset by cash used
for net originations of loans.
Financing activities
The Firm’s financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferredand common stock.
• In 2017, cash provided reflected higher deposits andshort-term borrowings, partially offset by a decrease inlong-term borrowings.
• In 2016, cash provided reflected higher deposits, and anincrease in securities loaned or sold under repurchaseagreements, and net proceeds from long term
borrowings.
• In 2015, cash used reflected lower deposits and shortterm borrowings, partially offset by net proceeds fromlong-term borrowings. Additionally, in 2015 cash
outflows reflected a decrease in securities loaned or soldunder repurchase agreements.
• For all periods, cash was used for repurchases of common
stock and cash dividends on common and preferred stock.
* * *For a further discussion of the activities affecting the Firm’s
cash flows, see Consolidated Balance Sheets Analysis on
pages 47-48 , Capital Risk Management on pages 82–91,
and Liquidity Risk Management on pages 92–97.

JPMorgan Chase & Co./2017 Annual Report49Management’s discussion and analysis
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONSIn the normal course of business, the Firm enters into
various contractual obligations that may require future cash
payments. Certain obligations are recognized on-balance
sheet, while others are off-balance sheet under accounting
principles generally accepted in the U.S. (“U.S. GAAP”).
The Firm is involved with several types of off–balance sheet
arrangements, including through nonconsolidated SPEs,
which are a type of VIE, and through lending-related
financial instruments (e.g., commitments and guarantees).

derivative transactions and lending-related commitments
and guarantees.
The Firm has no commitments to issue its own stock tosupport any SPE transaction, and its policies require thattransactions with SPEs be conducted at arm’s length andreflect 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 deemed appropriate, against all
SPE-related transactions and related exposures, such as
The table below provides an index of where in this Annual Report a discussion of the Firm’s various off-balance sheet
arrangements can be found. In addition, see Note 1 for information about the Firm’s consolidation policies.
Type of off-balance sheet arrangement

Location of disclosure

Page references

Special-purpose entities: variable interests and otherobligations, including contingent obligations, arisingfrom variable interests in nonconsolidated VIEs

See Note 14

236–243

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

See Note 27

261–266

50

JPMorgan Chase & Co./2017 Annual ReportContractual cash obligations

The accompanying table summarizes, by remaining
maturity, JPMorgan Chase’s significant contractual cash
obligations at December 31, 2017. 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 amountof principal at maturity.

The carrying amount of on-balance sheet obligations on theConsolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and otherobligations, see Note 27.

Contractual cash obligations
By remaining maturity at December 31,(in millions)

2018

2017
2021-2022

2019-2020

After 2022

Total

2016
Total

1,437,464 $

1,368,866

On-balance sheet obligations
Deposits(a)1,421,174 $5,276 $

4,810 $

6,204 $

Federal funds purchased and securities loaned orsold under repurchase agreements$

133,779

4,198

4,958

15,981

158,916

165,666

Short-term borrowings(a)42,664———

42,664

26,497

Beneficial interests issued by consolidated VIEs

13,636

9,542

2,544

314

26,03638,927Long-term debt(a)37,211

63,68543,180116,819

260,895

288,315

Other(b)Total on-balance sheet obligations

4,726

2,146

2,080

4,573

13,5258,980

1,653,190

84,84757,572

143,891

1,939,500

1,897,251

Off-balance sheet obligations
Unsettled reverse repurchase and securities
borrowing agreements(c)76,859———76,85950,722Contractual interest payments(d)9,248

11,046

7,471

26,33854,10348,862

Operating leases(e)

1,526

2,750

1,844

3,757

9,877

10,115Equity investment commitments

174

46

19

515

754

1,068

1,923

937

439

204

3,503

2,566

Obligations under co-brand programs

249

500

478

207

1,434

868

Total off-balance sheet obligations

89,97915,27910,251

31,021

146,530

114,201

1,743,169 $

100,126 $

67,823 $174,912 $2,086,030 $2,011,452(f)

Contractual purchases and capital expenditures

Total contractual cash obligations$(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.
(b) 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.
(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 27.
(d) 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.
(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes. Excludes the benefit of noncancelable subleaserentals of $1.0 billion and $1.4 billion at December 31, 2017 and 2016, respectively. See Note 28 for more information on lease commitments.
(f) At December 31, 2017 and 2016, included unfunded commitments of $40 million and $48 million, respectively, to third-party private equity funds, and$714 million and $1.0 billion of unfunded commitments, respectively, to other equity investments.

JPMorgan Chase & Co./2017 Annual Report51

Management’s discussion and analysis
EXPLANATION AND RECONCILIATION OF THE FIRM’S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 148–152. That presentation, which is referred to as“reported” basis, provides the reader with anunderstanding 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.

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 orby the lines of business.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particularbusiness segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segmentwith the performance of its relevant competitors. For
additional information on these non-GAAP measures, see
Business Segment Results on pages 55–74.

In addition to analyzing the Firm’s results on a reported
basis, management reviews Firmwide results, including theoverhead ratio, on a “managed” basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the lines of business on
a managed basis. The Firm’s definition of managed basis
starts, in each case, with the reported U.S. GAAP results andincludes certain reclassifications to present total net
revenue for the Firm (and each of the reportable businesssegments) on a FTE basis. Accordingly, revenue frominvestments 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 thecomparability of revenue from year-to-year arising fromboth taxable and tax-exempt sources. The corresponding

Additionally, certain credit metrics and ratios disclosed by
the Firm exclude PCI loans, and are therefore non-GAAP
measures. For additional information on these non-GAAP
measures, see Credit and Investment Risk Management on
pages 99–120.
Non-GAAP financial measures used by the Firm may not becomparable 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.
2017
Year ended
December 31,(in millions, except ratios)

Reported
Results

Fully taxableequivalentadjustments(a)Other income

$

$

3,639

2,704

Total noninterest revenue

49,5272,704

Net interest income

50,097

Total net revenue

99,624Pre-provision profit
Income before income tax
expenseIncome tax expense
Overhead ratio

2016

(b)

2015

Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managedbasis

Reported
Results

Fully taxableequivalentadjustments(a)Managed
basis

$

$

$

$

$

$

$

6,343

3,795

2,265

6,060

3,032

1,980

5,012

52,231

49,5852,265

51,85050,033

1,980

52,013

1,313

51,41046,083

1,209

47,29243,5101,110

44,620

4,017

103,641

95,6683,474

99,14293,543

3,090

96,633

41,1904,017

45,20739,8973,474

43,371

34,5293,090

37,61935,9004,017

39,91734,536

3,474

38,01030,702

3,090

33,792

11,4594,017

15,476

9,803

3,474

13,277

6,260

3,090

9,350

59%

NM

(b)

56%

58%

NM

56%

63%

NM

61%

(a) Predominantly recognized in CIB and CB business segments and Corporate.
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.

52

JPMorgan Chase & Co./2017 Annual ReportNet interest income excluding CIB’s Markets businesses
In addition to reviewing net interest income on a managedbasis, management also reviews net interest income
excluding net interest income arising from CIB’s Markets
businesses to assess the performance of the Firm’s lending,investing (including asset-liability management) anddeposit-raising activities. This net interest income isreferred to as non-markets related net interest income.
CIB’s Markets businesses are Fixed Income Markets andEquity Markets. Management believes that disclosure of
non-markets related net interest income provides investors
and analysts with another measure by which to analyze thenon-markets-related business trends of the Firm andprovides a comparable measure to other financial
institutions that are primarily focused on lending, investingand deposit-raising activities.

Calculation of certain U.S. GAAP and non-GAAP financial measures
Certain U.S. GAAP and non-GAAP financial measures are calculated asfollows:
Book value per share (“BVPS”)
Common stockholders’ equity at period-end /Common shares at period-end
Overhead ratio
Total noninterest expense / Total net revenue
Return on assets (“ROA”)
Reported net income / Total average assets
Return on common equity (“ROE”)
Net income* / Average common stockholders’ equity
Return on tangible common equity (“ROTCE”)
Net income* / Average tangible common equity
Tangible book value per share (“TBVPS”)
Tangible common equity at period-end / Common shares at period-end* Represents net income applicable to common equity

The data presented below are non-GAAP financial measuresdue to the exclusion of markets related net interest income
arising from CIB.
Year ended December 31,(in millions, except rates)
Net interest income –managed basis(a)(b)2017$

Less: CIB Markets net
interest income(c)51,410

2016
$

4,630

Net interest income
excluding CIB Markets(a) $46,78047,292

2015
$

6,334
$

40,95844,6205,298$

39,322Average interest-earning
assets$2,180,592$2,101,604$ 2,088,242

Less: Average CIB Markets
interest-earning assets(c)540,835

520,307510,292

Average interest-earning
assets excluding CIB
Markets$1,639,757$1,581,297$ 1,577,950

Net interest yield on
average interest-earning
assets – managed basis

2.36%

2.25%

2.14%

Net interest yield on
average CIB Markets
interest-earning assets(c)

0.86

1.22

1.04

Net interest yield on
average interest-earning
assets excluding CIB
Markets

2.85%

2.59%

2.49%

(a) Interest includes the effect of related hedges. Taxable-equivalent amounts areused where applicable.
(b) For a reconciliation of net interest income on a reported and managed basis, seereconciliation from the Firm’s reported U.S. GAAP results to managed basis on
page 52.
(c) The amounts in this table differ from the prior-period presentation to align with
CIB’s Markets businesses. For further information on CIB’s Markets businesses,
see page 65.

JPMorgan Chase & Co./2017 Annual Report53Management’s discussion and analysis
Tangible common equity, ROTCE and TBVPS
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm’s common
stockholders’ equity (i.e., total stockholders’ equity less preferred stock) less goodwill and identifiable intangible assets (otherthan MSRs), net of related deferred tax liabilities. ROTCE measures the Firm’s net income applicable to common equity as apercentage of average TCE. TBVPS represents the Firm’s TCE at period-end divided by common shares at period-end. TCE,
ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm’s use of equity.
The following summary table provides a reconciliation from the Firm’s common stockholders’ equity to TCE.
Period-end
Dec 31,
2017(in millions, except per share and ratio data)
Common stockholders’ equity

2017

2016

2015

228,122$ 230,350$ 224,631$ 215,690

47,50747,28847,31747,31047,445

855

862

832

922

1,092

2,204

3,230

3,116

3,212

2,964

$

183,467 $

183,202$ 185,317$ 179,611$ 170,117

NA

NA

12%

13%

13%

$

53.56 $

51.44

NA

NA

NA

Less: Other intangible assets
Add: Certain Deferred tax liabilities(a)(b)Return on tangible common equity
Tangible book value per share

Dec 31,
2016

229,625 $$Less: Goodwill

Tangible common equity

AverageYear ended December 31,(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill andother intangibles when calculating TCE.
(b) Includes the effect from the revaluation of the Firm’s net deferred tax liability as a result of the enactment of the TCJA.

Key performance measures
The Firm considers the following to be key regulatory
capital measures:• Capital, risk-weighted assets (“RWA”), and capital andleverage ratios presented under Basel III Standardized
and Advanced Fully Phased-In rules, and• SLR calculated under Basel III Advanced Fully Phased-In
rules.
The Firm, as well as banking regulators, investors andanalysts, use these measures to assess the Firm’s regulatory
capital position and to compare the Firm’s regulatory
capital to that of other financial services companies.

Core loans are also considered a key performance measure.
Core loans represent loans considered central to the Firm’s
ongoing businesses; and exclude loans classified as trading
assets, runoff portfolios, discontinued portfolios andportfolios the Firm has an intent to exit. Core loans is ameasure utilized by the Firm and its investors and analysts
in assessing actual growth in the loan portfolio.

For additional information on these measures, see Capital
Risk Management on pages 82–91.

54

JPMorgan Chase & Co./2017 Annual ReportBUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment.

The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Resultsof these lines of business are presented on a managedbasis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm’s use of Non-GAAP Financial
Measures, on pages 52–54.

JPMorgan Chase
Consumer Businesses

Wholesale Businesses

Consumer & Community Banking

Commercial
Banking

Asset & WealthManagement

Markets &Investor Services• Middle
MarketBanking• AssetManagement• FixedIncomeMarkets• Corporate
ClientBanking• Equity
Markets• Securities
Services• Credit
Adjustments& Other• Commercial
Term
Lending

Corporate & Investment Bank

Consumer &Business Banking

Home Lending(a)Card, MerchantServices & Auto(b)Banking• Consumer
Banking/
Chase
WealthManagement• BusinessBanking• HomeLending
Production• HomeLendingServicing• Real Estate
Portfolios• CardServices– Credit Card
– MerchantServices• Auto• Investment
Banking• Treasury
Services• Lending• Wealth
Management• Real Estate
Banking(a) Formerly Mortgage Banking(b) Formerly Card, Commerce Solutions & Auto

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 includes the allocation of certain
income and expense items described in more detail below.
The Firm also assesses the level of capital required for eachline of business on at least an annual basis.
The Firm periodically assesses the assumptions,
methodologies and reporting classifications used forsegment reporting, and further refinements may be
implemented in future periods.

Funds transfer pricing
Funds transfer pricing is used to assign interest income andexpense to each business segment and to transfer the
primary interest rate risk and liquidity risk exposures toTreasury and CIO within Corporate. The funds transfer
pricing process considers the interest rate risk, liquidity risk
and regulatory requirements of a business segment as if itwere operating independently. This process is overseen by
senior management and reviewed by the Firm’s AssetLiability Committee (“ALCO”).

Revenue sharing
When business segments join efforts to sell products andservices to the Firm’s clients, the participating businesssegments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.

JPMorgan Chase & Co./2017 Annual Report55

Management’s discussion and analysis
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 isallocated to the reportable business segments, while thebalance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the businesssegments is aligned with the Firm’s process to allocate
capital. The allocated cost of unsecured long-term debt isincluded in a business segment’s net interest income, andnet income is reduced by preferred stock dividends to arrive
at a business segment’s net income applicable to common
equity.

capital. For additional information on business segment
capital allocation, see Line of business equity on page 89.
Expense allocation
Where business segments use services provided bycorporate support units, or another business segment, thecosts 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 other costs related tocorporate support units, or to certain technology andoperations, are not allocated to the business segments andare retained in Corporate. Expense retained in Corporate
generally includes parent company costs that would not be
incurred if the segments were stand-alone businesses;
adjustments to align corporate support units; and otheritems not aligned with a particular business segment.

Business segment capital allocation
The amount of capital assigned to each business is referred
to as equity. On at least an annual basis, the Firm assesses
the level of capital required for each line of business as wellas the assumptions and methodologies used to allocate

Segment Results – Managed Basis
The following tables summarize the business segment results for the periods indicated.
Year ended December 31,

Total net revenue(in millions)

Total noninterest expense

2016

2015

2017

Consumer & Community Banking$ 46,485 $

44,915 $43,820$ 26,062 $Corporate & Investment Bank

34,49335,21633,542

19,24318,992

21,361

15,25016,224

12,181

Commercial Banking

8,605

7,453

6,885

3,327

2,934

2,881

5,278

4,519

4,004

Asset & Wealth Management

12,91812,045

12,119

9,301

8,478

8,886

3,617

3,567

3,233

Corporate

1,140

(487)

267

501

462

977

639

(949)

(710)

$103,641 $

99,142 $96,633$ 58,434 $Total

Year ended December 31,

Provision for credit losses(in millions, except ratios)

2017

2016

2015

Consumer & Community Banking

$

2016

Pre-provision profit/(loss)

2017

2015

24,905 $ 24,909

55,771 $ 59,014

2017

Return on equity

2016

2015

2017

2016

2015

5,572 $

4,494 $

3,059

9,395 $

9,714 $

9,789

17%

18%

18%

Corporate & Investment Bank

(45)

563

332

10,813

10,815

8,090

14

16

12

Commercial Banking

(276)

282

442

3,539

2,657

2,191

17

16

15

39

26

4

2,337

2,251

1,935

25

24

21

(1,643)

(704)

2,437

NM

NM

NM

10%

10%

11%

Asset & Wealth Management
Corporate
Total

$

—

(4)

(10)

5,290 $

5,361 $

3,827

$

2015

$ 45,207 $ 43,371 $ 37,619

Net income/(loss)
2017

2016

$ 20,423 $ 20,010 $ 18,911$ 24,441 $ 24,733 $ 24,442

The following sections provide a comparative discussion of business segment results as of or for the years ended December 31,
2017, 2016 and 2015.

56

JPMorgan Chase & Co./2017 Annual ReportCONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, online, mobile and telephone banking. CCB isorganized into Consumer & Business Banking (including
Consumer Banking/Chase Wealth Management andBusiness Banking), Home Lending (including Home
Lending Production, Home Lending Servicing and Real
Estate Portfolios) and Card, Merchant Services & Auto.
Consumer & Business Banking offers deposit andinvestment products and services to consumers, andlending, 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 andhome equity loans. Card, Merchant Services & Autoissues credit cards to consumers and small businesses,
offers payment processing services to merchants, andoriginates and services auto loans and leases.

Selected income statement data
Year ended December 31,(in millions, except ratios)

2017

2016

2015

Lending- and deposit-related fees $ 3,431$ 3,231$ 3,137

Revenue
Asset management,
administration andcommissions

2,212

2,093

2,172

Mortgage fees and related
income

1,613

2,490

2,511

Card income

4,024

4,364

5,491

All other income

3,430

3,077

2,281

Noninterest revenue

14,71015,255

15,592

Net interest income

31,77529,66028,228

Total net revenue

46,48544,91543,820

Provision for credit losses

5,572

4,494

3,059

10,159

9,723

9,770

Noncompensation expense

15,903

15,182

15,139Total noninterest expense

26,062

24,90524,909

Income before income tax
expense14,851

15,51615,852

Income tax expense

5,456

5,802

6,063

$ 9,395$ 9,714$ 9,789

Noninterest expense
Compensation expense(a)

Net income
Revenue by line of business
Consumer & Business Banking$ 21,104$ 18,659$ 17,983

Home Lending

5,955

7,361

6,817

Card, Merchant Services & Auto

19,426

18,89519,020Net production revenue

636

853

769

Net mortgage servicing
revenue(b)

977

1,637

1,742

$ 1,613$ 2,490$ 2,511Mortgage fees and related
income details:

Mortgage fees and related
incomeFinancial ratios
Return on equity

17%

18%

18%

Overhead ratio

56

55

57

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.

(a) Included operating lease depreciation expense of $2.7 billion, $1.9 billion

and $1.4 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
(b) Included MSR risk management results of $(242) million, $217 million and$(117) million for the years ended December 31, 2017, 2016 and 2015,
respectively.

JPMorgan Chase & Co./2017 Annual Report57

Management’s discussion and analysis
2017 compared with 2016
Net income was $9.4 billion, a decrease of 3%, driven byhigher noninterest expense and provision for credit losses,
largely offset by higher net revenue.

2016 compared with 2015
Net income was $9.7 billion, a decrease of 1%, driven byhigher provision for credit losses, predominantly offset byhigher net revenue.

Net revenue was $46.5 billion, an increase of 3%.

Net revenue was $44.9 billion, an increase of 2%.

Net interest income was $31.8 billion, up 7%, driven byhigher deposit balances, deposit margin expansion, andhigher loan balances in Card, partially offset by loan spreadcompression from higher rates, including the impact ofhigher funding costs in Home Lending and Auto and theimpact of the sale of the student loan portfolio.

Net interest income was $29.7 billion, up 5%, driven byhigher deposit balances and higher loan balances, partially
offset by deposit spread compression and an increase in thereserve for uncollectible interest and fees in Card.

Noninterest revenue was $14.7 billion, down 4%, driven by:• higher new account origination costs in Card,• lower MSR risk management results,• the absence in the current year of a gain on the sale ofVisa Europe interests,• lower net production revenue reflecting lower mortgage
production margins and volumes, and• lower mortgage servicing revenue as a result of a lower
level of third-party loans serviced
largely offset by• higher auto lease volume and• higher card- and deposit-related fees.
See Note 15 for further information regarding changes invalue of the MSR asset and related hedges, and mortgage
fees and related income.
Noninterest expense was $26.1 billion, an increase of 5%,
driven by:• higher auto lease depreciation, and• continued business growthpartially offset by• two items totaling $175 million included in the prioryear related to liabilities from a merchant bankruptcy
and mortgage servicing reserves.
The provision for credit losses was $5.6 billion, an increaseof 24%, reflecting:• $445 million of higher net charge-offs, primarily in thecredit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential realestate portfolio reflecting continued improvement inhome prices and delinquencies,• a $415 million higher addition to the allowance for
credit losses related to the credit card portfolio driven
by higher loss rates and loan growth, and a lower
reduction in the allowance for the residential real estate
portfolio predominantly driven by continued
improvement in home prices and delinquencies, and• a $218 million impact in connection with the sale of thestudent loan portfolio.
The sale of the student loan portfolio during 2017 did nothave a material impact on the Firm’s Consolidated Financial
Statements.
58

Noninterest revenue was $15.3 billion, down 2%, driven byhigher new account origination costs and the impact ofrenegotiated co-brand partnership agreements in Card andlower mortgage servicing revenue predominantly as a resultof a lower level of third-party loans serviced; these factors
were predominantly offset by higher auto lease and cardsales volume, higher card- and deposit-related fees, higher
MSR risk management results and a gain on the sale of Visa
Europe interests. See Note 15 for further information
regarding changes in value of the MSR asset and related
hedges, and mortgage fees and related income.
Noninterest expense of $24.9 billion was flat, driven by:• lower legal expense and branch efficiencies
offset by• higher auto lease depreciation, and• higher investment in marketing.
The provision for credit losses was $4.5 billion, an increaseof 47%, reflecting:• a $920 million increase related to the credit card
portfolio, due to a $600 million addition in theallowance for loan losses, as well as $320 million ofhigher net charge-offs, driven by loan growth, including
growth in newer vintages which, as anticipated, havehigher loss rates compared to the overall portfolio,• a $450 million lower benefit related to the residential
real estate portfolio, as the current year reduction in theallowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies,and• a $150 million increase related to the auto and businessbanking portfolio, due to additions to the allowance forloan losses and higher net charge-offs, reflecting loan
growth in the portfolios.

JPMorgan Chase & Co./2017 Annual ReportSelected metrics

Selected metrics

As of or for the year ended
December 31,

As of or for the year ended
December 31,(in millions, except headcount)

2017

2016

2015

Selected balance sheet data(period-end)
Total assets(in millions, except ratio data)

2017

2016

2015

$ 4,084$ 4,708$ 5,313

Consumer & Business Banking

257

257

253

Home equity

63

184

283

Residential mortgage

(16)

14

2

Home Lending

47

198

285

Card

4,123

3,442

3,122

Auto

331

285

214

Student

498

162

210

$ 5,256$ 4,344$ 4,084

Credit data and quality statistics
Nonaccrual loans(a)(b)$552,601$535,310$502,652

Consumer & Business Banking

25,78924,30722,730Home equity

42,75150,29658,734

Residential mortgage

197,339

181,196

164,500

Home Lending

240,090

231,492

223,234

Card

149,511

141,816

131,463

Auto

66,24265,81460,255

—

7,057

8,176

Total loans

481,632

470,486445,858

Total net charge-offs/(recoveries)

Core loans

415,167

382,608

341,881

Deposits

659,885

618,337

557,645

Net charge-off/(recovery) rate

Equity51,00051,00051,000Loans:

Student

Selected balance sheet data
(average)
Total assets

Net charge-offs/(recoveries)(c)(c)

Consumer & Business Banking

1.03%

1.10 %

1.16%

Home equity

0.18

0.45

0.60

Residential mortgage(d)(0.01)

0.01—

Home Lending(d)

0.02

0.10

0.18

Card

2.95

2.63

2.51

Auto

0.51

0.45

0.38

Student

NM

2.13

2.40

1.21

1.04

1.10

Home Lending(e)(f)

1.19%

1.23%

1.57%

Card

1.80

1.61

1.43

Auto

0.89

1.19

1.35

—

1.60

1.81

0.92

0.81

0.72

(d)

$532,756$516,354$472,972

Consumer & Business Banking

24,87523,431

21,894Home equity

46,39854,54563,261

Residential mortgage

190,242

177,010140,294

Home Lending

236,640

231,555

203,555

Card

140,024

131,165

125,881

Auto65,39563,57356,487

Student

2,880

7,623

8,763

Total loans

469,814457,347

416,580

Core loans

393,598

361,316

301,700

Deposits

640,219586,637

530,938

90+ day delinquency rate - Card

Equity51,00051,00051,000Allowance for loan losses

Headcount

134,117

132,802

127,094

Loans:

Total net charge-offs/(recovery)rate(d)30+ day delinquency rate

Student(g)Consumer & Business Banking

$

796

$

753

$

703

Home Lending, excluding PCI loans

1,003

1,328

1,588

Home Lending — PCI loans(c)

2,225

2,311

2,742

Card

4,884

4,034

3,434

Auto

464

474

399

Student
Total allowance for loan losses(c)

—

249

299

$ 9,372$ 9,149$ 9,165(a) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(b) At December 31, 2017, 2016 and 2015, nonaccrual loans excluded loans 90 or
more days past due as follows: (1) mortgage loans insured by U.S. government
agencies of $4.3 billion, $5.0 billion and $6.3 billion, respectively; and (2)student loans insured by U.S. government agencies under the Federal Family
Education Loan Program (“FFELP”) of zero, $263 million and $290 million,
respectively. These amounts have been excluded based upon the government
guarantee.
(c) Net charge-offs and the net charge-off rates for the years ended December 31,
2017, 2016 and 2015, excluded $86 million, $156 million and $208 million,
respectively, of write-offs in the PCI portfolio. These write-offs decreased theallowance for loan losses for PCI loans. For further information on PCI write-offs,
see summary of changes in the allowance on page 118.
(d) Excludes the impact of PCI loans. For the years ended December 31, 2017, 2016
and 2015, the net charge-off rates including the impact of PCI loans were as
follows: (1) home equity of 0.14%, 0.34% and 0.45%, respectively; (2)residential mortgage of (0.01)%, 0.01% and –%, respectively; (3) Home
Lending of 0.02%, 0.09% and 0.14%, respectively; and (4) total CCB of 1.12%,
0.95% and 0.99%, respectively.

JPMorgan Chase & Co./2017 Annual Report59Management’s discussion and analysis(e) At December 31, 2017, 2016 and 2015, excluded mortgage loans insured by
U.S. government agencies of $6.2 billion, $7.0 billion and $8.4 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee.
(f) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 10.13%,
9.82% and 11.21% at December 31, 2017, 2016 and 2015, respectively.
(g) Excluded student loans insured by U.S. government agencies under FFELP of$468 million and $526 million at December 31, 2016 and 2015, respectively,that are 30 or more days past due. These amounts have been excluded based
upon the government guarantee.

Selected metrics
As of or for the year ended
December 31,(in billions, except ratios andwhere otherwise noted)

2017

2016

2015

61.0
5,130

60.4
5,258

58.1
5,413

46,694

43,836

39,24230,056

26,536

22,810$ 916.9$ 821.6$ 754.1$ 625.6$ 570.8$ 515.2

Business Metrics
CCB households (in millions)(a)Number of branches
Active digital customers(in thousands)(b)Active mobile customers(in thousands)(c)Debit and credit card sales
volume(a)Consumer & Business Banking
Average deposits
Deposit margin

1.98%

Business banking origination
volumeClient investment assets

$

7.3

1.81%
$

273.3

7.3

1.90%
$

234.5

6.8
218.6

Home Lending
Mortgage origination volume bychannel
Retail$Correspondent
Total mortgage origination
volume(d)Total loans serviced(period-end)

40.3

$

44.3

$

36.1

57.3

59.3

70.3

97.6

$ 103.6$ 106.4$ 816.1$ 846.6$ 910.1$

Third-party mortgage loans
serviced (period-end)

553.5

591.5

674.0

MSR carrying value(period-end)

6.0

6.1

6.6

Ratio of MSR carrying value(period-end) to third-party
mortgage loans serviced(period-end)

1.08%

1.03%

0.98%

MSR revenue multiple(e)

3.09x

2.94x

2.80x

$ 622.2$ 545.4$ 495.9

8.4

10.4

8.7

10.57%

11.29%

12.33%

Card, excluding Commercial
Card
Credit card sales volume
New accounts opened(in millions)
Card Services
Net revenue rate
Merchant Services
Merchant processing volume$1,191.7$1,063.4$ 949.3

$

$

$

Auto
Loan and lease origination
volumeAverage Auto operating leaseassets

33.3
15.2

35.4
11.0

32.4
7.8

(a) The prior period amounts have been revised to conform with the current period
presentation.
(b) Users of all web and/or mobile platforms who have logged in within the past 90
days.
(c) Users of all mobile platforms who have logged in within the past 90 days.
(d) Firmwide mortgage origination volume was $107.6 billion, $117.4 billion and$115.2 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
(e) 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).

60

JPMorgan Chase & Co./2017 Annual ReportMortgage servicing-related matters
The Firm has resolved the majority of the consent orders andsettlements into which it entered with federal and state
governmental agencies and private parties related to
mortgage servicing, origination, and residential mortgagebacked securities activities. On January 12, 2018, the Boardof Governors of the Federal Reserve System terminated its
mortgage servicing-related Consent Order with the Firm,
which had been outstanding since April 2011.
Some of the remaining obligations are overseen by anindependent reviewer, who publishes periodic reports
detailing the Firm’s compliance with the obligations.

JPMorgan Chase & Co./2017 Annual Report61

Management’s discussion and analysis
CORPORATE & INVESTMENT BANKThe Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers abroad 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 andmunicipal entities. Banking offers a full range ofinvestment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity anddebt markets, as well as loan origination andsyndication. Banking also includes Treasury Services,which provides transaction services, consisting of cash
management and liquidity solutions. Markets &Investor Services 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 Securities Services, a leading global
custodian which provides custody, fund accounting andadministration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Selected income statement data
Year ended December 31,(in millions)
2017
Revenue
Investment banking fees
$ 7,192
Principal transactions
10,873
Lending- and deposit-related fees
1,531
Asset management,
administration and commissions
4,207

2016

2015

Selected income statement data
Year ended December 31,(in millions, except ratios)

2017

2016

2015

Financial ratios
Return on equity

14%

16%

12%

Overhead ratio

56

54

64

Compensation expense as
percentage of total net
revenue
Revenue by business

28

27

30

Investment Banking$ 6,688$ 5,950$ 6,376

Treasury Services

4,172

3,643

3,631

Lending

1,429

1,208

1,461

Total Banking

12,28910,801

11,468Fixed Income Markets

12,812

15,25912,592Equity Markets

5,703

5,740

5,694

Securities Services

3,917

3,591

3,777

Credit Adjustments & Other(a)

(228)

(175)

11

Total Markets & Investor
Services

22,204

24,41522,074

Total net revenue$34,493$35,216$ 33,542(a) Consists primarily of credit valuation adjustments (“CVA”) managed
centrally within CIB, funding valuation adjustments (“FVA”) and debit
valuation adjustments (“DVA”) on derivatives. Results 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. For additional information, see
Accounting and Reporting Developments on pages 141–144 and Notes

2, 3 and 23.

4,062

4,467

572

1,169

1,012

Noninterest revenue

24,37524,32523,693

Net interest income

10,118

10,891

9,849

2017 compared with 2016
Net income was $10.8 billion, flat compared with the prioryear, reflecting lower net revenue and higher noninterest
expense, offset by a lower provision for credit losses, and a
tax benefit resulting from the vesting of employee sharebased awards. The current year included a $141 million
benefit to net income as a result of the enactment of the
TCJA.

Total net revenue(a)(b)34,49335,21633,542

Net revenue was $34.5 billion, down 2%.

(45)

563

332

Compensation expense

9,535

9,546

9,973

Noncompensation expense

9,708

9,446

11,388

Total noninterest expense

19,24318,992

21,361

Income before income tax
expense15,295

15,661

11,849

Income tax expense

4,482

4,846

$ 10,813$ 10,815

All other income

Provision for credit losses

$

6,424
11,089
1,581

$

6,736
9,905
1,573

Noninterest expense

Net income(a)

3,759
$

8,090

(a) The full year 2017 results reflect the impact of the enactment of the TCJA
including a decrease to net revenue of $259 million and a benefit to net
income of $141 million. For additional information related to the impact of
the TCJA, see Note 24.
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits andamortization of the cost of investments in affordable housing projects; andtax-exempt income from municipal bonds of $2.4 billion, $2.0 billion and$1.7 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.

62

Banking revenue was $12.3 billion, up 14% compared withthe prior year. Investment banking revenue was $6.7 billion,
up 12% from the prior year, driven by higher debt andequity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Debt underwriting fees were $3.6 billion, up 16%
driven by a higher share of fees and an overall increase inindustry-wide fees; the Firm maintained its #1 ranking
globally in fees across high-grade, high-yield, and loan
products. Equity underwriting fees were $1.4 billion, up
20% driven by growth in industry-wide issuance including astrong IPO market; the Firm ranked #2 in equity
underwriting fees globally. Advisory fees were $2.2 billion,
up 2%; the Firm maintained its #2 ranking for M&A.
Treasury Services revenue was $4.2 billion, up 15%, driven
by the impact of higher interest rates and growth inoperating deposits. Lending revenue was $1.4 billion, up
JPMorgan Chase & Co./2017 Annual Report18% from the prior year, reflecting lower fair value losses
on hedges of accrual loans.
Markets & Investor Services revenue was $22.2 billion,
down 9% from the prior year. Fixed Income Markets
revenue was $12.8 billion, down 16%, as lower revenue
across products was driven by sustained low volatility,
tighter credit spreads, and the impact from the TCJA on taxoriented investments of $259 million, against a strong prioryear. Equity Markets revenue was $5.7 billion, down 1%
from the prior year, and included a fair value loss of $143
million on a margin loan to a single client. Excluding the fairvalue loss, Equity Markets revenue was higher driven byhigher revenue in Prime Services and Cash Equities,
partially offset by lower revenue in derivatives. Securities
Services revenue was $3.9 billion, up 9%, driven by the
impact of higher interest rates and deposit growth, as wellas higher asset-based fees driven by higher market levels.
Credit Adjustments & Other was a loss of $228 million,
driven by valuation adjustments.
The provision for credit losses was a benefit of $45 million,
which included a net reduction in the allowance for credit
losses driven by the Oil & Gas and Metals & Mining
portfolios partially offset by a net increase in the allowancefor credit losses for a single client. The prior year was an
expense of $563 million, which included an addition to theallowance for credit losses driven by the Oil & Gas andMetals & Mining portfolios.
Noninterest expense was $19.2 billion, up 1% comparedwith the prior year.
2016 compared with 2015
Net income was $10.8 billion, up 34% compared with theprior year, driven by lower noninterest expense and higher
net revenue, partially offset by a higher provision for credit
losses.
Banking revenue was $10.8 billion, down 6% comparedwith the prior year. Investment banking revenue was $6.0
billion, down 7% from the prior year, largely driven bylower equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to

JPMorgan Chase & Co./2017 Annual Report

Dealogic. Equity underwriting fees were $1.2 billion, down
19% driven by lower industry-wide fee levels; however, theFirm improved its market share and maintained its #1
ranking in equity underwriting fees globally as well as inboth North America and Europe and its #1 ranking byvolumes across all products, according to Dealogic. Advisory
fees were $2.1 billion, down 1%; the Firm maintained its#2 ranking for M&A, according to Dealogic. Debt
underwriting fees were $3.2 billion; the Firm maintained its#1 ranking globally in fees across high grade, high yield,
and loan products, according to Dealogic. Treasury Services
revenue was $3.6 billion. Lending revenue was $1.2 billion,
down 17% from the prior year, reflecting fair value losses
on hedges of accrual loans.
Markets & Investor Services revenue was $24.4 billion, up
11% from the prior year. Fixed Income Markets revenue
was $15.3 billion, up 21% from the prior year, driven bybroad strength across products. Rates performance wasstrong, with increased client activity driven by highissuance-based flows, global political developments, andcentral bank actions. Credit and Securitized Products
revenue improved driven by higher market-making revenue
from the secondary market as clients’ risk appetite
recovered, and due to increased financing activity. Equity
Markets revenue was $5.7 billion, up 1%, compared to astrong prior-year. Securities Services revenue was $3.6
billion, down 5% from the prior year, largely driven bylower fees and commissions. Credit Adjustments and Other
was a loss of $175 million driven by valuation adjustments,
compared with an $11 million gain in the prior-year, which
included funding spread gains on fair value option electedliabilities.
The provision for credit losses was $563 million, compared
to $332 million in the prior year, reflecting a higher
allowance for credit losses, including the impact of selectdowngrades within the Oil & Gas portfolio.
Noninterest expense was $19.0 billion, down 11%
compared with the prior year, driven by lower legal andcompensation expenses.

63

Management’s discussion and analysis
Selected metrics

Selected metrics

As of or for the year ended
December 31,(in millions, except headcount)

As of or for the year ended
December 31,(in millions, except ratios)

2017

2016

2015

Selected balance sheet data(period-end)
Assets$ 826,384$ 803,511$ 748,691

108,765

111,872

106,908

4,321

3,781

3,698

Total loans

113,086

115,653

110,606

Core loans

112,754

115,243

110,084

70,00064,00062,000Net charge-offs/(recoveries)

Loans:
Loans retained(a)Loans held-for-sale andloans at fair value

Equity

2016

2015

$

71

$

168

$

(19)

Nonperforming assets:
Nonaccrual loans:
Nonaccrual loans
retained(a)Selected balance sheet data
(average)
Assets2017

Credit data and quality
statistics

812

467

428

Nonaccrual loans heldfor-sale and loans atfair value

—

109

10

Total nonaccrual loans

812

576

438

Derivative receivables

130

223

204

Assets acquired in loansatisfactions

85

79

62

1,027

878

704

$ 857,060$ 815,321$ 824,208

Trading assets-debt and equity
instruments

342,124

300,606

302,514

Trading assets-derivative
receivables

56,466

63,387

67,263

Allowance for credit losses:

108,368

111,082

98,331

Allowance for loan
losses

1,379

1,420

1,258

4,572

Allowance for lendingrelated commitments

727

801

569

Total allowance for credit
losses

2,106

2,221

1,827

Net charge-off/(recovery)rate(b)

0.07%

0.15%

(0.02)%

Allowance for loan losses toperiod-end loans
retained

1.27

1.27

1.18

Allowance for loan losses toperiod-end loans retained,
excluding trade financeand conduits(c)

1.92

1.86

1.88

Allowance for loan losses tononaccrual loans
retained(a)

170

304

294

Nonaccrual loans to total
period-end loans

0.72

0.50

0.40

Total nonperforming
assetsLoans:
Loans retained(a)Loans held-for-sale andloans at fair value

4,995

3,812

Total loans

113,363

114,894

102,903

Core loans

113,006

114,455

102,142

70,00064,00062,000EquityHeadcount

51,181

48,74849,067(a) Loans retained includes credit portfolio loans, loans held by consolidated
Firm-administered multi-seller conduits, trade finance loans, other held-forinvestment loans and overdrafts.

(a) Allowance for loan losses of $316 million, $113 million and $177
million were held against these nonaccrual loans at December 31,
2017, 2016 and 2015, respectively.
(b) Loans held-for-sale and loans at fair value were excluded whencalculating the net charge-off/(recovery) rate.
(c) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB’s allowancecoverage ratio.

Investment banking feesYear ended December 31,(in millions)

2017

Advisory$

Equity underwriting

$

1,396

Debt underwriting

$

7,192

2015
2,110

$

1,159

3,646

(a)

Total investment banking fees

2016
2,150

1,434

3,155
$

6,424

2,133
3,169

$

6,736

(a) Includes loans syndication.

64

JPMorgan Chase & Co./2017 Annual ReportLeague table results – wallet share
2017
Year ended
December 31,

Rank

2016

Share

Rank

2015

Share

Rank

Share

Based on fees(a)Debt, equity and equity-related
Global

#1

7.4%

#1

7.0%

#1

7.6%

U.S.

1

11.2

1

11.9

1

11.5

Long-term debt(b)Global

1

7.6

1

6.7

1

8.1

U.S.

2

10.9

2

11.1

1

11.7

Equity and equity-related
Global(c)

2

7.1

1

7.4

2

6.9

U.S.

1

11.7

1

13.3

1

11.3

Global

2

8.6

2

8.3

2

8.4

U.S.

2

9.2

2

9.8

2

9.9

M&A(d)

Loan syndications
Global

1

9.5

1

9.3

1

7.5

U.S.

1

11.3

2

11.9

2

10.8

#1

8.1%

#1

7.9%

#1

7.8%

Global investment banking fees (e)(a) Source: Dealogic as of January 1, 2018. Reflects the ranking of revenue wallet and market share.
(b) 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.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Global M&A reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.

Markets revenue
The following table summarizes select income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
consists of principal transactions, fees, commissions andother 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 arerecorded in principal transactions. For a description of thecomposition of these income statement line items, seeNotes 6 and 7.

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 ofclient activity, the bid-offer spread (which is the difference
between the price at which a market participant is willing tosell an instrument to the Firm and the price at whichanother market participant is willing to buy it from theFirm, and vice versa), market liquidity and volatility. These
factors are interrelated and sensitive to the same factorsthat drive inventory-related revenue, which include generalmarket conditions, such as interest rates, foreign exchange
rates, credit spreads, and equity and commodity prices, aswell as other macroeconomic conditions.

Principal transactions reflects revenue on financial
instruments and commodities transactions that arise fromclient-driven market making activity. Principal transactions
revenue includes amounts recognized upon executing newtransactions with market participants, as well as “inventoryrelated revenue”, which is revenue recognized from gains
and losses on derivatives and other instruments that theYear ended December 31,(in millions, except whereotherwise noted)
Principal transactions
Lending- and deposit-related fees
Asset management,
administration and commissions
All other income
Noninterest revenue
Net interest income(a)Total net revenue
Loss days(b)For the periods presented below, the predominant source ofprincipal transactions revenue was the amount recognized
upon executing new transactions.

2017

2016

2015

Fixed
EquityTotal
IncomeMarkets
Markets
Markets$
7,393 $
3,855 $ 11,248
191
6
197

Fixed
EquityTotal
IncomeMarkets
Markets
Markets$
8,347 $
3,130 $ 11,477
220
2
222

Fixed
EquityTotal
IncomeMarkets
Markets
Markets$
6,899 $
3,038 $
9,937
194
—
194

$

390

1,635

2,025

388

1,551

1,939

383

1,704

2,087

436
8,410
4,402
12,812 $

(21)
5,475
228
5,703 $

415
13,885
4,630
18,515
4

1,014
9,969
5,290
15,259 $

13
4,696
1,044
5,740 $

1,027
14,665
6,334
20,999
0

854
8,330
4,262
12,592 $

(84)
4,658
1,036
5,694 $

770
12,988
5,298
18,2862$$(a) Declines in Markets net interest income in 2017 were driven by higher funding costs.
(b) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the disclosure of daily market risk-related gains and losses
for the Firm in the value-at-risk (“VaR”) back-testing discussion on pages 123–125.

JPMorgan Chase & Co./2017 Annual Report65

Management’s discussion and analysis
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

2017
$

2016
13,043$

2015
12,166Equity

7,863

6,428

Other(a)

2,563

1,926

Total AUC
Client deposits and other third party liabilities (average)(b)Trade finance loans (period-end)$

12,042
6,194
1,707

$

23,469$20,520$19,943$408,911$376,287$395,297

17,947

15,923

19,255(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.

International metrics
Year ended December 31,(in millions, except whereotherwise noted)

2017

2016

2015

$ 11,328$ 10,786$ 10,894

Asia/Pacific

4,525

4,915

4,901

Latin America/Caribbean

1,125

1,225

1,096

Total international net revenue

16,97816,926

16,891

North America

17,515

18,29016,651$ 34,493$ 35,216$ 33,542$ 25,931$ 26,696$ 24,622

15,24814,508

17,108

Total net revenue(a)Europe/Middle East/Africa

Total net revenue
Loans retained (period-end)(a)Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean

6,546

7,607

8,609

Total international loans

47,725

48,81150,339North America
Total loans retained

61,04063,06156,569$108,765$111,872$ 106,908

Client deposits and other thirdparty liabilities (average)(a)(b)Europe/Middle East/Africa$154,582$135,979$ 141,062

Asia/Pacific

76,744

68,11067,111

Latin America/Caribbean

25,41922,91423,070Total international$256,745$227,003$ 231,243

North America

152,166

149,284

164,054

Total client deposits and otherthird-party liabilities$408,911$376,287$ 395,297$ 13,971$ 12,290$ 12,034

9,498

8,230

7,909

$ 23,469$ 20,520$ 19,943

AUC (period-end) (in billions)(a)North America
All other regions
Total AUC(a) Total net revenue is based predominantly on the domicile of the client or
location of the trading desk, as applicable. Loans outstanding (excludingloans held-for-sale and loans at fair value), client deposits and other thirdparty liabilities, and AUC are based predominantly on the domicile of theclient.
(b) Client deposits and other third party liabilities pertain to the Treasury
Services and Securities Services businesses.

66

JPMorgan Chase & Co./2017 Annual Report

COMMERCIAL BANKING
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions andnonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, 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 andasset management to meet its clients’ domestic andinternational financial needs.
Selected income statement data
Year ended December 31,(in millions)
Revenue
Lending- and deposit-related fees
Asset management, administrationand commissions
All other income(a)Noninterest revenue
Net interest income
Total net revenue(b)

2017
$

919

2016
$

917

2015
$

944

68

69

88

1,535
2,522
6,083
8,605

1,334
2,320
5,133
7,453

1,333
2,365
4,520
6,885

Provision for credit losses

(276)

282

442

Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense

1,470
1,857
3,327

1,332
1,602
2,934

1,238
1,643
2,881

5,554
2,015
$ 3,539

4,237
1,580
$ 2,657

3,562
1,371
$ 2,191

Income before income tax expense
Income tax expense
Net income(a) Includes revenue from investment banking products and commercial cardtransactions.
(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 lowincome communities, as well as tax-exempt income related to municipal
financing activities of $699 million, $505 million and $493 million for theyears ended December 31, 2017, 2016 and 2015, respectively. The 2017
results reflect the impact of the enactment of the TCJA including a benefit
to all other income of $115 million on certain investments in theCommunity Development Banking business. For additional information
related to the impact of the TCJA, see Note 24.

2017 compared with 2016
Net income was $3.5 billion, an increase of 33% comparedwith the prior year, driven by higher net revenue and alower provision for credit losses, partially offset by higher
noninterest expense.
Net revenue was $8.6 billion, an increase of 15% comparedwith the prior year. Net interest income was $6.1 billion, an
increase of 19% compared with the prior year, driven byhigher deposit spreads and loan growth. Noninterest
revenue was $2.5 billion, an increase of 9% compared withthe prior year, predominantly driven by higher Community
Development Banking revenue, including a $115 million
benefit for the impact of the TCJA on certain investments,and higher investment banking revenue.
Noninterest expense was $3.3 billion, an increase of 13%
driven by hiring of bankers and business-related support
staff, investments in technology, and an impairment ofapproximately $130 million on certain leased equipment,
the majority of which was sold subsequent to year-end.
The provision for credit losses was a benefit of $276
million, driven by net reductions in the allowance for credit
losses, including in the Oil & Gas, Natural Gas Pipelines andMetals & Mining portfolios. The prior year provision for
credit losses was $282 million driven by downgrades in the
Oil & Gas portfolio and select client downgrades in otherindustries.
2016 compared with 2015
Net income was $2.7 billion, an increase of 21% comparedwith the prior year, driven by higher net revenue and alower provision for credit losses, partially offset by higher
noninterest expense.
Net revenue was $7.5 billion, an increase of 8% comparedwith the prior year. Net interest income was $5.1 billion, an
increase of 14% compared with the prior year, driven byhigher loan balances and deposit spreads. Noninterest
revenue was $2.3 billion, a decrease of 2% compared withthe prior year, largely driven by lower lending-and-depositrelated fees and other revenue, partially offset by higher
investment banking revenue.
Noninterest expense was $2.9 billion, an increase of 2%
compared with the prior year, reflecting increased hiring ofbankers and business-related support staff and investments
in technology.
The provision for credit losses was $282 million and $442
million for 2016 and 2015, respectively, with both periods
driven by downgrades in the Oil & Gas portfolio and selectclient downgrades in other industries.

JPMorgan Chase & Co./2017 Annual Report67Management’s discussion and analysis
CB product revenue consists of the following:

Selected income statement data (continued)

Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateralincludes receivables, inventory, equipment, real estate orother assets. Products include term loans, revolving lines ofcredit, bridge financing, asset-based structures, leases, andstandby letters of credit.

Year ended December 31,(in millions, except ratios)

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 providing CB clients with sophisticated capitalraising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,and loan syndications. Revenue from Fixed Income andEquity Markets products used by CB clients is also included.
Other product revenue primarily includes tax-equivalentadjustments generated from Community Development
Banking activities and certain income derived from principaltransactions.
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal andnonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investmentbanking needs.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.

2017

2016

2015

Revenue by productLending
Treasury services
Investment banking(a)Other(b)Total Commercial Banking net
revenue$ 4,094
3,444
805
262

$ 3,795
2,797
785
76

$ 3,429
2,581
730
145

$ 8,605$ 7,453$ 6,885

Investment banking revenue, gross(c)$ 2,327$ 2,286$ 2,179

Revenue by client segment
Middle Market Banking(d)Corporate Client Banking(d)Commercial Term Lending
Real Estate Banking
Other(b)Total Commercial Banking net
revenue$ 3,341
2,727
1,454
604
479

$ 2,848
2,429
1,408
456
312

$ 2,685
2,205
1,275
358
362

$ 8,605$ 7,453$ 6,885

Financial ratios
Return on equity
Overhead ratio

17%
39

16%
39

15%
42

(a) Includes total Firm revenue from investment banking products sold to CB
clients, net of revenue sharing with the CIB.
(b) The 2017 results reflect the impact of the enactment of the TCJA including
a benefit of $115 million on certain investments in the Community
Development Banking business. For additional information related to theimpact of the TCJA, see Note 24.
(c) Represents total Firm revenue from investment banking products sold to CB
clients.
(d) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking in the second quarter of 2017. The prior period amounts
have been revised to conform with the current period presentation.

Real Estate Banking provides full-service banking toinvestors and developers of institutional-grade real estate
investment properties.
Other primarily includes lending and investment-related
activities within the Community Development Banking
business.

68

JPMorgan Chase & Co./2017 Annual ReportSelected metrics

Selected metrics

As of or for the year ended
December 31, (in millions,
except headcount)

As of or for the year ended
December 31, (in millions, except
ratios)

2017

2016

2015

Selected balance sheet data(period-end)
Total assets$ 221,228$ 214,341$ 200,700

202,400

188,261

167,374

Loans:
Loans retained
Loans held-for-sale andloans at fair value

1,286

734

267

Total loans$ 203,686$ 188,995$ 167,641

Core loans

203,469

188,673

166,939

20,00016,00014,000Equity$56,965$53,929$50,501

2015

$

163

$

21

Nonperforming assets
Nonaccrual loans:
Nonaccrual loans retained(a)

617

1,149

375

Nonaccrual loans held-for-saleand loans at fair value

—

—

18

Total nonaccrual loans

617

1,149

393

Assets acquired in loansatisfactions

3

1

8

620

1,150

401

Allowance for credit losses:
2,855

62,860

300

248

198

14,722

11,234

Total allowance for credit losses

2,858

3,173

3,053

6,068

5,337

Net charge-off/(recovery) rate(b)

0.02%

0.09%

0.01%

$ 188,995$ 167,641

Allowance for loan losses toperiod-end loans retained

1.26

1.55

1.71

Allowance for loan losses tononaccrual loans retained(a)

415

255

761

Nonaccrual loans to period-end
total loans

0.30

0.61

0.23

37,709Commercial Term Lending

74,901

71,249Real Estate Banking

17,796

Other

7,061
$ 203,686

Selected balance sheet data
(average)$ 217,047$ 207,532$ 198,076

197,203178,670

157,389

Loans held-for-sale andloans at fair value

39

2,925

43,027Loans retained

$

2,558

46,963

Total assets
Loans:

2016

Allowance for lending-related
commitments

Corporate Client Banking(a)Total Commercial Banking
loans

Net charge-offs/(recoveries)

Total nonperforming assets

Period-end loans by client
segment
Middle Market Banking(a)2017Credit data and quality statistics

909

723

492

Total loans$ 198,112$ 179,393$ 157,881

Core loans

197,846

178,875

156,975

Client deposits and otherthird-party liabilities

177,018

174,396

191,529

Equity20,00016,00014,000Allowance for loan losses(a) Allowance for loan losses of $92 million, $155 million and $64 million washeld against nonaccrual loans retained at December 31, 2017, 2016 and2015, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when calculating
the net charge-off/(recovery) rate.

Average loans by client
segment
Middle Market Banking(a)$55,474$52,242$50,334

Corporate Client Banking(a)46,03741,75634,497

Commercial Term Lending

73,42866,70058,138

Real Estate Banking

16,525

13,063

9,917

Other

6,648

5,632

4,995

$ 198,112$ 179,393$ 157,881

9,005

8,365

7,845

Total Commercial Banking
loans
Headcount(a) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking in the second quarter of 2017. The prior period amounts
have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report69Management’s discussion and analysis
ASSET & WEALTH MANAGEMENT
Asset & Wealth Management, with client assets of $2.8
trillion, is a global leader in investment and wealthmanagement. AWM clients include institutions, highnet-worth individuals and retail investors in many
major markets throughout the world. AWM offers
investment management across most major asset
classes including equities, fixed income, alternatives
and money market funds. AWM also offers multi-asset
investment management, providing solutions for abroad range of clients’ investment needs. For WealthManagement clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages anddeposits. The majority of AWM’s client assets are in
actively managed portfolios.
Selected income statement data
Year ended December 31,(in millions, except ratiosand headcount)
Revenue
Asset management, administrationand commissions
All other income
Noninterest revenue
Net interest income
Total net revenue

2017

2016

2015

$ 8,946$ 8,414$ 9,175

593
9,539
3,379
12,918

598
9,012
3,033
12,045

388
9,563
2,556
12,119Provision for credit losses

39

26

4

Noninterest expense
Compensation expense
Noncompensation expense
Total noninterest expense

5,318
3,983
9,301

5,065
3,413
8,478

5,113
3,773
8,886

Income before income tax expense
3,578
Income tax expense
1,241
Net income$ 2,337

3,541
1,290
$ 2,251

3,229
1,294
$ 1,935

Revenue by line of business
Asset Management
Wealth Management
Total net revenue$ 5,970
6,075$ 12,045$ 6,301
5,818$ 12,119Financial ratios
Return on common equity
Overhead ratio
Pre-tax margin ratio:
Asset Management
Wealth Management
Asset & Wealth Management$ 6,340
6,578$12,918

25%
72

24%
70

21%
73

25
30
28

31
28
29

31
22
27

Headcount

22,97521,082

20,975

Number of Wealth Management
client advisors

2,605

2,504

2,778

70

2017 compared with 2016
Net income was $2.3 billion, an increase of 4% comparedwith the prior year, reflecting higher revenue and a tax
benefit resulting from the vesting of employee share-based
awards, offset by higher noninterest expense.
Net revenue was $12.9 billion, an increase of 7%. Net
interest income was $3.4 billion, up 11%, driven by higher
deposit spreads. Noninterest revenue was $9.5 billion, up
6%, driven by higher market levels, partially offset by theabsence of a gain in the prior year on the disposal of anasset.
Revenue from Asset Management was $6.3 billion, up 6%
from the prior year, driven by higher market levels, partially
offset by the absence of a gain in prior year on the disposalof an asset. Revenue from Wealth Management was $6.6
billion, up 8% from the prior year, reflecting higher net
interest income from higher deposit spreads.
Noninterest expense was $9.3 billion, an increase of 10%,
predominantly driven by higher legal expense andcompensation expense on higher revenue and headcount.
2016 compared with 2015
Net income was $2.3 billion, a decrease of 16% comparedwith the prior year, reflecting lower noninterest expense,
predominantly offset by lower net revenue.
Net revenue was $12.0 billion, a decrease of 1%. Net
interest income was $3.0 billion, up 19%, driven by higher
loan balances and spreads. Noninterest revenue was $9.0
billion, a decrease of 6%, reflecting the impact of lower
average equity market levels, a reduction in revenue related
to the disposal of assets at the beginning of 2016, andlower performance fees and placement fees.
Revenue from Asset Management was $6.0 billion, down
5% from the prior year, driven by a reduction in revenue
related to the disposal of assets at the beginning of 2016,
the impact of lower average equity market levels and lower
performance fees. Revenue from Wealth Management was$6.1 billion, up 4% from the prior year, reflecting higher
net interest income from higher deposit and loan spreads
and continued loan growth, partially offset by the impact oflower average equity market levels and lower placement
fees.
Noninterest expense was $8.5 billion, a decrease of 5%,
predominantly due to a reduction in expense related to thedisposal of assets at the beginning of 2016 and lower legal
expense.

JPMorgan Chase & Co./2017 Annual ReportAWM’s lines of business consist of the following:

Selected metrics

Asset Management provides comprehensive global investment
services, including asset management, pension analytics, asset-liability
management and active risk-budgeting strategies.

As of or for the year ended
December 31,(in millions, except ranking
data and ratios)

Wealth Management offers investment advice and wealthmanagement, including investment management, capital markets andrisk management, tax and estate planning, banking, lending andspecialty-wealth advisory services.

% of JPM mutual fund assets
rated as 4- or 5-star(a)(b)

60%

63%

52%

% of JPM mutual fund assets
ranked in 1st or 2nd
quartile:(c)1 year64

54

62

3 years

75

72

78

5 years(b)

83

79

79

$ 151,909$ 138,384$ 131,451

130,640

118,039

111,007

AWM’s client segments consist of the following:
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.

2017

2016

2015

Institutional clients include both corporate and public institutions,endowments, foundations, nonprofit organizations and governments
worldwide.

Selected balance sheet data(period-end)

Retail clients include financial intermediaries and individual investors.

Loans

Asset Management has two high-level measures of its
overall fund performance.

130,640

118,039

111,007

Deposits

146,407

161,577

146,766

Equity

9,000

9,000

9,000

$ 144,206$ 132,875$ 129,743

123,464

112,876

107,418• 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 ratingis 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 industrywide ranked funds. A 2-star rating represents the next 22.5% ofindustry-wide ranked funds. A 1-star rating is the worst rating andrepresents the bottom 10% of industry-wide ranked funds. The“overall Morningstar rating” is derived from a weighted average of theperformance associated with a fund’s three-, five- and ten-year (ifapplicable) 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, theassigned peer categories and the asset values used to derive thisanalysis are sourced from these fund rating providers mentioned infootnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share classlevel for U.S. domiciled funds, and at a “primary share class” level torepresent 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 themost retail version (based upon annual management charge,
minimum investment, currency and other factors). The performancedata 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 (c). 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 % of AUM is basedon fund performance and associated peer rankings at the share classlevel for U.S. domiciled funds, at a “primary share class” level torepresent the quartile ranking of the U.K., Luxembourg and Hong Kong
funds and at the fund level for all other funds. The “primary shareclass”, as defined by Morningstar, denotes the share classrecommended as being the best proxy for the portfolio and in mostcases 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 “primaryshare class” territory both rankings are included to reflect local
market competitiveness (applies to “Offshore Territories” and “HK SFC
Authorized” funds only). The performance data could have beendifferent if all funds/accounts would have been included. Past
performance is not indicative of future results.
JPMorgan Chase & Co./2017 Annual Report

Total assets
Core loans

Selected balance sheet data
(average)
Total assets
Loans

123,464

112,876

107,418

Deposits

Core loans

148,982

153,334

149,525

Equity

9,000

9,000

9,000

Credit data and quality
statistics
Net charge-offs
Nonaccrual loans

$

14

$

16

$

12

375

390

218

Allowance for loan losses

290

274

266

Allowance for lendingrelated commitments

10

4

5

Total allowance for credit
losses

300

278

271

Net charge-off rate

0.01%

0.01%

0.01%

Allowance for loan losses toperiod-end loans

0.22

0.23

0.24

Allowance for loan losses tononaccrual loans

77

70

122

Nonaccrual loans to periodend loans

0.29

0.33

0.20

Allowance for credit losses:(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 Asset Management
retail open-ended mutual funds that have a rating. Excludes money market
funds, Undiscovered Managers Fund, and Brazil domiciled funds.
(b) The prior period amounts have been revised to conform with the current
period presentation.
(c) 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 Fund Doctor for South Korea
domiciled funds. 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.

71Management’s discussion and analysis
Client assets

Client assets (continued)

2017 compared with 2016
Client assets were $2.8 trillion, an increase of 14%
compared with the prior year. Assets under management
were $2.0 trillion, an increase of 15% from the prior year
reflecting higher market levels, and net inflows into longterm and liquidity products.

Year ended December 31,(in billions)2016 compared with 2015
Client assets were $2.5 trillion, an increase of 4%
compared with the prior year. Assets under management
were $1.8 trillion, an increase of 3% from the prior year
reflecting inflows into both liquidity and long-term products
and the effect of higher market levels, partially offset byasset sales at the beginning of 2016.
December 31,(in billions)

2017

2016

2015

Assets by asset class
436 $

430

Fixed income(a)

474

420

376

Equity

428

351

353

Multi-asset and alternatives

673

564

564

$

2,034

1,771

1,723

Total assets under management
Custody/brokerage/administration/deposits
$

755

682

627

2,789 $

2,453 $

2,350

$

166 $

154 $

172

Private Banking$

Liquidity

9

24

—

Fixed income

36

30

(8)

Equity

(11)

(29)

1

Multi-asset and alternatives

43

22

22

Market/performance/other impacts
Ending balance, December 31

1

(36)

2,034 $

1,771 $

1,723

$

2,387

2,453 $

2,350 $Net asset flows

93

63

27

Market/performance/other impacts

243

40

(64)

2,789 $

2,453 $

2,350$

International metrics
Year ended December 31,(in billions, except where otherwise
noted)
Total net revenue (in millions)(a)Europe/Middle East/Africa

2017$

Asia/PacificTotal international net revenue

Total net revenue

437

Institutional

968

869

816

Assets under management

Retail

540

467

470

Europe/Middle East/Africa

2,034 $

1,771 $

1,723

Private Banking$

1,256 $

1,098 $

1,050

Institutional

990

886

824

Retail

543

469

476

2,789 $

2,453 $

2,350

Total client assets

186$

Client assets rollforward

435 $

$

$

(a) The prior period amounts have been revised to conform with the current
period presentation.
(b) Represents assets under management, as well as client balances inbrokerage accounts.

1,744

Net asset flows:

526 $Total assets under management2015

1,723 $

North America

Assets by client segment

2016

1,771 $

Latin America/Caribbean

Memo:
Alternatives client assets(b)$Ending balance, December 31459 $Total client assets

Beginning balance

Beginning balance

Client assets

Liquidity(a)2017Assets under management
rollforward

2016

2015

2,021 $

1,849 $

1,946

1,162

1,077

1,130

844

726

795

4,027

3,652

3,871

8,891

8,393

8,248

$ 12,918 $ 12,045 $ 12,119

384 $

309 $

302

Asia/Pacific

$

160

123

123

Latin America/Caribbean

61

45

45

Total international assets undermanagement

605

477

470

North America
Total assets under management

1,429

1,294

1,253

$

2,034 $

1,771 $

1,723$

Client assets
Europe/Middle East/Africa

441 $

359 $

351

Asia/Pacific

225

177

173

Latin America/Caribbean

154

114

110

Total international client assets

820

650

634

1,969

1,803

1,716

2,789 $

2,453 $

2,350

North America
Total client assets$(a) Regional revenue is based on the domicile of the client.

72

JPMorgan Chase & Co./2017 Annual ReportCORPORATEThe Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff units and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting andmanaging the Firm’s liquidity, funding and structuralinterest rate and foreign exchange risks, as well as
executing the Firm’s capital plan. The major Other
Corporate units include Real Estate, EnterpriseTechnology, Legal, Finance, Human Resources, Internal
Audit, Risk Management, Compliance, Oversight &Controls, Corporate Responsibility and various Other
Corporate groups.
Selected income statement data
Year ended December 31,(in millions, except headcount)
RevenuePrincipal transactions
Securities gains/(losses)
All other income/(loss)(a)Noninterest revenue
Net interest income
Total net revenue(b)2017$Provision for credit losses
Noninterest expense
Income/(loss) before income
tax benefit
Income tax expense/(benefit)
Net income/(loss)
Total net revenue
Treasury and CIO
Other Corporate
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
Total net income/(loss)(c)

Total assets (period-end)
Loans (period-end)Core loans(d)Headcount

2016

2015

284 $
(66)
867
1,085
55
1,140

210 $
140
588
938
(1,425)
(487)

41
190
569
800
(533)
267

—

(4)

(10)

501

462

977

639

(945)

(700)

2,282
$ (1,643) $(241)(704) $

(3,137)
2,437

566
574
1,140

$

(787)
300
(487) $

(493)
760
267

60
(1,703)$ (1,643) $

(715)
11
(704) $

(235)
2,672
2,437

$

$781,478
1,653
1,653
35,261$ 799,426
1,592
1,589
32,358$ 768,204
2,187
2,182
29,6172017 compared with 2016
Net loss was $1.6 billion, compared with a net loss of $704
million in the prior year. The current year net loss included
a $2.7 billion increase to income tax expense related to theimpact of the TCJA.
Net revenue was $1.1 billion, compared with a loss of $487
million in the prior year. The increase in current year net
revenue was driven by a $645 million benefit from a legal
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts and by the net impact of higher
interest rates.
Net interest income was $55 million, compared with a lossof $1.4 billion in the prior year. The gain in the current year
was primarily driven by higher interest income on deposits
with banks due to higher interest rates and balances,
partially offset by higher interest expense on long-term
debt primarily driven by higher interest rates.
2016 compared with 2015
Net loss was $704 million, compared with net income of$2.4 billion in the prior year.
Net revenue was a loss of $487 million, compared with again of $267 million in the prior year. The prior year
included a $514 million benefit from a legal settlement.
Net interest income was a loss of $1.4 billion, comparedwith a loss of $533 million in the prior year. The loss in thecurrent year was primarily driven by higher interest
expense on long-term debt and lower investment securities
balances during the year, partially offset by higher interest
income on deposits with banks and securities purchased
under resale agreements as a result of higher interest rates.
Noninterest expense was $462 million, a decrease of $515
million from the prior year driven by lower legal expense,
partially offset by higher compensation expense.
The prior year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits.

(a) Included revenue related to a legal settlement of $645 million for the year
ended December 31, 2017.
(b) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $905 million, $885 million
and $839 million for the years ended December 31, 2017, 2016 and2015, respectively.
(c) Included legal expense/(benefit) of $(593) million, $(385) million and$832 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
(d) Average core loans were $1.6 billion, $1.9 billion and $2.5 billion for theyears ended December 31, 2017, 2016 and 2015, respectively.

JPMorgan Chase & Co./2017 Annual Report73Management’s discussion and analysis
Treasury and CIO overview
Treasury and CIO is predominantly responsible formeasuring, monitoring, reporting and managing the Firm’s
liquidity, funding and structural interest rate and foreignexchange risks, as well as executing the Firm’s capital plan.
The risks managed by Treasury and CIO arise from theactivities undertaken by the Firm’s four major reportablebusiness segments to serve their respective client bases,
which generate both on- and off-balance sheet assets andliabilities.
Treasury and CIO seek to achieve the Firm’s asset-liability
management objectives generally by investing in highquality securities that are managed for the longer-term aspart of the Firm’s investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm’s assetliability management objectives. For further information onderivatives, see Note 5. The investment securities portfolio
primarily consists of agency and nonagency mortgagebacked securities, U.S. and non-U.S. government securities,
obligations of U.S. states and municipalities, other ABS andcorporate debt securities. At December 31, 2017, theinvestment securities portfolio was $248.0 billion, and theaverage credit rating of the securities comprising theportfolio was AA+ (based upon external ratings whereavailable and where not available, based primarily uponinternal ratings that correspond to ratings as defined by
S&P and Moody’s). See Note 10 for further information on
the details of the Firm’s investment securities portfolio.
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 92–97. For
information on interest rate, foreign exchange and otherrisks, see Market Risk Management on pages 121-128.

74

Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)2017

Securities gains/(losses)$

AFS investment securities(average)
HTM investment securities(average)
Investment securities portfolio(average)
AFS investment securities(period-end)
HTM investment securities(period-end)
Investment securities portfolio(period–end)(78) $

2016
132

2015
$

190

219,345

226,892

264,758

47,92751,35850,044

267,272

278,250

314,802200,247

236,670

238,704

47,73350,16849,073247,980

286,838

287,777

JPMorgan Chase & Co./2017 Annual Report

ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase’s businessactivities. When the Firm extends a consumer or wholesaleloan, advises customers on their investment decisions,
makes markets in securities, or offers other products orservices, the Firm takes on some degree of risk. The Firm’s
overall objective is to manage its businesses, and theassociated risks, in a manner that balances serving theinterests of its clients, customers and investors and protects
the safety and soundness of the Firm.
The Firm believes that effective risk management requires:• Acceptance of responsibility, including identification andescalation of risk issues, by all individuals within the
Firm;• Ownership of risk identification, assessment, data andmanagement within each of the lines of business andcorporate functions; and• Firmwide structures for risk governance.
The Firm strives for continual improvement through efforts
to enhance controls, ongoing employee training anddevelopment, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance andindependent Board oversight. The impact of risk and control
issues are carefully considered in the Firm’s performance
evaluation and incentive compensation processes.

Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm’s approach to risk
management involves understanding drivers of risks, risk
types, and impacts of risks.
Drivers of risk 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.
The Firm’s risks are generally categorized in the following
four risk types:• Strategic risk is the risk associated with the Firm’scurrent and future business plans and objectives,
including capital risk, liquidity risk, and the impact to
the Firm’s reputation.
• Credit and investment risk is the risk associated with thedefault or change in credit profile of a client,counterparty or customer; or loss of principal or areduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, andinvestment portfolio risk.
• Market risk is the risk associated with the effect ofchanges in market factors, such as interest and foreignexchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets andliabilities held for both the short and long term.
• Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or fromexternal events and includes compliance risk, conductrisk, legal risk, and estimations and model risk.
There may be many consequences of risks manifesting,including quantitative impacts such as reduction in earnings
and capital, liquidity outflows, and fines or penalties, or
qualitative impacts, such as reputation damage, loss ofclients, and regulatory and enforcement actions.

JPMorgan Chase & Co./2017 Annual Report75Management’s discussion and analysis
The Firm has established Firmwide risk management functions to manage different risk types. The scope of a particular risk
management function may include multiple risk types. For example, the Firm’s Country Risk Management function 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 how the Firm manages the key risks that are inherent in its businessactivities.
Risk OversightPage
references

Definition

Strategic risk

The risk associated with the Firm’s current and future business plans and objectives.

Capital risk

The risk that the Firm has an insufficient level and composition of capital to support the Firm’s business activities andassociated risks during normal economic environments and under stressed conditions.

82–91

Liquidity risk

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.

92–97

Reputation risk

The potential that an action, inaction, transaction, investment or event will reduce trust in the Firm’s integrity orcompetence by its various constituents, including clients, counterparties, investors, regulators, employees and thebroader public.

Consumer credit risk

The risk associated with the default or change in credit profile of a customer.

102–107

Wholesale credit risk

The risk associated with the default or change in credit profile of a client or counterparty.

108–116

Investment portfolio
risk

The risk associated with the loss of principal or a reduction in expected returns on investments arising from theinvestment securities portfolio held by Treasury and CIO in connection with the Firm’s balance sheet or asset-liability
management objectives or from principal investments managed in various lines of business in predominantly privatelyheld financial assets and instruments.

120

Market risk

The risk associated with the effect of changes in market factors, such as interest and foreign exchange rates, equity andcommodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short andlong term.

121–128

Country risk

The framework for monitoring and assessing how financial, economic, political or other significant developments
adversely affect the value of the Firm’s exposures related to a particular country or set of countries.

129–130

Operational risk

The risk associated with inadequate or failed internal processes, people and systems, or from external events.

131–133

Compliance risk

The risk of failure to comply with applicable laws, rules, and regulations.

134

Conduct risk

The risk that any action or inaction by an employee of the Firm could lead to unfair client/customer outcomes,
compromise the Firm’s reputation, impact the integrity of the markets in which the Firm operates, or reflect poorly on
the Firm’s culture.

135

Legal risk

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.

136

Estimations and Modelrisk

The risk of the potential for adverse consequences from decisions based on incorrect or misused estimation outputs.

137

76

81

98

JPMorgan Chase & Co./2017 Annual ReportGovernance and oversight
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 Chief Executive
Officer (“CEO”), Chief Financial Officer (“CFO”) and Chief
Risk Officer (“CRO”). LOB-level risk appetite is set by therespective LOB CEO, CFO and CRO and is approved by the
Firm’s CEO, CFO and CRO. Quantitative parameters andqualitative factors are used to monitor and measure theFirm’s capacity to take risk consistent with its stated risk
appetite. Quantitative parameters have been established toassess select strategic risks, credit risks and market risks.
Qualitative factors have been established for selectoperational risks, and for reputation risks. Risk Appetite
results are reported quarterly to the Board of Directors’
Risk Policy Committee (“DRPC”).
The Firm has an Independent Risk Management (“IRM”)
function, which consists of the Risk Management andCompliance organizations. The CEO appoints, subject to
DRPC approval, the Firm’s CRO to lead the IRM organizationand manage the risk governance framework of the Firm.
The framework is subject to approval by the DRPC in theform of the primary risk management policies. The Chief
Compliance Officer (“CCO”), who reports to the CRO, is also
responsible for reporting to the Audit Committee for the
Global Compliance Program. The Firm’s Global Compliance
Program focuses on overseeing compliance with laws, rules
and regulations applicable to the Firm’s products andservices to clients and counterparties.

JPMorgan Chase & Co./2017 Annual Report

The Firm places reliance on each of its LOBs and otherfunctional areas giving rise to risk. Each LOB and otherfunctional area giving rise to risk is expected to operate
within the parameters identified by the IRM function, andwithin its own management-identified risk and control
standards. The LOBs, inclusive of LOB aligned Operations,Technology and Oversight & Controls, are the “first line ofdefense” in identifying and managing the risk in theiractivities, including but not limited to applicable laws, rules
and regulations.
The IRM function is independent of the businesses andforms “the second line of defense”. The IRM function sets
and oversees various standards for the risk governanceframework, including risk policy, identification,measurement, assessment, testing, limit setting, monitoring
and reporting, and conducts independent challenge ofadherence to such standards.
The Internal Audit function operates independently fromother parts of the Firm and performs independent testingand evaluation of firmwide processes and controls acrossthe entire enterprise as the Firm’s “third line of defense” inmanaging risk. The Internal Audit Function is headed by theGeneral Auditor, who reports to the Audit Committee.
In addition, there are other functions that contribute to thefirmwide control environment including Finance, Human
Resources, Legal, and Corporate Oversight & Control.

77

Management’s discussion and analysis
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues tosenior management, the Firmwide Risk Committee, and the Board of Directors, as appropriate.
The chart below illustrates the Board of Directors and key senior management level committees in the Firm’s risk governancestructure. In addition, there are other committees, forums and paths of escalation that support the oversight of risk, not shownin the chart below.

The Firm’s Operating Committee, which consists of the
Firm’s CEO, CRO, CFO and other senior executives, is theultimate management escalation point in the Firm and mayrefer matters to the Firm’s Board of Directors. The
Operating Committee is accountable to the Firm’s Board of
Directors.
The Board of Directors provides oversight of risk principally
through the DRPC, the Audit Committee and, with respect tocompensation and other management-related matters, theCompensation & Management Development Committee.
Each committee of the Board oversees reputation risk andconduct risk issues within its scope of responsibility.

78

The Directors’ Risk Policy Committee of the Board oversees
the Firm’s global risk management framework and approves
the primary risk management policies of the Firm. The
Committee’s responsibilities include oversight ofmanagement’s exercise of its responsibility to assess andmanage the Firm’s risks, and its capital and liquidity
planning and analysis. Breaches in risk appetite, liquidity
issues that may have a material adverse impact on the Firmand other significant risk-related matters are escalated to
the DRPC.

JPMorgan Chase & Co./2017 Annual Report

The Audit Committee of the Board assists the Board in its
oversight of management’s responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure theintegrity of the Firm’s financial statements and maintaincompliance with the Firm’s ethical standards, policies, plansand procedures, and with laws and regulations. In addition,
the Audit Committee assists the Board in its oversight of the
Firm’s independent registered public accounting firm’s
qualifications, independence and performance, and of theperformance of the Firm’s Internal Audit function.
The Compensation & Management Development Committee(“CMDC”) assists the Board in its oversight of the Firm’s
compensation programs and reviews and approves the
Firm’s overall compensation philosophy, incentive
compensation pools, and compensation practices consistent
with key business objectives and safety and soundness. The
CMDC reviews Operating Committee members’ performanceagainst their goals, and approves their compensation
awards. The CMDC also periodically reviews the Firm’s
diversity programs and management development andsuccession planning, and provides oversight of the Firm’s
culture and conduct programs.
Among the Firm’s senior management-level committees thatare 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. The FRC is cochaired by the Firm’s CEO and CRO. The FRC serves as an
escalation point for risk topics and issues raised by its
members, the Line of Business Risk Committees, Firmwide
Control Committee, Firmwide Fiduciary Risk GovernanceCommittee, Firmwide Estimations Risk Committee, Culture
and Conduct Risk Committee and regional Risk Committees,
as appropriate. The FRC escalates significant issues to the
DRPC, as appropriate.
The Firmwide Control Committee (“FCC”) provides a forum
for senior management to review and discuss firmwide
operational risks, including existing and emerging issues
and operational risk metrics, and to review operational risk
management execution in the context of the Operational
Risk Management Framework (“ORMF”). The ORMF provides
the framework for the governance, risk identification andassessment, measurement, monitoring and reporting ofoperational risk. The FCC is co-chaired by the Chief Control
Officer and the Firmwide Risk Executive for Operational Risk
Governance. The FCC relies on the prompt escalation ofoperational risk and control issues from businesses andfunctions as the primary owners of the operational risk.
Operational risk and control issues may be escalated bybusiness or function control committees to the FCC, which inturn, may escalate to the FRC, as appropriate.

JPMorgan Chase & Co./2017 Annual Report

The Firmwide Fiduciary Risk Governance Committee(“FFRGC”) is a forum for risk matters related to the Firm’s
fiduciary activities. The FFRGC oversees the firmwide
fiduciary risk governance framework, which supports theconsistent identification and escalation of fiduciary risk
issues by the relevant lines of business; approves risk orcompliance policy exceptions requiring FFRGC approval;
approves the scope and/or expansion of the Firm’s fiduciaryframework; and reviews metrics to track fiduciary activity
and issue resolution Firmwide. The FFRGC is co-chaired by
the Asset Management CEO and the Asset & WealthManagement CRO. The FFRGC escalates significant fiduciaryissues to the FRC, the DRPC and the Audit Committee, as
appropriate.
The Firmwide Estimations Risk Committee (“FERC”) reviews
and oversees governance and execution activities related tomodels and certain analytical and judgment based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. The FERC ischaired by the Firmwide Risk Executive for Model Risk
Governance and Review. The FERC serves as an escalation
channel for relevant topics and issues raised by its members
and the Line of Business Estimation Risk Committees. The
FERC escalates significant issues to the FRC, as appropriate.
The Culture and Conduct Risk Committee (“CCRC”) provides
oversight of culture and conduct initiatives to develop a
more holistic view of conduct risks and to connect key
programs across the Firm to identify opportunities andemerging areas for focus. The CCRC is co-chaired by the
Chief Culture & Conduct Officer and the Conduct Risk
Compliance Executive. The CCRC escalates significant issues
to the FRC, as appropriate.
Line of Business and Regional Risk Committees review theways in which the particular line of business 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 thesecommittees. These committees may escalate to the FRC, asappropriate. LOB risk committees are co-chaired by the LOB
CEO and the LOB CRO. Each LOB risk committee may create
sub-committees with requirements for escalation. The
regional committees are established similarly, as
appropriate, for the region.
In addition, each line of business and function is required tohave a Control Committee. These control committees
oversee the control environment of their respective
business or function. As part of that mandate, they are
responsible for reviewing data which indicates the quality
and stability of the processes in a business or function,
reviewing key operational risk issues and focusing on
processes with shortcomings and overseeing process
remediation. These committees escalate issues to the FCC,
as appropriate.

79Management’s discussion and analysis
The Firmwide Asset Liability Committee (“ALCO”), chaired by
the Firm’s Treasurer and Chief Investment Officer under the
direction of the CFO, monitors the Firm’s balance sheet,liquidity risk and structural interest rate risk. ALCO reviews
the Firm’s overall structural interest rate risk position, andthe Firm’s funding requirements and strategy. ALCO is
responsible for reviewing and approving the Firm’s Funds
Transfer Pricing Policy (through which lines of business“transfer” interest rate risk and liquidity risk to Treasury
and CIO), the Firm’s Intercompany Funding and Liquidity
Policy and the Firm’s Contingency Funding Plan.
The Firmwide Capital Governance Committee, chaired by the
Head of the Regulatory Capital Management Office, is
responsible for reviewing the Firm’s Capital Management
Policy and the principles underlying capital issuance anddistribution alternatives and decisions. The Committee
oversees the capital adequacy assessment process,including the overall design, scenario development andmacro assumptions, and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm’s businesses.
The Firmwide Valuation Governance Forum (“VGF”) is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arisingfrom valuation activities conducted across the Firm. The
VGF is chaired by the Firmwide head of the Valuation
Control Group (“VCG”) under the direction of the Firm’s
Controller, and includes sub-forums covering the Corporate& Investment Bank, Consumer & Community Banking,Commercial Banking, Asset & Wealth Management andcertain corporate functions, including Treasury and CIO.
In addition, 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 theprincipal 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 DRPC
and the Audit Committee of the Firm’s Board of Directors,
respectively, and, with respect to compensation and othermanagement-related matters, the Compensation &Management Development Committee of the Firm’s Boardof Directors.
Risk Identification
The Firm has a Risk Identification process in which the firstline of defense identifies material risks inherent to the Firm,
catalogs them in a central repository and reviews the mostmaterial risks on a regular basis. The second line ofdefense, at a firmwide level, establishes the risk
identification framework, coordinates the process,maintains the central repository and reviews and challenges
the first line’s identification of risks.

80

JPMorgan Chase & Co./2017 Annual Report

STRATEGIC RISK MANAGEMENT
Strategic risk is the risk associated with the Firm’s current
and future business plans and objectives. Strategic risk
includes the risk to current or anticipated earnings, capital,
liquidity, enterprise value, or the Firm’s reputation arisingfrom adverse business decisions, poor implementation ofbusiness decisions, or lack of responsiveness to changes in
the industry or external environment.
Overview
The Operating Committee and the senior leadership of each
LOB are responsible for managing the Firm’s mostsignificant strategic risks. Strategic risks are overseen by
IRM through participation in business reviews, LOB senior
management committees, ongoing management of the
Firm’s risk appetite and limit framework, and other relevant
governance forums. The Board of Directors oversees
management’s strategic decisions, and the DRPC oversees
IRM and the Firm’s risk management framework.
The Firm’s strategic planning process, which includes thedevelopment and execution of strategic priorities andinitiatives by the Operating Committee and the
management teams of the lines of business, is an important
process for managing the Firm’s strategic risk. Guided by
the Firm’s How We Do Business (“HWDB”) principles, thestrategic priorities and initiatives are updated annually andinclude evaluating performance against prior year
initiatives, assessment of the operating environment,
refinement of existing strategies and development of new
strategies.

The Firm’s balance sheet strategy, which focuses on riskadjusted returns, strong capital and robust liquidity, is key
to management of strategic risk. For further information on
capital risk, see Capital Risk Management on pages 82–91.
For further information on liquidity risk see, Liquidity Risk
Management on pages 92–97
For further information on reputation risk, see Reputation
Risk Management on page 98.
Governance and oversight
The Firm’s Operating Committee defines the mostsignificant strategic priorities and initiatives, including
those of the Firm, the LOBs and the Corporate functions, forthe coming year and evaluates performance against theprior year. As part of the strategic planning process, IRM
conducts a qualitative assessment of those significant
initiatives to determine the impact on the risk profile of theFirm. The Firm’s priorities, initiatives and IRM’s assessment
are provided to the Board for its review.
As part of its ongoing oversight and management of risk
across the Firm, IRM is regularly engaged in significant
discussions and decision-making across the Firm, including
decisions to pursue new business opportunities or modify
or exit existing businesses.

These strategic priorities and initiatives are thenincorporated in the Firm’s budget, and are reviewed by the
Board of Directors.
In the process of developing the strategic initiatives, line ofbusiness leadership identify the strategic risks associatedwith their strategic initiatives and those risks areincorporated into the Firmwide Risk Identification process
and monitored and assessed as part of the Firmwide Risk
Appetite framework. For further information on Risk
Identification, see Enterprise-Wide Risk Management on
page 75. For further information on the Risk Appetite
framework see, Enterprise-Wide Risk Management on
page 77.

JPMorgan Chase & Co./2017 Annual Report81Management’s discussion and analysis
CAPITAL RISK MANAGEMENT
Capital risk is the risk the Firm has an insufficient level andcomposition of capital to support the Firm’s businessactivities and associated risks during normal economic
environments and under stressed conditions.
A strong capital position is essential to the Firm’s businessstrategy 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 it to build and invest in
market-leading businesses, even in a highly stressed
environment. Senior management considers theimplications on the Firm’s capital prior to making decisions
that could impact future business activities. In addition toconsidering the Firm’s earnings outlook, senior
management evaluates all sources and uses of capital witha view to preserving the Firm’s capital strength.

These objectives are achieved through the establishment ofminimum capital targets and a strong capital governanceframework. Capital risk management is intended to beflexible in order to react to a range of potential events. The
Firm’s minimum capital targets are based on the mostbinding of three pillars: an internal assessment of the Firm’s
capital needs; an estimate of required capital under the
CCAR and Dodd-Frank Act stress testing requirements; andBasel III Fully Phased-In regulatory minimums. Where
necessary, each pillar may include a managementestablished buffer. The capital governance framework
requires regular monitoring of the Firm’s capital positions,stress testing and defining escalation protocols, both at the
Firm and material legal entity levels.

The Firm’s capital risk management objectives are to holdcapital sufficient to:• Maintain “well-capitalized” status for the Firm and its
insured depository institution (“IDI”) subsidiaries;• Support risks underlying business activities;• Maintain sufficient capital in order to continue to build
and invest in its businesses through the cycle and instressed environments;• Retain flexibility to take advantage of future investment
opportunities;• Serve as a source of strength to its subsidiaries;• Meet capital distribution objectives; and• Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm’s preferred resolution strategy.

82

JPMorgan Chase & Co./2017 Annual Report

The following tables present the Firm’s Transitional and Fully Phased-In risk-based and leverage-based capital metrics underboth the Basel III Standardized and Advanced Approaches. The Firm’s Basel III ratios exceed both the Transitional and Fully
Phased-In regulatory minimums as of December 31, 2017 and 2016. For further discussion of these capital metrics, including
regulatory minimums, and the Standardized and Advanced Approaches, refer to Strategy and Governance on pages 84–88.
Transitional
December 31, 2017
(in millions, except ratios)Standardized

Advanced

Fully Phased-In
Minimum
capital ratios

Standardized

Advanced

Minimum
capital ratios

Risk-based capital metrics:
CET1 capital$

183,300$

183,300$

183,244$

183,244

Tier 1 capital

208,644

208,644

208,564

Total capital

238,395

227,933

237,960

227,498

1,499,506

1,435,825

1,509,762

1,446,696

Risk-weighted assets

208,564

CET1 capital ratio

12.2%

12.8%

7.5%

12.1%

12.7%

10.5%

Tier 1 capital ratio

13.9

14.5

9.0

13.8

14.4

12.0

Total capital ratio

15.9

15.9

11.0

15.8

15.7

14.0

$ 2,514,270$ 2,514,270$ 2,514,822$ 2,514,822

Leverage-based capital metrics:
Adjusted average assets(a)Tier 1 leverage ratio(b)8.3%

Total leverage exposure

NA

SLR(c)

NA

8.3%

4.0%

8.3%

$ 3,204,463
6.5%

8.3%

NA
NA

NA

6.5%

Transitional
December 31, 2016
(in millions, except ratios)Standardized

Advanced

4.0%$ 3,205,015
5.0% (e)Fully Phased-In
Minimum
capital ratios

Standardized

Advanced

Minimum
capital ratios

Risk-based capital metrics:
CET1 capital$

182,967$

182,967$

181,734

Tier 1 capital

208,112208,112

207,474

Total capital

239,553

228,592

237,487

1,476,915

1,492,816

Risk-weighted assets

1,483,132(d)$

181,734
207,474
226,526(d)

1,487,180

12.3%

(d)

12.4%

6.25%

12.2%

(d)

12.2%

10.5%

Tier 1 capital ratio

14.0

(d)

14.1

7.75

13.9

(d)

14.0

12.0

Total capital ratio

16.2

(d)

15.5

9.75

15.9

(d)

15.2

14.0

CET1 capital ratio

Leverage based capital metrics:
Adjusted average assets(a)$ 2,484,631

Tier 1 leverage ratio(b)8.4%

Total leverage exposure

NA

SLR(c)

NA$ 2,484,631
8.4%$ 2,485,480
4.0%$ 3,191,990
6.5%

8.3%
NA

NA

NA

$ 2,485,480
8.3%

4.0%

$ 3,192,839
6.5%

5.0% (e)Note: As of December 31, 2017 and 2016, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In Approaches in thetable above represents the Firm’s Collins Floor, as discussed in Risk-based capital regulatory minimums on page 85.
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for unrealized gains/(losses) on
available-for-sale (“AFS”) securities, less deductions for goodwill and other intangible assets, defined benefit pension plan assets, and deferred tax assets related to
tax attributes, including net operating losses (“NOLs”).
(b) The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted total average assets.
(c) The SLR leverage ratio is calculated by dividing Tier 1 capital by total leverage exposure. For additional information on total leverage exposure, see SLR on page 88.
(d) The prior period amounts have been revised to conform with the current period presentation.
(e) In the case of the SLR, the Fully Phased-In minimum ratio is effective January 1, 2018.

JPMorgan Chase & Co./2017 Annual Report83Management’s discussion and analysis
Strategy and governance
The Firm’s CEO, together with the Board of Directors andthe Operating Committee, establishes principles andguidelines for capital planning, issuance, usage anddistributions, and minimum capital targets for the level andcomposition of capital in business-as-usual and highly
stressed environments. The DRPC reviews and approves thecapital management and governance policy of the Firm. The
Firm’s Audit Committee is responsible for reviewing andapproving the capital stress testing control framework.
The Capital Governance Committee and the Regulatory
Capital Management Office (“RCMO”) support the Firm’s
strategic capital decision-making. The Capital GovernanceCommittee oversees the capital adequacy assessment
process, including the overall design, scenario development
and macro assumptions, and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm’s businesses. RCMO, which reports to
the Firm’s CFO, is responsible for designing and monitoring
the Firm’s execution of its capital policies and strategies
once approved by the Board, as well as reviewing andmonitoring the execution of its capital adequacy assessment
process. The Basel Independent Review function (“BIR”),
which reports to the RCMO, conducts independent
assessments of the Firm’s regulatory capital framework toensure compliance with the applicable U.S. Basel rules insupport of senior management’s responsibility for assessing
and managing capital and for the DRPC’s oversight ofmanagement in executing that responsibility. For additional
discussion on the DRPC, see Enterprise-wide Risk
Management on pages 75–137.
Monitoring and management of capital
In its monitoring and management of capital, the Firm takes
into consideration an assessment of economic risk and all
regulatory capital requirements to determine the level ofcapital needed to meet and maintain the objectives
discussed above, as well as to support the framework forallocating capital to its business segments. While economicrisk is considered prior to making decisions on futurebusiness activities, in most cases the Firm considers riskbased regulatory capital to be a proxy for economic risk
capital.
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 for the Firm’s nationalbanks, including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.

84

Basel III overview
Capital rules under Basel III establish minimum capitalratios and overall capital adequacy standards for large andinternationally active U.S. bank holding companies (“BHC”)
and banks, including the Firm and its IDI subsidiaries. Basel
III sets forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”),
and an advanced approach (“Basel III Advanced”). Certainof the requirements of Basel III are subject to phase-in
periods that began on January 1, 2014 and continue
through the end of 2018 (“transitional period”).
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 whichlargely rely on the use of internal credit models andparameters, 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 consistentbasis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under thesemethodologies, the Firm may supplement such amounts toincorporate management judgment and feedback from its
regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, tocalculate the SLR. For additional information on the SLR,
see page 88.
On December 7, 2017, the Basel Committee issued theBasel III Reforms. Potential changes to the requirements for
U.S. financial institutions are being considered by the U.S.
banking regulators. For additional information on Basel III
reforms, refer to Supervision & Regulation on pages 1–8.
Basel III Fully Phased-In
The Basel III transitional period will end on December 31,
2018, at which point the Firm will calculate its capital ratios
under both the Basel III Standardized and Advanced
Approaches on a Fully Phased–In basis. In the case of the
SLR, the Fully Phased-In well-capitalized ratio is effective
January 1, 2018. The Firm manages each of its lines ofbusiness, as well as the corporate functions, primarily on a
Basel III Fully Phased-In basis.
For additional information on the Firm, JPMorgan Chase
Bank, N.A. and Chase Bank USA, N.A.’s capital, RWA andcapital ratios under Basel III Standardized and Advanced
Fully Phased-In rules and the SLR calculated under the
Basel III Advanced Fully Phased-In rules, all of which areconsidered key regulatory capital measures, see
Explanation and Reconciliation of the Firm’s Use of NonGAAP Financial Measures and Key Performance Measures
on pages 52–54.

JPMorgan Chase & Co./2017 Annual Report

The Basel III Standardized and Advanced Fully Phased-In capital, RWA and capital ratios, and SLRs for the Firm, JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. are based on the current published U.S. Basel III rules.
Risk-based capital regulatory minimums
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.
14
12
10

10.50%

12/31/17
CET1: 12.1%

9.00%

8
6

7.50%

3.50%

2.625%
GSIB surcharge

1.750%

6.25%
1.125%
0.625%

2.50%

1.250%

1.875%

4.50%

4.50%

4.50%

2017

2018

2019

Capitalconservationbuffer

4
2

4.50%

4.5%

Capitalconservationbuffer incl. GSIB

Minimum
requirement

0

2016

The Basel III rules include minimum capital ratio
requirements that are subject to phase-in periods throughthe end of 2018. The capital adequacy of the Firm and its
IDI subsidiaries, both during the transitional period andupon full phase-in, is evaluated against the Basel III
approach (Standardized or Advanced) which, for eachquarter, results in the lower ratio as required by the Collins
Amendment of the Dodd-Frank Act (the “Collins Floor”). The
Basel III Standardized Fully Phased-In CET1 ratio is the
Firm’s current binding constraint, and the Firm expects that
this will remain its binding constraint for the foreseeable
future.
Additional information regarding the Firm’s capital ratios, aswell as the U.S. federal regulatory capital standards towhich the Firm is subject, is presented in Note 26. For
further information on the Firm’s Basel III measures, see theFirm’s Pillar 3 Regulatory Capital Disclosures reports, which
are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
All banking institutions are currently required to have aminimum capital ratio of 4.5% of risk weighted assets.
Certain banking organizations, including the Firm, arerequired to hold additional amounts of capital to serve as a“capital conservation buffer”. The capital conservationbuffer is intended to be used to absorb potential losses intimes of financial or economic stress. If not maintained, theFirm could be limited in the amount of capital that may be
distributed, including dividends and common equity
repurchases. The capital conservation buffer is subject to a
JPMorgan Chase & Co./2017 Annual Reportphase-in period that began January 1, 2016 and continues
through the end of 2018.
As an expansion of the capital conservation buffer, the Firmis also required to hold additional levels of capital in theform of a GSIB surcharge and a countercyclical capital
buffer.
Under the Federal Reserve’s final rule, the Firm is required
to calculate its GSIB surcharge on an annual basis under two
separately prescribed methods, and is subject to the higherof the two. The first (“Method 1”), reflects the GSIB
surcharge as prescribed by the Basel Committee’s
assessment methodology, and is calculated across fivecriteria: 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 inplace of substitutability, and introduces a GSIB score“multiplication factor”. The following table represents the
Firm’s GSIB surcharge.
2017

2016

Method 1

2.50%

2.50%

Method 2

3.50%

4.50%

1.75%

1.125%

Fully Phased-In:(a)

Transitional(a) The GSIB surcharge is subject to transition provisions (in 25% increments)
through the end of 2018.

85

Management’s discussion and analysis
The Firm’s effective GSIB surcharge for 2018 is anticipatedto be 3.5%.
The countercyclical capital buffer takes into account themacro financial environment in which large, internationallyactive banks function. On September 8, 2016 the Federal
Reserve published the framework that will apply to thesetting of the countercyclical capital buffer. As of December
1, 2017, the Federal Reserve reaffirmed setting the U.S.
countercyclical capital buffer at 0%, and stated that it will
review the amount at least annually. The countercyclicalcapital buffer can be increased if the Federal Reserve, FDIC
and OCC determine that credit growth in the economy has
become excessive and can be set at up to an additional
2.5% of RWA subject to a 12-month implementation period.
The Firm believes that it will operate with a Basel III CET1
capital ratio between 11% and 12% over the medium term.
It is the Firm’s intention that its capital ratios will continue
to meet regulatory minimums as they are fully phased in2019 and thereafter.
In addition to meeting the capital ratio requirements ofBasel III, the Firm also must maintain minimum capital andleverage ratios in order to be “well-capitalized.” Thefollowing table represents the ratios that the Firm and its
IDI subsidiaries must maintain in order to meet thedefinition of “well-capitalized” under the regulations issued
by the Federal Reserve and the Prompt Corrective Action(“PCA”) requirements of the FDIC Improvement Act(“FDICIA”), respectively.
Well-capitalized ratios
BHC—%

Total stockholders’ equity
Less: Preferred stock

26,06826,068

Common stockholders’ equity

229,625

228,12247,50747,288855

862

Certain Deferred tax liabilities(a)(b)

2,204

3,230

Less: Other CET1 capital adjustments(b)

223

1,468

Standardized/Advanced Fully Phased-In
CET1 capital

183,244

181,734

Preferred stock

26,06826,068

748

328

Less:
Goodwill
Other intangible assets
Add:

Less:
Other Tier 1 adjustments(c)Standardized/Advanced Fully Phased-In
Tier 1 capital$

208,564 $

207,474

Long-term debt and other instruments
qualifying as Tier 2 capital

14,827 $15,253

14,672

14,854

(103)

(94)

$

Qualifying allowance for credit losses
Other$29,396 $30,013

6.5%

Standardized Fully Phased-in Total
capital$237,960 $

237,487(10,462)(10,961)

6.0

8.0

Total capital

10.0

10.0

Tier 1 leverage

—

5.0

5.0

6.0

(a) In the case of the SLR, the Fully Phased-In well-capitalized ratio iseffective January 1, 2018.

86

December 31, December 31,
2017
2016
$
255,693 $
254,190(in millions)

IDI

Tier 1 capital

SLR(a)

Capital components

Standardized Fully Phased-In Tier 2
capitalCapital ratios
CET1

CapitalThe following table presents reconciliations of total
stockholders’ equity to Basel III Fully Phased-In CET1
capital, Tier 1 capital and Basel III Advanced andStandardized Fully Phased-In Total capital as of December
31, 2017 and 2016. For additional information on thecomponents of regulatory capital, see Note 26.

Adjustment in qualifying allowance for
credit losses for Advanced Tier 2 capital
Advanced Fully Phased-In Tier 2 capital$

18,934 $19,052

Advanced Fully Phased-In Total capital$

227,498 $

226,526(a) Represents deferred tax liabilities related to tax-deductible goodwill
and identifiable intangibles created in nontaxable transactions, which
are netted against goodwill and other intangibles when calculating
TCE.
(b) Includes the effect from the revaluation of the Firm’s net deferred tax
liability as a result of the enactment of the TCJA.
(c) Includes the deduction associated with the permissible holdings ofcovered funds (as defined by the Volcker Rule). The deduction was notmaterial as of December 31, 2017 and 2016.

JPMorgan Chase & Co./2017 Annual Report

The following table presents reconciliations of the Firm’s
Basel III Transitional CET1 capital to the Firm’s Basel III Fully
Phased-In CET1 capital as of December 31, 2017 and 2016.
(in millions)
Transitional CET1 capital

December 31, December 31,
2017
2016
$
183,300 $
182,967

AOCI phase-in(a)

128

(156)

CET1 capital deduction phase-in(b)

(20)

(695)

Intangible assets deduction phase-in(c)

(160)

(312)

Other adjustments to CET1 capital(d)

(4)

(70)

Fully Phased-In CET1 capital$

183,244 $

181,734(a) Includes the remaining balance of accumulated other comprehensive
income (“AOCI”) related to AFS debt securities and defined benefit
pension and other postretirement employee benefit (“OPEB”) plansthat will qualify as Basel III CET1 capital upon full phase-in.
(b) Predominantly includes regulatory adjustments related to changes in
DVA, as well as CET1 deductions for defined benefit pension plan
assets and deferred tax assets related to tax attributes, includingNOLs.
(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.

Capital rollforward
The following table presents the changes in Basel III Fully
Phased-In CET1 capital, Tier 1 capital and Tier 2 capital forthe year ended December 31, 2017.
Year Ended December 31, (in millions)

2017

Standardized/Advanced CET1 capital at December 31, 2016 $ 181,734
Net income applicable to common equity(a)22,778Dividends declared on common stock(7,542)

Net purchase of treasury stock(13,741)

Changes in additional paid-in capital(1,048)Changes related to AOCI

536

Adjustment related to DVA(b)468

Changes related to other CET1 capital adjustments

59

Increase in Standardized/Advanced CET1 capital

1,510

(c)

Standardized/Advanced CET1 capital at
December 31, 2017

$ 183,244

Standardized/Advanced Tier 1 capital at
December 31, 2016

$ 207,474

Change in CET1 capital
Net issuance of noncumulative perpetual preferred stock

1,510
—

Other

(420)

Increase in Standardized/Advanced Tier 1 capital

1,090

Standardized/Advanced Tier 1 capital at
December 31, 2017

$ 208,564

Standardized Tier 2 capital at December 31, 2016

$ 30,013

Change in long-term debt and other instruments qualifying
as Tier 2(426)

Change in qualifying allowance for credit losses

(182)

Other
Decrease in Standardized Tier 2 capital

(9)
(617)

Standardized Tier 2 capital at December 31, 2017

$ 29,396

Standardized Total capital at December 31, 2017

$ 237,960

Advanced Tier 2 capital at December 31, 2016

$ 19,052

Change in long-term debt and other instruments qualifying
as Tier 2(426)

Change in qualifying allowance for credit losses

317

Other
Decrease in Advanced Tier 2 capital

(9)
(118)

Advanced Tier 2 capital at December 31, 2017

$ 18,934

Advanced Total capital at December 31, 2017

$ 227,498(a) Includes a $2.4 billion decrease to net income as a result of theenactment of the TCJA. For additional information related to theimpact of the TCJA, see Note 24.
(b) Includes DVA related to structured notes recorded in AOCI.
(c) Includes the effect from the revaluation of the Firm’s net deferred tax
liability as a result of the enactment of the TCJA.

JPMorgan Chase & Co./2017 Annual Report87Management’s discussion and analysis
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In forthe year ended December 31, 2017. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
Year ended December 31, 2017
(in millions)
December 31, 2016
Model & data changes(a)Portfolio runoff(b)Movement in portfolio levels(c)Changes in RWA
December 31, 2017

Standardized
Advanced
Credit risk
Market risk
Credit risk
Market risk
Operational
Total RWA
Total RWA
RWA
RWA
RWA
RWA
risk
$ 1,365,137 (d) $127,679 $ 1,492,816 (d) $959,523 $
127,657 $400,000 $ 1,487,180(8,214)
1,739(6,475)(14,189)
1,739—(12,450)(13,600)—(13,600)(16,100)——(16,100)
42,737(5,716)37,021(6,329)(5,605)—(11,934)
20,923(3,977)
16,946(36,618)(3,866)—(40,484)$ 1,386,060$
123,702 $ 1,509,762$
922,905 $123,791 $400,000 $ 1,446,696(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 rulechanges).
(b) Portfolio runoff for credit risk RWA primarily reflects (under both the Standardized and Advanced approaches) reduced risk from position rolloffs in legacy portfolios
in Home Lending, the sale of the student loan portfolio during the second quarter of 2017, and the sale of reverse mortgages in CIB during the third quarter of
2017.
(c) Movement in portfolio levels for credit risk RWA refers to changes primarily in book size, composition, credit quality, and market movements; and for market risk
RWA refers to changes in position and market movements.
(d) The prior period amounts have been revised to conform with the current period presentation.

Supplementary leverage ratio
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 onbalance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments andderivatives potential future exposure.
The following table presents the components of the Firm’s
Fully Phased-In SLR as of December 31, 2017 and 2016.
(in millions, except ratio)
Tier 1 capital
Total average assets
Less: Adjustments for deductions
from Tier 1 capital
Total adjusted average assets(a)Off-balance sheet exposures(b)Total leverage exposure
SLR

December 31,
December 31,
2017
2016
$
208,564 $
207,474
2,562,155
2,532,457$

47,333

46,9772,514,822
690,193
3,205,015 $6.5%

2,485,480
707,359
3,192,839
6.5%(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assetsthat are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
(b) Off-balance sheet exposures are calculated as the average of the threemonth-end spot balances during the reporting quarter.

As of December 31, 2017, JPMorgan Chase Bank, N.A.’s andChase Bank USA, N.A.’s Fully Phased-In SLRs areapproximately 6.7% and 11.8%, respectively.

88

Line of business equity
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons and regulatory
capital requirements. For 2016, capital was allocated toeach business segment for, among other things, goodwill
and other intangibles associated with acquisitions effectedby the line of business. ROE is measured and internal
targets for expected returns are established as key
measures of a business segment’s performance.
On at least an annual basis, the Firm assesses the level ofcapital required for each line of business as well as theassumptions and methodologies used to allocate capital.
Through the end of 2016, capital was allocated to the linesof business based on a single measure, Basel III Advanced
Fully Phased-In RWA. Effective January 1, 2017, the Firm’s
methodology used to allocate capital to the Firm’s businesssegments was updated. The new methodology incorporates
Basel III Standardized Fully Phased-In RWA (as well as Basel
III Advanced Fully Phased-In RWA), leverage, the GSIB
surcharge, and a simulation of capital in a severe stressenvironment. The methodology will continue to be weighted
towards Basel III Advanced Fully Phased-In RWA because
the Firm believes it to be the best proxy for economic risk.
The Firm will consider further changes to its capital
allocation methodology as the regulatory framework
evolves. In addition, under the new methodology, capital is
no longer allocated to each line of business for goodwill andother intangibles associated with acquisitions effected by
the line of business. The Firm will continue to establish
internal ROE targets for its business segments, against
which they will be measured, as a key performanceindicator.

JPMorgan Chase & Co./2017 Annual Report

The table below reflects the Firm’s assessed level of capital
allocated to each line of business as of the dates indicated.
Line of business equity (Allocated capital)
December 31,(in billions)January 1,
2018

2017

Consumer & Community Banking$$ 51.0 $ 51.0

51.0

2016

Corporate & Investment Bank

70.0

70.0

64.0

Commercial Banking

20.0

20.0

16.0

Asset & Wealth Management

9.0

9.0

9.0

Corporate

79.6

79.6

88.1

Total common stockholders’ equity

$

229.6

$229.6 $228.1

Planning and stress testingComprehensive Capital Analysis and Review
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 andDodd-Frank Act stress test processes to ensure that large
BHCs have sufficient capital during periods of economic andfinancial stress, and have robust, forward-looking capitalassessment and planning processes in place that addresseach BHC’s unique risks to enable it to absorb losses undercertain stress scenarios. Through the CCAR, the Federal
Reserve evaluates each BHC’s capital adequacy and internal
capital adequacy assessment processes (“ICAAP”), as wellas its plans to make capital distributions, such as dividend
payments or stock repurchases.
On June 28, 2017, the Federal Reserve informed the Firmthat it did not object, on either a quantitative or qualitativebasis, to the Firm’s 2017 capital plan. For information on
actions taken by the Firm’s Board of Directors following the2017 CCAR results, see Capital actions on pages 89-90.
The Firm’s CCAR process is integrated into and employs thesame methodologies utilized in the Firm’s ICAAP process, as
discussed below.

Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which provides
management with a view of the impact of severe andunexpected events on earnings, balance sheet positions,reserves and capital. The Firm’s ICAAP integrates stresstesting protocols with capital planning.
The process assesses the potential impact of alternative
economic and business scenarios on the Firm’s earnings andcapital. Economic scenarios, and the parameters underlying
those scenarios, are defined centrally and applied uniformly
across the businesses. These scenarios are articulated interms of macroeconomic factors, which are key drivers ofbusiness results; global market shocks, which generate
short-term but severe trading losses; and idiosyncratic
operational risk events. The scenarios are intended tocapture and stress key vulnerabilities and idiosyncratic risksfacing the Firm. However, when defining a broad range of
scenarios, actual events can always be worse. Accordingly,
management considers additional stresses outside thesescenarios, as necessary. ICAAP results are reviewed bymanagement and the Audit Committee.
Capital actions
Preferred stock
Preferred stock dividends declared were $1.7 billion for theyear ended December 31, 2017.
On October 20, 2017, the Firm issued $1.3 billion of fixedto-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.
For additional information on the Firm’s preferred stock,see Note 20.
Trust preferred securities
On December 18, 2017, the Delaware trusts that issued
seven series of outstanding trust preferred securities wereliquidated, $1.6 billion of trust preferred and $56 million ofcommon securities originally issued by those trusts werecancelled, and the junior subordinated debentures
previously held by each trust issuer were distributed pro
rata to the holders of the corresponding series of trust
preferred and common securities.
The Firm redeemed $1.6 billion of trust preferred securities
in the year ended December 31, 2016.
Common stock dividends
The Firm’s common stock dividend policy reflects JPMorgan
Chase’s earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.
On September 19, 2017, the Firm announced that its Boardof Directors increased the quarterly common stock dividend
to $0.56 per share, effective with the dividend paid on
October 31, 2017. The Firm’s dividends are subject to theBoard of Directors’ approval on a quarterly basis.
For information regarding dividend restrictions, see Note 20
and Note 25.

JPMorgan Chase & Co./2017 Annual Report89Management’s discussion and analysis
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31,

2017

2016

2015

Common dividend payout ratio

33%

30%

28%

Common equity
During the year ended December 31, 2017, warrant
holders exercised their right to purchase 9.9 million sharesof the Firm’s common stock. The Firm issued from treasury
stock 5.4 million shares of its common stock as a result of
these exercises. As of December 31, 2017, 15.0 million
warrants remained outstanding, compared with 24.9
million outstanding as of December 31, 2016.
Effective June 28, 2017, the Firm’s Board of Directors
authorized the repurchase of up to $19.4 billion of common
equity (common stock and warrants) between July 1, 2017
and June 30, 2018, as part of its annual capital plan.
As of December 31, 2017, $9.8 billion of authorized
repurchase capacity remained under the common equity
repurchase program.
The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2017,2016 and 2015. There were no repurchases of warrants
during the years ended December 31, 2017, 2016 and2015.
Year ended December 31, (in millions)

2017

2016

2015

Total number of shares of common stock
repurchased

166.6

140.4

89.8

Aggregate purchase price of common
stock repurchases$15,410$ 9,082$ 5,616

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of1934 to facilitate repurchases in accordance with thecommon 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 Rule 10b5-1 plans
must be made according to predefined schedules
established when the Firm is not aware of material
nonpublic information.
The authorization to repurchase common equity will beutilized at management’s discretion, and the timing ofpurchases 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; theFirm’s capital position (taking into account goodwill andintangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does notinclude specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans; andmay be suspended by management at any time.

90

For additional information regarding repurchases of the
Firm’s equity securities, see Part II, Item 5: Market for
Registrant’s Common Equity, Related Stockholder Mattersand Issuer Purchases of Equity Securities on page 28.
Other capital requirements
TLAC
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies ofeight U.S. GSIB holding companies, including the Firm, tomaintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria(“eligible LTD”), effective January 1, 2019.
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:
Minimum external TLAC(a)

18% of RWA+
applicablebuffers, including
Method 1 GSIB
surcharge

Greaterof

7.5%of totalleverage
exposure+
2.0% buffer

Minimum level of eligible
long-term debt

6% of RWA(a)+Method 2 GSIB
surcharge

Greaterof

4.5%of totalleverage
exposure(a) RWA is the greater of Standardized and Advanced.

The final TLAC rule permanently grandfathered all longterm debt issued before December 31, 2016, to the extent
these securities would be ineligible because they contained
impermissible acceleration rights or were governed by nonU.S. law. As of December 31, 2017, the Firm was compliant
with the requirements under the current rule to which it will
be subject on January 1, 2019.

JPMorgan Chase & Co./2017 Annual Report

Broker-dealer regulatory capital
JPMorgan Securities
JPMorgan Chase’s principal U.S. broker-dealer subsidiary is
JPMorgan Securities. JPMorgan Securities is subject to Rule15c3-1 under the Securities Exchange Act of 1934 (the“Net Capital Rule”). JPMorgan Securities is also registeredas a futures commission merchant and subject to Rule 1.17of the CFTC.
JPMorgan Securities has elected to compute its minimum
net capital requirements in accordance with the “Alternative
Net Capital Requirements” of the Net Capital Rule.

In accordance with the market and credit risk standards ofAppendix E of the Net Capital Rule, JPMorgan Securities iseligible to use the alternative method of computing net
capital if, in addition to meeting its minimum net capitalrequirements, it maintains tentative net capital of at least$1.0 billion and is also required to notify the SEC in theevent that tentative net capital is less than $5.0 billion. As
of December 31, 2017, JPMorgan Securities had tentative
net capital in excess of the minimum and notification
requirements. The following table presents
JPMorgan Securities’ net capital information:
December 31, 2017

Net capital(in billions)

Actual Minimum

JPMorgan Securities$

13.6 $

2.8

J.P. Morgan Securities plc
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. PRA and the FCA. J.P. Morgan Securities plc is subject to the European
Union Capital Requirements Regulation and the U.K. PRA capital rules, each of which implemented Basel III and thereby subject
J.P. Morgan Securities plc to its requirements.
The following table presents J.P. Morgan Securities plc’s capital information:
December 31, 2017

Total capital(in billions, except ratios)

Estimated

J.P. Morgan Securities plc

JPMorgan Chase & Co./2017 Annual Report

$

39.6

CET1 ratio
Estimated
15.9%

Total capital ratio

Minimum
4.5%

Estimated
15.9%

Minimum
8.0%

91

Management’s discussion and analysis
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meetits contractual and contingent financial obligations as theyarise or that it does not have the appropriate amount,composition and tenor of funding and liquidity to support
its assets and liabilities.
Liquidity risk oversight
The Firm has a 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 dedicatedfirmwide Liquidity Risk Oversight group. The CIO, Treasury
and Corporate (“CTC”) CRO, who reports to the Firm’s CRO,as part of the IRM function, is responsible for firmwide
Liquidity Risk Oversight. Liquidity Risk Oversight’s
responsibilities include:• Establishing and monitoring limits, indicators, andthresholds, including liquidity risk appetite tolerances;• Monitoring internal firmwide and material legal entity
liquidity stress tests, and monitoring and reporting
regulatory defined liquidity stress testing;• Approving or escalating for review liquidity stressassumptions;• Monitoring liquidity positions, balance sheet variancesand funding activities, and• Conducting ad hoc analysis to identify potential
emerging liquidity risks.
Liquidity management
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to:• 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• Manage an optimal funding mix and availability ofliquidity sources.
The Firm manages liquidity and funding using a centralized,
global approach across its entities, taking into consideration
both their current liquidity profile and any potentialchanges over time, in order to optimize liquidity sources
and uses.
In the context of the Firm’s liquidity management, Treasury
and CIO is responsible for:• Analyzing and understanding the liquidity characteristicsof the assets and liabilities of the Firm, lines of businessand legal entities, taking into account legal, regulatory,
and operational restrictions;• Developing internal liquidity stress testing assumptions;• Defining and monitoring firmwide and legal entityspecific liquidity strategies, policies, guidelines,
reporting and contingency funding plans;
92

•
•
•

Managing liquidity within the Firm’s approved liquidity
risk appetite tolerances and limits;
Managing compliance with regulatory requirements
related to funding and liquidity risk, andSetting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets andliabilities as well as certain off-balance sheet items.

Risk governance and measurement
Specific committees responsible for liquidity governanceinclude the firmwide ALCO as well as line of business andregional ALCOs, and the CTC Risk Committee. In addition,
the DRPC reviews and recommends to the Board of
Directors, for formal approval, the Firm’s liquidity risk
tolerances, liquidity strategy, and liquidity policy at least
annually. For further discussion of ALCO and other riskrelated committees, see Enterprise-wide Risk Managementon pages 75–137.
Internal stress testing
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’smaterial legal entities on a regular basis, and ad hoc stresstests are performed, as needed, in response to specificmarket events or concerns. Liquidity stress tests assume allof the Firm’s contractual financial obligations are met andtake into consideration:• Varying levels of access to unsecured and secured
funding markets,• Estimated non-contractual and contingent cash outflows,and• Potential impediments to the availability andtransferability of liquidity between jurisdictions andmaterial legal entities such as regulatory, legal or otherrestrictions.
Liquidity outflow assumptions are modeled across a rangeof time horizons and currency dimensions and contemplateboth 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 the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, asnecessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at theoperating subsidiaries, at levels sufficient to comply withliquidity risk tolerances and minimum liquidity
requirements, and to manage through periods of stresswhere access to normal funding sources is disrupted.

JPMorgan Chase & Co./2017 Annual ReportContingency funding plan
The Firm’s contingency funding plan (“CFP”), which isapproved by the firmwide ALCO and the DRPC, is acompilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates thelimits and indicators set by the Liquidity Risk Oversightgroup. These limits and indicators are reviewed regularly toidentify the emergence of risks or vulnerabilities in the
Firm’s liquidity position. The CFP identifies the alternative
contingent funding and liquidity resources available to theFirm and its legal entities in a period of stress.
LCR and HQLA
The LCR rule requires the Firm to maintain an amount of
unencumbered HQLA that is sufficient to meet its estimatedtotal net cash outflows over a prospective 30 calendar-day
period of significant stress. HQLA is the amount of liquid
assets that qualify for inclusion in the LCR. HQLA primarily
consist of unencumbered cash and certain high quality
liquid securities as defined in the LCR rule.
Under the LCR rule, the amount of HQLA held by JPMorgan
Chase Bank N.A. and Chase Bank USA, N.A that are in excessof each entity’s standalone 100% minimum LCR
requirement, and that are not transferable to non-bankaffiliates, must be excluded from the Firm’s reported HQLA.
Effective January 1, 2017, the LCR is required to be aminimum of 100%.
On December 19, 2016, the Federal Reserve published final
LCR public disclosure requirements for certain BHCs andnon-bank financial companies. Beginning with the second
quarter of 2017, the Firm disclosed its average LCR for thequarter and the key quantitative components of the average
LCR, along with a qualitative discussion of material driversof the ratio, changes over time, and causes of such changes.
The Firm will continue to make available its U.S. LCR
Disclosure report on a quarterly basis on the Firm’s website
at: (https://investor.shareholder.com/jpmorganchase/basel.cfm)
The following table summarizes the Firm’s average LCR for
the three months ended December 31, 2017 based on the
Firm’s current interpretation of the finalized LCR
framework.
Average amount(in millions)

For the three months ended December 31, 2017, the Firm’s
average LCR was 119%, compared with an average of
120% for the three months ended September 30, 2017.
The decrease in the ratio was largely attributable to adecrease in average HQLA, driven primarily by long-term
debt maturities. The Firm’s average LCR may fluctuate fromperiod to period, due to changes in its HQLA and estimatednet cash outflows under the LCR as a result of ongoing
business activity. The Firm’s HQLA are expected to beavailable to meet its liquidity needs in a time of stress.
Other liquidity sources
As of December 31, 2017, in addition to assets reported in
the Firm’s HQLA under the LCR rule, the Firm had
approximately $208 billion of unencumbered marketablesecurities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required. This
includes HQLA-eligible securities included as part of theexcess liquidity at JPMorgan Chase Bank, N.A. that are nottransferable to non-bank affiliates.
As of December 31, 2017, the Firm also had approximately$277 billion of available borrowing capacity at various
Federal Home Loan Banks (“FHLBs”), discount windows atFederal Reserve Banks and various other central banks as aresult of collateral pledged by the Firm to such banks. Thisborrowing capacity excludes the benefit of securities
reported in the Firm’s HQLA or other unencumberedsecurities that are currently pledged at Federal Reserve
Bank discount windows. Although available, the Firm does
not view the borrowing capacity at Federal Reserve Bank
discount windows and the various other central banks as a
primary source of liquidity.
NSFR
The net stable funding ratio (“NSFR”) is intended tomeasure the adequacy of “available” and “required”
amounts of stable funding over a one-year horizon. On April
26, 2016, the U.S. NSFR proposal was released for largebanks and BHCs and was largely consistent with the BaselCommittee’s final standard.
While the final U.S. NSFR rule has yet to be released, as ofDecember 31, 2017 the Firm estimates that it wascompliant with the proposed 100% minimum NSFR basedon its current understanding of the proposed rule.

Three months ended
December 31, 2017

HQLA
Eligible cash(a)$Eligible securities(b)(c)

370,126
189,955

Total HQLA(d)$560,081

Net cash outflows$

472,078$

88,003LCR
Net excess HQLA (d)119%(a) Represents cash on deposit at central banks, primarily Federal Reserve
Banks.
(b) Predominantly U.S. Agency MBS, U.S. Treasuries, and sovereign bonds netof applicable haircuts under the LCR rules(c) HQLA eligible securities may be reported in securities borrowed orpurchased under resale agreements, trading assets, or securities on the
Firm’s Consolidated balance sheets.
(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. and Chase
Bank USA, N.A. that are not transferable to non-bank affiliates.

JPMorgan Chase & Co./2017 Annual Report93Management’s discussion and analysis
Funding
Sources of funds
Management believes that the Firm’s unsecured andsecured funding capacity is sufficient to meet its on- andoff-balance sheet obligations.
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 is funded with a portionof the Firm’s deposits, through securitizations and, withrespect to a portion of the Firm’s real estate-related loans,with secured borrowings from the FHLBs. Deposits in excessof 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 theirinterest rate and liquidity risk characteristics. Securities

borrowed or purchased under resale agreements andtrading assets-debt and equity instruments are primarily
funded by the Firm’s securities loaned or sold underagreements to repurchase, trading liabilities–debt andequity instruments, and a portion of the Firm’s long-term
debt and stockholders’ equity. In addition to funding
securities borrowed or purchased under resale agreements
and trading assets-debt and equity instruments, proceedsfrom the Firm’s debt and equity issuances are used to fundcertain 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
information relating to Deposits, Short-term funding, andLong-term funding and issuance.

Deposits
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended
December 31, 2017 and 2016.
Deposits

Year ended December 31,

As of or for the year ended December 31,

Average(in millions)2017

Consumer & Community Banking

$

2016

2016

659,885 $618,337

640,219 $

586,637

Corporate & Investment Bank

455,883

412,434

447,697

409,680

Commercial Banking

181,512

179,532

176,884

172,835

Asset & Wealth Management

146,407

161,577

148,982

153,334

Corporate

295

Total Firm$

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. A significant portion of the
Firm’s deposits are consumer and wholesale operating
deposits, which are both considered to be stable sources ofliquidity. Wholesale operating deposits are considered to bestable 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, theloans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2017 and 2016.
As of December 31,(in billions except ratios)
Deposits
Deposits as a % of total liabilities
Loans
Loans-to-deposits ratio

94

$

2017
1,444.0 $
63%
930.7
64%

2016
1,375.2
61%
894.8
65%

1,443,982 $

$

2017

3,299
1,375,179

3,604$

1,417,386 $

5,482
1,327,968

Deposits increased due to both higher consumer andwholesale deposits. The higher consumer deposits reflect
the continuation of strong growth from new and existingcustomers, and low attrition rates. The higher wholesale
deposits largely were driven by growth in client cash
management activity in CIB’s Securities Services business,partially offset by lower balances in AWM reflecting balance
migration predominantly into the Firm’s investment-related
products.
The Firm believes average deposit balances are generally
more representative of deposit trends than period-end
deposit balances. The increase in average deposits for theyear ended December 31, 2017 compared with the year
ended December 31, 2016, was driven by an increase inboth consumer and wholesale deposits. For further
discussions of deposit and liability balance trends, see thediscussion of the Firm’s business segments results and theConsolidated Balance Sheet Analysis on pages 55–74 andpages 47-48, respectively.

JPMorgan Chase & Co./2017 Annual Report

The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2017 and 2016,
and average balances for the years ended December 31, 2017 and 2016. For additional information, see the Consolidated
Balance Sheets Analysis on pages 47-48 and Note 19.
Sources of funds (excluding deposits)
As of or for the year ended December 31,(in millions)
Commercial paper
Other borrowed funds
Total short-term borrowings$

2016
11,73822,70534,443$

3,045 $

2,719$

3,206 $

5,153$

149,826
12,137
161,963$$

146,432 $
7,910
154,342 $$

171,973 $
11,526
183,499 $

160,458
13,195
173,653$

155,852 $

151,042$

154,352 $

153,768$

Obligations of Firm-administered multi-seller conduits(a)Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase(b)Securities loaned(c)Total securities loaned or sold under agreements to repurchase(d)Senior notes

Average2017
2016
19,920 $15,001
26,612
21,13946,532 $36,1402017
24,186 $27,61651,802 $Trust preferred securities(e)

Subordinated debt(e)Structured notes

$
$

690

2,345

2,276

3,724

16,553

21,94018,832

24,22445,72737,292

42,91835,978

Total long-term unsecured funding$

218,822 $

212,619$

218,378 $

217,694

Credit card securitization(a)$21,278 $31,181$25,933 $29,428

—

1,527

626

1,669

FHLB advances

60,61779,51969,91673,260

Other long-term secured funding(g)

4,641

3,107

3,195

4,619

86,536 $115,334

99,670 $108,976

Other securitizations(a)(f)Total long-term secured funding$

Preferred stock

(h)

$

$

26,068 $26,06826,212 $26,068

Common stockholders’ equity(h)$229,625 $

228,122230,350 $

224,631(a) Included in beneficial interest issued by consolidated variable interest entities on the Firm’s Consolidated balance sheets.
(b) Excludes long-term structured repurchase agreements of $1.3 billion and $1.8 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.5 billion
and $2.9 billion for the years ended December 31, 2017 and 2016, respectively.
(c) Excludes long-term securities loaned of $1.3 billion and $1.2 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.3 billion for both the years
ended December 31, 2017 and 2016.
(d) Excludes federal funds purchased.
(e) Subordinated debt includes $1.6 billion of junior subordinated debentures distributed pro rata to the holders of the $1.6 billion of trust preferred securities which werecancelled on December 18, 2017. For further information see Note 19 .
(f) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer hada controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm’s wholesale businesses also securitize loans for client-driven
transactions, which are not considered to be a source of funding for the Firm and are not included in the table.
(g) Includes long-term structured notes which are secured.
(h) For additional information on preferred stock and common stockholders’ equity see Capital Risk Management on pages 82–91, Consolidated statements of changes instockholders’ equity, Note 20 and Note 21.

Short-term funding
The Firm’s sources of short-term secured funding primarily
consist of securities loaned or sold under agreements torepurchase. These instruments are secured predominantly
by high-quality securities collateral, including governmentissued debt and agency MBS, and constitute a significant
portion of the federal funds purchased and securities
loaned or sold under repurchase agreements on theConsolidated balance sheets. The increase in the averagebalance of securities loaned or sold under agreements torepurchase for the year ended December 31, 2017,
compared to December 31, 2016, was largely due to client
activities in CIB. 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
JPMorgan Chase & Co./2017 Annual Reportsecurities 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. The increase in short-term unsecured funding was
primarily due to higher issuance of commercial paper
reflecting in part a change in the mix of funding fromsecurities sold under repurchase agreements for CIB
Markets activities.
Long-term funding and issuanceLong-term funding provides additional sources 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 and95

Management’s discussion and analysis
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
maximum flexibility in support of both bank and non-banksubsidiary funding needs. The Parent Company advances
substantially all net funding proceeds to its subsidiary, theIHC. 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, 2017 and 2016. For additional information,
see Note 19.
Long-term unsecured funding
2017

2016

21,192 $25,639Issuance$

Senior notes issued in non-U.S. markets
Total senior notes
Subordinated debt

2,210

7,063

23,40232,702—

1,093

29,04022,865$52,442 $56,660$22,337 $29,989—1,630

Structured notes
Total long-term unsecured funding –issuance
Maturities/redemptions
Senior notes
Trust preferred securities
Subordinated debt

6,901

3,596

Structured notes

22,581

15,92551,819 $51,140Total long-term unsecured funding –maturities/redemptions

Long-term secured funding
Year ended
December 31,(in millions)Credit card
securitization$

Issuance
2017

FHLB advances
Other long-term
secured funding(b)Maturities/Redemptions

2016

2017

$ 1,545 $ 8,277

Other securitizations(a)Total long-term
secured funding

Year ended December 31,(in millions)
Senior notes issued in the U.S. market

The following table summarizes the securitization issuanceand FHLB advances and their respective maturities orredemption for the years ended December 31, 2017 and2016.

$ 11,470 $

2016
5,025

—

55

233

—

17,15018,900

9,209

2,354

455

731

2,645

$ 3,899 $ 25,882$ 31,156 $17,112(a) Other securitizations includes securitizations of student loans. The
Firm deconsolidated the student loan securitization entities in thesecond quarter of 2017 as it no longer had a controlling financial
interest in these entities as a result of the sale of the student loan
portfolio.
(b) Includes long-term structured notes which are secured.

The Firm’s wholesale businesses also securitize loans forclient-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 14.

The Firm raises secured long-term funding throughsecuritization of consumer credit card loans and advancesfrom the FHLBs.

96

JPMorgan Chase & Co./2017 Annual ReportCredit ratings
The cost and availability of financing are influenced bycredit 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 ofa credit ratings downgrade on the funding requirements for
VIEs, and on derivatives and collateral agreements, seeSPEs on page 50, and credit risk, liquidity risk and creditrelated contingent features in Note 5 on page 186.

The credit ratings of the Parent Company and the Firm’s principal bank and non-bank subsidiaries as of December 31, 2017,
were as follows.
JPMorgan Chase & Co.

JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.

J.P. Morgan Securities LLC
J.P. Morgan Securities plc

Long-termissuerShort-term
issuerOutlookLong-termissuerShort-term
issuerOutlookLong-termissuerShort-term
issuerOutlook

Moody’s Investors Service

A3

P-2

StableAa3

P-1

StableA1

P-1

StableStandard & Poor’s

A-

A-2

StableA+

A-1

StableA+

A-1

StableFitch Ratings

A+

F1

StableAA-

F1+StableAA-

F1+StableDecember 31, 2017

On February 22, 2017, Moody’s published its updated
rating methodologies for securities firms. As a result of thismethodology change, J.P. Morgan Securities LLC’s long-term
issuer rating was downgraded by one notch from Aa3 to A1;
the short-term issuer rating was unchanged and the outlook
remained stable.
On June 1, 2017, JPMorgan Chase Bank, N.A. terminated its
guarantee of the payment of all obligations of J.P. Morgan
Securities plc arising after such termination. J.P. Morgan
Securities plc, whose credit ratings previously reflected thebenefit of this guarantee, is now rated on a stand-alone,
non-guaranteed basis.
Downgrades of the Firm’s long-term ratings by one or two
notches could result in an increase in its cost of funds, andaccess to certain funding markets could be reduced as
noted above. The nature and magnitude of the impact ofratings downgrades depends on numerous contractual andbehavioral 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

JPMorgan Chase & Co./2017 Annual Reportpotential decrease in funding capacity due to ratings
downgrades.
JPMorgan Chase’s unsecured debt does not containrequirements that would call for an acceleration of
payments, maturities or changes in the structure of theexisting 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 astable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoringprocedures. 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.

97

REPUTATION RISK MANAGEMENT
Reputation risk is the potential that an action, inaction,transaction, investment or event will reduce trust in the
Firm’s integrity or competence by its various constituents,
including clients, counterparties, investors, regulators,
employees and the broader public. Maintaining the Firm’s
reputation is the responsibility of each individual employeeof the Firm. The Firm’s Reputation Risk Governance policy
explicitly vests each employee with the responsibility toconsider the reputation of the Firm when engaging in any
activity. Because the types of events that could harm the
Firm’s reputation are so varied across the Firm’s lines ofbusiness, each line of business has a separate reputation
risk governance infrastructure in place, which consists of98

three key elements: clear, documented escalation criteria
appropriate to the business; a designated primary
discussion forum — in most cases, one or more dedicatedreputation risk committees; and a list of designatedcontacts to whom questions relating to reputation risk
should be referred. Any matter giving rise to reputation riskthat originates in a corporate function is required to be
escalated directly to Firmwide Reputation Risk Governance(“FRRG”) or to the relevant Risk Committee. Reputation risk
governance is overseen by FRRG, which provides oversightof the governance infrastructure and process to support theconsistent identification, escalation, management andmonitoring of reputation risk issues firmwide.

JPMorgan Chase & Co./2017 Annual Report

CREDIT AND INVESTMENT RISK MANAGEMENT
Credit and investment risk is the risk associated with thedefault or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments.
Credit risk management
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 fromlarge 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 businessbanking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,market-making, and hedging activities with and for clientsand counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks.
Credit risk management is an independent risk
management function that monitors, measures andmanages credit risk throughout the Firm and defines credit
risk policies and procedures. The credit risk function reports
to the Firm’s CRO. The Firm’s credit risk management
governance includes the following activities:• Establishing a comprehensive credit risk policy
framework• Monitoring, measuring and managing credit risk across all
portfolio segments, including transaction and exposure
approval• Setting industry concentration limits and establishingunderwriting guidelines• Assigning and managing credit authorities in connection
with the approval of all credit exposure• Managing criticized exposures and delinquent loans• Estimating credit losses and ensuring appropriate credit
risk-based capital management
Risk identification and measurement
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 orcounterparty 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 creditscore 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.

JPMorgan Chase & Co./2017 Annual Report

Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probablecredit losses inherent in the consumer and wholesale heldfor-investment 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 13. In addition, potential and unexpectedcredit 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 andlending-related commitments. The analyses for these losses
include stress testing that considers alternative economic
scenarios as described in the Stress testing section below.
For further information, see Critical Accounting Estimatesused by the Firm on pages 138–140.
The methodologies used to estimate credit losses dependon the characteristics of the credit exposure, as described
below.
Scored exposure
The scored portfolio is generally held in CCB andpredominantly includes residential real estate loans, credit
card loans, and certain auto and business banking loans.
For the scored portfolio, credit loss estimates are based on
statistical analysis of credit losses over discrete periods oftime. The statistical analysis uses portfolio modeling, credit
scoring, and decision-support tools, which consider loanlevel factors such as delinquency status, credit scores,
collateral values, and other risk factors. Credit loss analyses
also consider, as appropriate, uncertainties and otherfactors, 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 ormore frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they havecharacteristics similar to commercial loans. For the riskrated portfolio, credit loss estimates are based on estimatesof the probability of default (“PD”) and loss severity given adefault. The probability of default is the likelihood that aborrower 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. The
estimation process includes assigning risk ratings to eachborrower and credit facility to differentiate risk within theportfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect theborrower’s current financial position, risk profile andrelated collateral. The calculations and assumptions are99

Management’s discussion and analysis
based on both internal and external historical experienceand management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing
credit risk in the Firm’s credit portfolio. The processassesses the potential impact of alternative economic andbusiness scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters aredefined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes indelinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testingprocesses, management also considers additional stresses
outside these scenarios, including industry and countryspecific stress scenarios, as necessary. The Firm uses stresstesting to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stresson individual counterparties.
Risk monitoring and management
The Firm has developed policies and practices that aredesigned to preserve the independence and integrity of theapproval and decision-making process of extending credit toensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at boththe transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,risk-rating methodologies, portfolio review parameters andguidelines 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 ofbusinesses.
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. Historicaland forecasted economic performance and trends areincorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.

monitored as this risk could result in greater exposure atdefault compared with a transaction with anothercounterparty that does not have this risk.
Management of the Firm’s wholesale credit risk exposure isaccomplished through a number of means, including:• 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 Credit Risk Management, an independent
Credit Review function is responsible for:• Independently validating or changing the risk grades
assigned to exposures in the Firm’s wholesale andcommercial-oriented retail credit portfolios, andassessing the timeliness of risk grade changes initiated byresponsible business units; and• Evaluating the effectiveness of business units’ credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, propermonitoring and management of credit exposures, andcompliance with applicable grading policies andunderwriting guidelines.
For further discussion of consumer and wholesale loans, seeNote 12.
Risk reporting
To enable monitoring of credit risk and effective decisionmaking, 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 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 andlimit exceptions are provided regularly to, and discussed
with, risk committees, senior management and the Board of
Directors as appropriate.

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 risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk — 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 — is actively
100

JPMorgan Chase & Co./2017 Annual Report

CREDIT PORTFOLIO
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; andcertain loans accounted for at fair value. The following
tables do not include certain loans the Firm accounts for atfair value and classifies as trading assets. For further
information regarding these loans, see Note 2 and Note 3.
For additional information on the Firm’s loans, lendingrelated commitments, and derivative receivables, including
the Firm’s accounting policies, see Note 12, Note 27, andNote 5, respectively.

Total credit portfolio
Credit exposure

December 31,(in millions)
Loans retained

2017

Nonperforming(e)(f)

2016

2017

$ 924,838 $ 889,907

$

2016

5,943 $

6,721
162

Loans held-for-sale

3,351

2,628

—

Loans at fair value

2,508

2,230

—

—

Total loans – reported

930,697894,765

5,943

6,883

Derivative receivables

56,52364,078130223

Receivables from
customers and other (a)26,272

17,560——1,013,492

976,403

6,073

7,106

Real estate owned

For further information regarding the credit risk inherent in
the Firm’s cash placed with banks, investment securities
portfolio, and securities financing portfolio, see Note 4,
Note 10, and Note 11, respectively.

Total credit-related
assets

NA

NA

311

370

Other

NA

NA

42

59

For discussion of the consumer credit environment andconsumer loans, see Consumer Credit Portfolio on pages
102-107 and Note 12. For discussion of the wholesalecredit environment and wholesale loans, see Wholesale
Credit Portfolio on pages 108–116 and Note 12.

Total assets acquired inloan satisfactions

NA

NA

353

429

991,482

975,152(d)

Total credit portfolio$2,004,974 $1,951,555(d)Credit derivatives used in
credit portfolio
management
activities(b)$Assets acquired in loansatisfactions

Lending-related
commitments

Liquid securities andother cash collateral
held against
derivatives(c)(17,609) $(22,114)(16,108)(22,705)

Year ended December 31,(in millions, except ratios)
Net charge-offs(g)

731

506

$

7,157 $

8,041

$

— $

—

NA

NA

2017
$

5,387

2016
$

4,692

Average retained loans
Loans

898,979

861,345

Loans – reported, excluding
residential real estate PCI loans

865,887

822,973

Net charge-off rates(g)
Loans

0.60%

0.54%

Loans – excluding PCI

0.62

0.57

(a) Receivables from customers and other primarily represents held-for-investment
margin loans to brokerage customers.
(b) Represents the net notional amount of protection purchased and sold throughcredit derivatives used to manage both performing and nonperforming wholesalecredit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on pages 115–116
and Note 5.
(c) Includes collateral related to derivative instruments where an appropriate legal
opinion has not been either sought or obtained.
(d) The prior period amounts have been revised to conform with the current period
presentation.
(e) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(f) At December 31, 2017 and 2016, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $4.3 billion and $5.0 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of zero and $263 million, respectively,that are 90 or more days past due; and (3) Real estate owned (“REO”) insured by
U.S. government agencies of $95 million and $142 million, respectively. Theseamounts 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”).
(g) For the year ended December 31, 2017, excluding net charge-offs of $467
million related to the student loan portfolio sale, the net charge-off rate for loans
would have been 0.55% and for loans - excluding PCI would have been 0.57%.

JPMorgan Chase & Co./2017 Annual Report101Management’s discussion and analysis
CONSUMER CREDIT PORTFOLIOThe Firm’s retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,and business banking loans, as well as associated lendingrelated commitments. The Firm’s focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the mortgage
portfolio, securitized or sold to U.S. government agencies
and U.S. government-sponsored enterprises; other types ofconsumer loans are typically retained on the balance sheet.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by increasing homeprices and low unemployment. The total amount ofresidential real estate loans delinquent 30+ days, excluding
government guaranteed and purchased credit impairedloans, increased from December 31, 2016 due to the impactof recent hurricanes; however, the 30+ day delinquency rate
decreased due to growth in the portfolio. The Credit Card
30+ day delinquency rate and the net charge-off rateincreased from the prior year, in line with expectations. For
further information on consumer loans, see Note 12. For
further information on lending-related commitments, seeNote 27.

102

JPMorgan Chase & Co./2017 Annual Report

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 AWM, and prime mortgage loans held by Corporate. For further information about the
Firm’s nonaccrual and charge-off accounting policies, see Note 12.
Consumer credit portfolio
Credit exposure

As of or for the year ended December 31,(in millions, except ratios)

2017

2016

Nonaccrual loans(k)(l)Net charge-offs/(recoveries)(e)(m)(n)Average annual net
charge-off rate(e)(m)(n)

2017

2017

2017

2016

2016

2016

Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-sale
Residential mortgage(a)192,486$ 2,175 $2,256(10) $

16

Home equity$

33,45039,063

1,610

1,845

69

189

0.19

0.45

Auto(b)(c)66,24265,814

141

214

331

285

0.51

0.45

Consumer & Business Banking(a)(c)(d)25,78924,307

283

287

257

257

1.03

1.10

—

7,057

—

165

498

162

NM

2.13

341,977

328,727

4,209

4,767

1,145

909

0.34

0.28

Home equity

10,79912,902

NA

NA

NA

NA

NA

NA

Prime mortgage

6,479

7,602

NA

NA

NA

NA

NA

NA

Subprime mortgage

2,609

2,941

NA

NA

NA

NA

NA

NA

Option ARMs(f)10,68912,234

NA

NA

NA

NA

NA

NA

Total loans – PCI

30,57635,679

NA

NA

NA

NA

NA

NA

Total loans – retained

372,553364,406

4,209

4,767

1,145

909

0.31

0.25

Student(a)(e)Total loans, excluding PCI loans and loans held-for-sale

216,496

$

$

—%

0.01%

Loans – PCI

Loans held-for-sale

128

238

—

53

—

—

—

—

Total consumer, excluding credit card loans

372,681364,644

4,209

4,820

1,145

909

0.31

0.25

Lending-related commitments(g)48,55353,247

2.63

Receivables from customers

(j)

133

120

421,367

418,011

149,387

141,711

—

—

4,123

3,442

2.95

124

105

—

—

—

—

—

—

Total credit card loans

149,511

141,816

—

—

4,123

3,442

2.95

2.63

Lending-related commitments(g)572,831553,891(h)Total consumer exposure, excluding credit card(j)Credit Card
Loans retained(i)Loans held-for-sale

Total credit card exposure

722,342695,707

Total consumer credit portfolio$ 1,143,709$ 1,113,718(j)$ 4,209 $4,820$ 5,268 $

4,351

1.04%

0.89%

Memo: Total consumer credit portfolio, excluding PCI$ 1,113,133$ 1,078,039(j)$ 4,209 $4,820$ 5,268 $

4,351

1.11%

0.96%

(a) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
(b) At December 31, 2017 and 2016, excluded operating lease assets of $17.1 billion and $13.2 billion, respectively. These operating lease assets are included in other assets on the
Firm’s Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which is managed through projection of the lease residual
value at lease origination, periodic review of residual values, and through arrangements with certain auto manufacturers that mitigates this risk.
(c) 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 within the consumer portfolio.
(d) Predominantly includes Business Banking loans.
(e) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total consumer, excluding
credit card and PCI loans and loans held-for-sale would have been 0.20%; Total consumer - retained excluding credit card loans would have been 0.18%; Total consumer credit
portfolio would have been 0.95%; and Total consumer credit portfolio, excluding PCI loans would have been 1.01%.
(f) At December 31, 2017 and 2016, approximately 68% and 66%, respectively, of the PCI option adjustable rate mortgages (“ARMs”) portfolio has been modified into fixed-rate,
fully amortizing loans.
(g) 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 theselines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. For further information, see Note 27.
(h) Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in the clients’ brokerage
accounts. These receivables are reported within accrued interest and accounts receivable on the Firm’s Consolidated balance sheets.
(i) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(j) The prior period amounts have been revised to conform with the current period presentation.
(k) At December 31, 2017 and 2016, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $4.3 billion
and $5.0 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of zero and $263 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 issued by the FFIEC.
(l) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(m) Net charge-offs and net charge-off rates excluded write-offs in the PCI portfolio of $86 million and $156 million for the years ended December 31, 2017 and 2016. These writeoffs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 117–119 for further details.
(n) Average consumer loans held-for-sale were $1.5 billion and $496 million for the years ended December 31, 2017 and 2016, respectively. These amounts were excluded whencalculating net charge-off rates.

JPMorgan Chase & Co./2017 Annual Report103Management’s discussion and analysis
Consumer, excluding credit card
Portfolio analysis
Consumer loan balances increased from December 31,
2016 predominantly due to originations of high-quality
prime mortgage loans that have been retained on thebalance sheet, partially offset by the sale of the student
loan portfolio as well as paydowns and the charge-off orliquidation of delinquent loans.
PCI loans are excluded from the following discussions ofindividual loan products 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, seeNote 12.
Residential mortgage: The residential mortgage portfolio
predominantly consists of high-quality prime mortgage
loans with a small component (approximately 1%) of
subprime mortgage loans. These subprime mortgage loans
continue to run-off and are performing in line withexpectations. The residential mortgage portfolio, includingloans held-for-sale, increased from December 31, 2016 due
to retained originations of primarily high-quality fixed rate
prime mortgage loans partially offset by paydowns.
Residential mortgage 30+ day delinquencies increased from
December 31, 2016 due to the impact of recent hurricanes.
Nonaccrual loans decreased from the prior year primarily asa result of loss mitigation activities. There was a net
recovery for the year ended December 31, 2017 compared
to a net charge-off for the year ended December 31, 2016,reflecting continued improvement in home prices anddelinquencies.
At December 31, 2017 and 2016, the Firm’s residential
mortgage portfolio, including loans held-for-sale, included$8.6 billion and $9.5 billion, respectively, of mortgage
loans insured and/or guaranteed by U.S. government
agencies, of which $6.2 billion and $7.0 billion,
respectively, were 30 days or more past due (of these past
due loans, $4.3 billion and $5.0 billion, respectively, were
90 days or more past due). 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.

104

At December 31, 2017 and 2016, the Firm’s residential
mortgage portfolio included $20.2 billion and $19.1 billion,
respectively, of interest-only loans. These loans have aninterest-only payment period generally followed by anadjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higherbalance loans to higher-income borrowers. To date, losseson this portfolio generally have been consistent with thebroader residential mortgage portfolio. The Firm continues
to monitor the risks associated with these loans.
Home equity: The home equity portfolio declined from
December 31, 2016 primarily reflecting loan paydowns.
The amount of 30+ day delinquencies decreased from
December 31, 2016 but was impacted by recent hurricanes.
Nonaccrual loans decreased from December 31, 2016
primarily as a result of loss mitigation activities. Net chargeoffs for the year ended December 31, 2017 declined whencompared with the prior year, partially as a result of lower
loan balances.
At December 31, 2017, approximately 90% of the Firm’s
home equity portfolio consists of home equity lines of credit(“HELOCs”) and the remainder consists of home equity
loans (“HELOANs”). HELOANs are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3–30
years. 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.
The carrying value of HELOCs outstanding was $30 billion at
December 31, 2017. Of such amounts, $14 billion haverecast from interest-only to fully amortizing payments orhave been modified and $5 billion are interest-only balloon
HELOCs, which primarily mature after 2030. The Firm
manages the risk of HELOCs during their revolving period byclosing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile.

JPMorgan Chase & Co./2017 Annual Report

The Firm monitors risks associated with junior lien loans
where the borrower has a senior lien loan that is more than
90 days delinquent or has been modified. These loans are
considered “high-risk seconds” and are classified as
nonaccrual as they are considered to pose a higher risk ofdefault than other junior lien loans. At December 31, 2017,
the Firm estimated that the carrying value of its homeequity portfolio contained approximately $725 million ofcurrent junior lien loans that were considered high-risk
seconds, compared with $1.1 billion at December 31,
2016. For further information, see Note 12.
Auto: The auto loan portfolio, which predominantly consistsof prime-quality loans, was relatively flat compared with
December 31, 2016, as new originations were largely offset
by paydowns and the charge-off or liquidation of delinquentloans. Nonaccrual loans decreased compared with
December 31, 2016. Net charge-offs for the year ended
December 31, 2017 increased compared with the prioryear, primarily as a result of an incremental adjustment
recorded in accordance with regulatory guidance regarding
the timing of loss recognition for certain loans inbankruptcy and loans where assets were acquired in loansatisfaction.

Consumer & Business banking: Consumer & BusinessBanking loans increased compared with December 31,
2016 as growth due to loan originations was partially offset
by paydowns and the charge-off or liquidation of delinquentloans. Nonaccrual loans and net charge-offs were relatively
flat compared with prior year.
Student: The Firm wrote down and subsequently sold thestudent loan portfolio during 2017. Net charge-offs for theyear ended December 31, 2017 increased as a result of thewrite-down.
Purchased credit-impaired loans: PCI loans decreased as
the portfolio continues to run off. As of December 31,
2017, approximately 11% of the option ARM PCI loans
were delinquent and approximately 68% of the portfolio
had been modified into fixed-rate, fully amortizing loans.
The borrowers for substantially all of the remaining loans
are making amortizing payments, although such payments
are not necessarily fully amortizing. This latter group ofloans 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.

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 PCI loans lifetime principal loss estimates
December 31, (in billions)Home equity
Prime mortgage
Subprime mortgage
Option ARMs
Total

$

$

Lifetime loss estimates(a)
2017
2016
14.2 $
14.4
4.0
4.0
3.3
3.2
10.0
10.0
31.5 $
31.6

Life-to-date liquidation losses(b)
2017
2016
$
12.9 $
12.8
3.8
3.7
3.1
3.1
9.7
9.7
$
29.5 $
29.3(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent toacquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $842 million and $1.1 billion at December 31,
2017 and 2016, respectively.
(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.

For further information on the Firm’s PCI loans, including write-offs, see Note 12.
Geographic composition of residential real estate loans
At December 31, 2017, $152.8 billion, or 63% of the 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, Texas and Florida, compared with $139.9 billion, or63%, at December 31, 2016. For additional information on
the geographic composition of the Firm’s residential realestate loans, see Note 12.
Current estimated loan-to-values of residential realestate loans
Average current estimated loan-to-value (“LTV”) ratios havedeclined consistent with improvements in home prices,
customer pay downs, and charge-offs or liquidations ofhigher LTV loans. For further information on current
estimated LTVs of residential real estate loans, see Note 12.

JPMorgan Chase & Co./2017 Annual Report

Loan modification activities for residential real estateloans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 24% for residential mortgages and 21% for homeequity. The cumulative performance metrics formodifications to the PCI residential real estate portfolio thathave been seasoned more than six months show weighted
average redefault rates of 20% for home equity, 19% forprime mortgages, 16% for option ARMs and 34% forsubprime mortgages. The cumulative redefault rates reflect
the performance of modifications completed under both the
U.S. Government’s Home Affordable Modification Program(“HAMP”) and the Firm’s proprietary modification programs
105

Management’s discussion and analysis(primarily the Firm’s modification program that wasmodeled after HAMP) from October 1, 2009, throughDecember 31, 2017.
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 generally began to increase commencing in2014 by 1% per year, and will continue to do so until therate reaches a specified cap. The cap on these loans istypically at a prevailing market interest rate for a fixed-rate
mortgage loan as of the modification date. At December 31,
2017, the carrying value of non-PCI loans and the unpaid
principal balance of PCI loans modified in step-rate
modifications, which have not yet met their specified caps,
were $3 billion and $7 billion, respectively. The Firm
continues to monitor this risk exposure and the impact ofthese potential interest rate increases is considered in the
Firm’s allowance for loan losses.
The following table presents information as ofDecember 31, 2017 and 2016, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. For further information on modifications for theyears ended December 31, 2017 and 2016, see Note 12.
Modified residential real estate loans
2017
December 31,(in millions)
Modified residential
real estate loans,
excluding PCI loans(a)(b)Residential mortgage
Home equity
Total modified
residential real estateloans, excluding PCI
loans
Modified PCI loans(c)Home equity

Retained
loans

2016

Nonaccrual
Nonaccrual
retained Retained retained
(d)
loans
loans
loans(d)5,620$ 2,118 $

1,743

6,032

1,032 $ 2,264 $

1,755
1,116

$ 7,738 $2,775 $ 8,296 $2,871$ 2,277

NA $ 2,447

NA

Prime mortgage

4,490

NA

5,052

NA

Subprime mortgage

2,678

NA

2,951

NA

Option ARMs

8,276

NA

9,295

NA

NA $19,745

NA

Total modified PCI loans $17,721(a) Amounts represent the carrying value of modified residential real estate loans.
(b) At December 31, 2017 and 2016, $3.8 billion and $3.4 billion, respectively, ofloans modified subsequent to repurchase from Ginnie Mae in accordance withthe 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 includedin the table above. When such loans perform subsequent to modification inaccordance with Ginnie Mae guidelines, they are generally sold back into Ginnie
Mae loan pools. Modified loans that do not re-perform become subject toforeclosure. For additional information about sales of loans in securitizationtransactions with Ginnie Mae, see Note 14.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2017 and 2016, nonaccrual loans included $2.2 billion and$2.3 billion, respectively, of troubled debt restructuring (“TDRs”) for which theborrowers were less than 90 days past due. For additional information aboutloans modified in a TDR that are on nonaccrual status, see Note 12.

106

Nonperforming assets
The following table presents information as ofDecember 31, 2017 and 2016, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets(a)December 31, (in millions)Nonaccrual loans(b)Residential real estate(c)Other consumer(c)Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total assets acquired in loan satisfactions
Total nonperforming assets

2017$ 3,785
424
4,209
225
40
265
$ 4,474

2016
$

$

4,154
666
4,820
292
57
349
5,169

(a) At December 31, 2017 and 2016, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $4.3 billion and $5.0 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of zero and $263 million, respectively,that are 90 or more days past due; and (3) real estate owned insured by U.S.
government agencies of $95 million and $142 million, respectively. Theseamounts have been excluded based upon the government guarantee.
(b) Excludes PCI loans 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 ofindividual loans within the pools, is not meaningful. The Firm is recognizing
interest income on each pool of loans as each of the pools is performing.
(c) Certain loan portfolios have been reclassified. The prior period amounts havebeen revised to conform with the current period presentation.

Nonaccrual loans in the residential real estate portfolio at
December 31, 2017 decreased to $3.8 billion from $4.2
billion at December 31, 2016, of which 26% and 29% weregreater than 150 days past due, respectively. In theaggregate, the unpaid principal balance of residential realestate loans greater than 150 days past due was charged
down by approximately 40% and 43% to the estimated net
realizable value of the collateral at December 31, 2017 and2016, respectively.
Active and suspended foreclosure: For information onloans that were in the process of active or suspended
foreclosure, see Note 12.
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans forthe years ended December 31, 2017 and 2016.
Nonaccrual loan activity
Year ended December 31,(in millions)
Beginning balance
Additions
Reductions:
Principal payments and other(a)Charge-offs
Returned to performing status
Foreclosures and other liquidations
Total reductions
Net changes
Ending balance

$

$

2017
4,820 $
3,525

2016
5,413
3,858

1,577
699
1,509
351
4,136
(611)
4,209 $

1,437
843
1,589
582
4,451
(593)
4,820

(a) Other reductions includes loan sales.

JPMorgan Chase & Co./2017 Annual ReportCredit card

Total credit card loans increased from December 31, 2016
due to strong new account growth and higher sales volume.
The December 31, 2017 30+ day delinquency rateincreased to 1.80% from 1.61% at December 31, 2016,
while the December 31, 2017 90+ day delinquency rateincreased to 0.92% from 0.81% at December 31, 2016, inline with expectations. Net charge-offs increased for theyear ended December 31, 2017 primarily due to growth innewer vintages which, as anticipated, have higher loss rates
than the more seasoned portion of the portfolio. The credit
card portfolio continues to reflect a largely well-seasoned
portfolio that has strong U.S. geographic diversification.
Loans outstanding in the top five states of California, Texas,
New York, Florida and Illinois consisted of $67.2 billion inreceivables, or 45% of the retained loan portfolio, at
December 31, 2017, compared with $62.8 billion, or 44%,
at December 31, 2016. For more information on thegeographic and FICO composition of the Firm’s credit cardloans, see Note 12.
Modifications of credit card loans
At both December 31, 2017 and 2016, the Firm had $1.2
billion of credit card loans outstanding that have been
modified in TDRs. These balances included both credit cardloans with modified payment terms and credit card loansthat reverted back to their pre-modification payment terms
because the cardholder did not comply with the modified
payment terms.
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 theestimated uncollectible portion of accrued and billedinterest and fee income.
For additional information about loan modification
programs to borrowers, see Note 12.

JPMorgan Chase & Co./2017 Annual Report107Management’s discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk through its underwriting, lending, market-making, andhedging activities with and for clients and counterparties,
as well as through its operating services activities (such as
cash management and clearing activities), securities
financing activities, investment securities portfolio, andcash 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 asignificant percentage of the loans it originates into themarket as part of its syndicated loan business and to
manage portfolio concentrations and credit risk.
The wholesale credit portfolio was stable for the year ended
December 31, 2017, characterized by low levels ofcriticized exposure, nonaccrual loans and charge-offs. See
industry discussion on pages 109–112 for further
information. The increase in retained loans was driven by
new originations in CB and higher loans to Private Banking
clients in AWM, which was partially offset by paydowns in
CIB. Discipline in underwriting across all areas of lending
continues to be a key point of focus. The wholesale portfolio
is actively managed, in part by conducting ongoing, indepth reviews of client credit quality and transaction
structure inclusive of collateral where applicable, and ofindustry, product and client concentrations.

108

In the following tables, the Firm’s wholesale credit portfolio
includes exposure held in CIB, CB, AWM and Corporate, andexcludes all exposure managed by CCB.
Wholesale credit portfolio
December 31,(in millions)
Loans retained
Loans held-for-sale

Credit exposure
2017

2016

$402,898 $383,790
3,099

Nonperforming(c)
2017

2016

$ 1,734 $ 1,954

2,285

—

109

Loans at fair value

2,508

2,230

—

—

Loans – reported

408,505

388,305

1,734

2,063

Derivative receivables

56,52364,078130223

Receivables from
customers and other(a)26,13917,440——Total wholesale creditrelated assets

491,167

469,823

1,864

2,286

Lending-related
commitments

370,098

368,014731

506

Total wholesale credit
exposure$861,265 $837,837$ 2,595 $ 2,792

Credit derivatives usedin credit portfolio
management activities(b) $ (17,609) $ (22,114) $— $—Liquid securities andother cash collateral
held against derivatives

NANA(16,108)(22,705)(a) Receivables from customers and other include $26.0 billion and $17.3
billion of held-for-investment margin loans at December 31, 2017 and2016, respectively, to brokerage customers in CIB Prime Services andin AWM; these are classified in accrued interest and accounts
receivable on the Consolidated balance sheets.
(b) Represents the net notional amount of protection purchased and soldthrough credit derivatives used to manage both performing andnonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on pages 115–116, and Note 5.
(c) Excludes assets acquired in loan satisfactions.

JPMorgan Chase & Co./2017 Annual Report

The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2017 and2016. The ratings scale is based on the Firm’s internal risk ratings, which generally correspond to the ratings assigned by S&P
and Moody’s. For additional information on wholesale loan portfolio risk ratings, see Note 12.
Wholesale credit exposure – maturity and ratings profile
Maturity profile(d)December 31, 2017
(in millions, except ratios)

Due in 1
year or less

Loans retained$ 121,643 $Due after
1 yearthrough
5 years

Ratings profile

Due after 5
years

177,033 $ 104,222 $Derivative receivables

Investmentgrade

Noninvestmentgrade

Total

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &
below

402,898$

311,681$

91,217

Total$ 402,898

56,523

Less: Liquid securities and other cash collateral
held against derivatives

Total %
of IG
77%

56,523(16,108)(16,108)

Total derivative receivables, net of all collateral

9,882

10,46320,07040,41532,373

8,042

40,415

80

Lending-related commitments

80,273

275,317

14,508370,098

274,127

95,971

370,098

74

Subtotal

211,798

462,813

138,800

813,411618,181

195,230

813,41176

Loans held-for-sale and loans at fair value(a)

5,607

5,607

Receivables from customers and other

26,13926,139$845,157$ 845,157(4,791) $(17,609)

Total exposure – net of liquid securities and othercash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities(b)(c)$(1,807) $(11,011) $$(14,984)$

Maturity profile(d)December 31, 2016
(in millions, except ratios)

Due in 1
year or less

Loans retained$ 117,238 $Due after
1 yearthrough
5 years$(17,609)

85%

Ratings profile

Due after 5
years

167,235 $(2,625)99,317 $Derivative receivables

Investmentgrade

Noninvestmentgrade

Total

AAA/Aaa to
BBB-/Baa3

BB+/Ba1 &
below

383,790$289,923$

93,867

Total$ 383,790

64,078Less: Liquid securities and other cash collateral
held against derivatives

Total %
of IG
76%

64,078(22,705)(22,705)

Total derivative receivables, net of all collateral

14,0198,510

18,844

41,37333,081

8,292

41,373

80

Lending-related commitments

88,399271,825

7,790

368,014

269,820

98,194

368,01473

Subtotal

219,656

447,570

125,951

793,177

592,824

200,353

793,177

75

Loans held-for-sale and loans at fair value(a)

4,515

4,515

Receivables from customers and other17,44017,440$815,132$ 815,132(4,223) $(22,114)

Total exposure – net of liquid securities and othercash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities (b)(c)$(1,354) $(16,537) $$(18,710)$(3,404)$(22,114)85%(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 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.
(d) 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, 2017, may become payable prior to maturity based on their cash flow profile or changes in market conditions.

Wholesale credit exposure – industry exposures
The Firm focuses on the management and diversification of
its industry exposures, and pays particular attention toindustries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators’ definition of criticized exposures, which consist

JPMorgan Chase & Co./2017 Annual Reportof the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was$15.6 billion at December 31, 2017, compared with $19.8
billion at December 31, 2016, driven by a 47% decrease in
the Oil & Gas portfolio.

109

Management’s discussion and analysis
In 2017, the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage
concentrations. This largely resulted in the re-assignment of holding companies from All other to the industry of risk category
based on the primary business activity of the holding company’s underlying entities. In the tables and industry discussions
below, the prior period amounts have been revised to conform with the current period presentation.
Below are summaries of the Firm’s exposures as of December 31, 2017 and 2016. For additional information on industry
concentrations, see Note 4.
Wholesale credit exposure – industries(a)Selected metrics
Noninvestment-grade

As of or for the year ended
December 31, 2017
(in millions)Creditexposure(e)Real Estate$

Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

Net chargeoffs/(recoveries)

Creditderivative
hedges(f)139,409 $115,401 $23,012 $

137 $

254 $

(4) $

Consumer & Retail

87,67955,737

29,619

1,791

532

30

34

(275)

(9)

Technology, Media &Telecommunications

59,27436,51020,453

2,258

53

14

(12)

(910)

(19)

Healthcare

55,99742,643

12,731

585

38

82

(1)

—

(207)

Industrials

55,272

37,198

16,770

1,159

145

150

(1)

(196)

(21)

Banks & Finance Cos

49,03734,654

13,767

612

4

1

6

(1,216)(3,174)

Oil & Gas

41,317

21,43014,854

4,046

987

22

71

(747)

(1)

Asset Managers

32,531

28,029

4,484

4

14

27

—

—

(5,290)Utilities

29,31724,486

4,383

227

221

—

11

(160)

(56)

State & Municipal Govt(b)28,633

27,977

656

—

—

12

5

(130)

(524)

Central Govt

19,182

18,741

376

65

—

4

—

(10,095)(2,520)Chemicals & Plastics

15,945

11,107

4,764

74

—

4

—

—

—

Transportation

15,797

9,870

5,302

527

98

9

14

(32)

(131)

Automotive

14,820

9,321

5,278

221

—

10

1

(284)

—

Metals & Mining

14,171

6,989

6,822

321

39

3

(13)

(316)

(1)

Insurance

14,08911,028

2,981

—

80

1

—

(157)

(2,195)

Financial Markets Infrastructure

5,036

4,775

261

—

—

—

—

—

(23)

Securities Firms

4,113

2,559

1,553

1

—

—

—

(274)

(335)

147,900

134,110

13,283

260

247

901

8

(2,817)(1,600)829,519 $632,565 $

181,349 $13,010 $2,595 $

1,524 $All other(c)Subtotal$

Loans held-for-sale and loans at fair
value

5,607

Receivables from customers and other

26,139Total(d)

110

$

859 $

30 days ormore past
due andaccruing
loans

Liquidsecurities
and othercash
collateral
held against
derivative
receivables— $119 $ (17,609) $(2)(16,108)

861,265

JPMorgan Chase & Co./2017 Annual ReportSelected metrics
Noninvestment-grade

As of or for the year ended
December 31, 2016
(in millions)Creditexposure(e)Real Estate$

Investmentgrade

Noncriticized

Criticized
performing

Criticized
nonperforming

Net chargeoffs/(recoveries)

Creditderivative
hedges(f)134,287 $104,869 $28,281 $

200 $

206 $

(7) $

(54) $(11)

Consumer & Retail

84,80454,73028,255

1,571

248

75

24

(424)

(69)

Technology, Media &Telecommunications

63,32439,99821,751

1,559

16

9

2

(589)

(30)

Healthcare

49,44539,244

9,279

882

40

86

37

(286)

(246)

Industrials

55,73336,71017,854

1,033

136

128

3

(434)

(40)

Banks & Finance Cos

48,39335,385

12,560

438

10

21

(2)

(1,336)(7,337)

Oil & Gas

40,367

18,62912,274

8,069

1,395

31

233

(1,532)(18)

Asset Managers

33,201

29,194

4,006

1

—

17

—

—

(5,737)

Utilities

29,672

24,203

4,959

424

86

8

—

(306)

—

State & Municipal Govt(b)28,26327,603

624

6

30

107

(1)

(130)

—

Central Govt

20,40820,123

276

9

—

4

—

(11,691)(4,183)Chemicals & Plastics

15,043

10,405

4,452

156

30

3

—

(35)

(3)

Transportation

19,096

12,178

6,421

444

53

9

10

(93)

(188)

Automotive

16,736

9,235

7,299

201

1

7

—

(401)

(14)

Metals & Mining

13,419

5,523

6,744

1,133

19

—

36

(621)

(62)

Insurance

13,51010,918

2,459

—

133

9

—

(275)

(2,538)Financial Markets Infrastructure

8,732

7,980

752

—

—

—

—

—

(390)

Securities Firms

4,211

1,812

2,399

—

—

—

—

(273)

(491)

137,238

124,661

11,988

303

286

598

6

(3,634)

815,882 $613,400 $182,633 $17,166 $2,683 $

1,318 $All other(c)Subtotal$

Loans held-for-sale and loans at fair
value

4,515

Receivables from customers and other17,440Total(d)$937 $30 days ormore past
due andaccruing
loans

Liquidsecurities
and othercash
collateral
held against
derivative
receivables(g)341 $ (22,114) $(1,348)(22,705)

837,837(a) The industry rankings presented in the table as of December 31, 2016, are based on the industry rankings of the corresponding exposures at
December 31, 2017, not actual rankings of such exposures at December 31, 2016.
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, theFirm held: $9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion
and $14.5 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 10.
(c) All other includes: individuals; SPEs; and private education and civic organizations, representing approximately 59%, 37% and 4%, respectively, at both
December 31, 2017 and December 31, 2016.
(d) Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, respectively, which is predominantly placed withvarious central banks, primarily Federal Reserve Banks.
(e) 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.
(f) 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.
(g) Prior period amounts have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report111Management’s discussion and analysis
Presented below is additional detail on certain industries to which the Firm has exposure.
Real Estate
Exposure to the Real Estate industry increased $5.1 billion during the year ended December 31, 2017, to $139.4 billion
predominantly driven by multifamily lending within CB. For the year ended December 31, 2017, the investment-grade
percentage of the portfolio was 83%, up from 78% for the year ended December 31, 2016. For further information on Real
Estate loans, see Note 12.
December 31, 2017
(in millions, except ratios)
Multifamily(a)Other
Total Real Estate Exposure(b)Loans andLending-related
Commitments

Derivative
Receivables$$

84,63554,620139,255

34
120
154

Creditexposure$

84,66954,740139,409%
Investmentgrade% Drawn(c)

89%
74
83

92%
66
82

%
Investmentgrade% Drawn(c)

82%
72
78

90%
62
79

December 31, 2016
(in millions, except ratios)
Multifamily
Other
Total Real Estate Exposure(b)(a)

Loans andLending-related
Commitments$

80,28053,801
134,081

Derivative
Receivables
$

34
172
207

Creditexposure$

80,31453,973
134,287(a) Multifamily exposure is largely in California.
(b) Real Estate exposure is predominantly secured; unsecured exposure is largely investment-grade.
(c) Represents drawn exposure as a percentage of credit exposure.

Oil & Gas and Natural Gas Pipelines
Exposure to the Oil & Gas and Natural Gas Pipeline portfolios increased by $1.1 billion during the year ended December 31,
2017 to $45.9 billion. During the year ended December 31, 2017, the credit quality of this exposure continued to improve,with the investment-grade percentage increasing from 48% to 53% and criticized exposure decreasing by $4.5 billion.
December 31, 2017
(in millions, except ratios)

Loans andLending-related
Commitments

Derivative
Receivables

Exploration & Production (“E&P”) and Oilfield Services

$

1,175

$

552
1,727
38
1,765

$

20,558Other Oil & Gas(a)Total Oil & Gas
Natural Gas Pipelines(b)Total Oil & Gas and Natural Gas Pipelines(c)$19,032
39,5904,507
44,097(in millions, except ratios)

Loans andLending-related
Commitments

Creditexposure%
Investmentgrade% Drawn(d)$21,733

34%

33%

$

19,58441,317
4,545
45,862

72
52
66
53

28
31
14
29

%
Investmentgrade% Drawn(d)

27%
70
46
66
48

35%
31
33
30
33

December 31, 2016

E&P and Oilfield Services
Other Oil & Gas(a)Total Oil & Gas
Natural Gas Pipelines(b)Total Oil & Gas and Natural Gas Pipelines(c)$$20,971
17,51838,4894,253
42,742Derivative
Receivables
$

$

1,256
622
1,878
106
1,984

Creditexposure$$

22,227
18,14040,367
4,359
44,726(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Natural Gas Pipelines is reported within the Utilities Industry.
(c) Secured lending is $14.0 billion and $14.3 billion at December 31, 2017 and December 31, 2016, respectively, approximately half of which is reservebased lending to the Exploration & Production sub-sector; unsecured exposure is largely investment-grade.
(d) Represents drawn exposure as a percentage of credit exposure.

112

JPMorgan Chase & Co./2017 Annual ReportLoansIn the normal course of its wholesale business, the Firm
provides loans to a variety of clients, ranging from large
corporate and institutional clients to high-net-worth
individuals. For further discussion on loans, including
information on credit quality indicators and sales of loans,see Note 12.

The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, forthe years ended December 31, 2017 and 2016. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.

The following table presents the change in the nonaccrualloan portfolio for the years ended December 31, 2017 and2016.

Year ended December 31,(in millions, except ratios)Year ended December 31, (in millions)

2017
$

2016

2,063 $

1,016

1,482

2,981

Paydowns and other

1,137

1,148

Gross charge-offs

200

385

Returned to performing status

189

242

Additions
Reductions:

Sales
Total reductions
Net changes
Ending balance

$

285

159

1,811

1,934

(329)

1,047

1,734 $

2,063(a) Loans are placed on nonaccrual status when management believes full
payment of principal or interest is not expected, regardless of delinquency
status, or when principal or interest have been in default for a period of 90days or more unless the loan is both well-secured and in the process ofcollection.

2017

2016

Loans – reported
Average loans retained

Wholesale nonaccrual loan activity(a)Beginning balance

Wholesale net charge-offs/(recoveries)$ 392,263$ 371,778

Gross charge-offs

212

398

Gross recoveries

(93)

(57)

Net charge-offs

119

341

Net charge-off rate

0.03%

0.09%

Lending-related commitments
The Firm uses lending-related financial instruments, such ascommitments (including revolving credit facilities) andguarantees, to meet the financing needs of its clients. The
contractual amounts of these financial instruments
represent the maximum possible credit risk should thecounterparties draw down on these commitments or the
Firm fulfill its obligations under these guarantees, and thecounterparties subsequently fail to perform according to
the terms of these contracts. Most of these commitments
and guarantees are refinanced, extended, cancelled, or
expire without being drawn upon or a default occurring. In
the Firm’s view, the total contractual amount of thesewholesale lending-related commitments is not
representative of the Firm’s expected future credit exposure
or funding requirements. For further information onwholesale lending-related commitments, see Note 27.
Clearing services
The Firm provides clearing services for clients entering into
securities and derivative transactions. Through theprovision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required toshare in losses incurred by central counterparties. 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 andcan also cease provision of clearing services if clients do notadhere to their obligations under the clearing agreement.
For further discussion of clearing services, see Note 27.

JPMorgan Chase & Co./2017 Annual Report113Management’s discussion and analysis
Derivative contracts
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable counterparties to manage exposures tofluctuations in interest rates, currencies and other markets.
The Firm also uses derivative instruments to manage its
own credit and other market risk exposure. The nature of
the counterparty and the settlement mechanism of thederivative affect the credit risk to which the Firm is
exposed. For OTC derivatives the Firm is exposed to thecredit risk of the derivative counterparty. For exchangetraded derivatives (“ETD”), such as futures and options, and“cleared” over-the-counter (“OTC-cleared”) derivatives, theFirm 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 throughthe use of legally enforceable master netting arrangements
and collateral agreements. For further discussion ofderivative contracts, counterparties and settlement types,
see Note 5.
The following table summarizes the net derivative
receivables for the periods presented.
Derivative receivables
December 31, (in millions)

2017

2016

24,673 $28,302Credit derivatives

869

1,294

Foreign exchange

16,151

23,271Equity

7,882

4,939

Commodity

6,948

6,272

Total, net of cash collateral

56,52364,078(16,108)(22,705)

40,415 $41,373

Interest rate$

Liquid securities and other cash collateral
held against derivative receivables(a)Total, net of all collateral$(a) Includes collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.

Derivative receivables reported on the Consolidated balance
sheets were $56.5 billion and $64.1 billion at
December 31, 2017 and 2016, respectively. Derivative
receivables decreased predominantly as a result of clientdriven market-making activities in CIB Markets, which
reduced foreign exchange and interest rate derivative
receivables, and increased equity derivative receivables,
driven by market movements.
Derivative receivables amounts represent the fair value ofthe derivative contracts after giving effect to legally
enforceable master netting agreements and cash collateral
held by the Firm. However, in management’s view, theappropriate measure of current credit risk should also take
into consideration additional liquid securities (primarily U.S.
government and agency securities and other group of sevennations (“G7”) government bonds) and other cash collateral
held by the Firm aggregating $16.1 billion and $22.7 billion
at December 31, 2017 and 2016, respectively, that may be
used as security when the fair value of the client’s exposure
is in the Firm’s favor.

114

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, andcorporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related tocontracts that have a non-daily call frequency and collateralthat the Firm has agreed to return but has not yet settled asof 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 derivativetransactions move in the Firm’s favor. The derivative
receivables fair value, net of all collateral, also does notinclude other credit enhancements, such as letters of credit.
For additional information on the Firm’s use of collateralagreements, see Note 5.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture thepotential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, threemeasures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent (“DRE”), and Average exposure(“AVG”). These measures all incorporate netting andcollateral benefits, where applicable.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the lifeof the transaction. Peak is the primary measure used by the
Firm for setting of credit limits for derivative transactions,senior management reporting and derivatives exposure
management. DRE exposure is a measure that expresses therisk of derivative exposure on a basis intended to beequivalent to the risk of loan exposures. DRE is a lessextreme measure of potential credit loss than Peak and isused for aggregating derivative credit risk exposures withloans and other credit risk.
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
risk capital and the CVA, as further described below. The
three year AVG exposure was $29.0 billion and $31.1
billion at December 31, 2017 and 2016, respectively,
compared with derivative receivables, net of all collateral,of $40.4 billion and $41.4 billion at December 31, 2017and 2016, respectively.
The fair value of the Firm’s derivative receivables
incorporates CVA to reflect the credit quality ofcounterparties. CVA is based on the Firm’s AVG to a
counterparty and the counterparty’s credit spread in thecredit 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
JPMorgan Chase & Co./2017 Annual Reportimpact of wrong-way risk, which is broadly defined as thepotential for increased correlation between the Firm’s
exposure to a counterparty (AVG) and the counterparty’s
credit quality. Many factors may influence the nature andmagnitude 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 Firmrisk manages exposure to changes in CVA by entering into
credit derivative transactions, as well as interest rate,
foreign exchange, equity and commodity derivativetransactions.

The accompanying graph shows exposure profiles to theFirm’s current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The threemeasures 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, 2017
(in billions)

140
120
100
80
60
40
20
0
1 year 2 years

5 years

10 years

The following table summarizes the ratings profile by derivative counterparty of the Firm’s derivative receivables, including credit
derivatives, net of all collateral, at the dates indicated. The ratings scale is based on the Firm’s internal ratings, which generally
correspond to the ratings as assigned by S&P and Moody’s.
Ratings profile of derivative receivables
Rating equivalent

2017

December 31,(in millions, except ratios)

Exposure net of
all collateral

AAA/Aaa to AA-/Aa3

$

2016

% of exposure netof all collateral

Exposure net of
all collateral% of exposure netof all collateral

11,52929% $11,44928%

A+/A1 to A-/A3
BBB+/Baa1 to BBB-/Baa3

6,919
13,925

17
34

8,505
13,12720
32

BB+/Ba1 to B-/B3
CCC+/Caa1 and below

7,397
645

18
2

7,308
984

18
2

40,415

100% $

41,373

100%

Total

As previously noted, the Firm uses collateral agreements tomitigate counterparty credit risk. The percentage of the
Firm’s over-the-counter derivatives transactions subject tocollateral agreements — excluding foreign exchange spot
trades, which are not typically covered by collateralagreements due to their short maturity and centrally
cleared trades that are settled daily — was approximately
90% as of December 31, 2017, largely unchanged
compared with December 31, 2016.
Credit derivatives
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm’s own credit risk associatedwith various exposures. For a detailed description of credit
derivatives, see Credit derivatives in Note 5.

JPMorgan Chase & Co./2017 Annual Report$

Credit portfolio management activities
Included in the Firm’s end-user activities are credit
derivatives used to mitigate the credit risk associated withtraditional 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 5.
The Firm also uses credit derivatives as an end-user tomanage other exposures, including credit risk arising fromcertain 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 incredit derivatives, see Credit derivatives in Note 5.

115

Management’s discussion and analysis
Credit derivatives used in credit portfolio management
activities
Notional amount ofprotection
purchased (a)December 31, (in millions)

2017

2016

Credit derivatives used to manage:
Loans and lending-related commitments$

Derivative receivables
Credit derivatives used in credit portfolio
management activities

1,867

$

15,742$

17,6092,430
19,684$

22,114(a) Amounts are presented net, considering the Firm’s net protection
purchased or sold with respect to each underlying reference entity orindex.

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, withgains 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,

116

between loans and lending-related commitments and thecredit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm’s view, of the true changes invalue 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 anumber of factors, including the named reference entity(i.e., the Firm may experience losses on specific exposuresthat are different than the named reference entities in thepurchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with anactual 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 datethat is the same or similar to the maturity date of the
exposure for which the protection was purchased, andremaining differences in maturity are actively monitored
and managed by the Firm.

JPMorgan Chase & Co./2017 Annual ReportALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase’s allowance for credit losses covers theretained consumer and wholesale loan portfolios, as well as
the Firm’s wholesale and certain consumer lending-related
commitments.
For a further discussion of the components of the allowancefor credit losses and related management judgments, see
Critical Accounting Estimates Used by the Firm on pages
138–140 and Note 13.
At least quarterly, the allowance for credit losses isreviewed by the CRO, the CFO and the Controller of theFirm, and discussed with the Board of Directors’ Risk Policy
Committee (“DRPC”) and the Audit Committee. As of
December 31, 2017, JPMorgan Chase deemed theallowance for credit losses to be appropriate and sufficient
to absorb probable credit losses inherent in the portfolio.

JPMorgan Chase & Co./2017 Annual Report

The allowance for credit losses decreased as of December
31, 2017, driven by:• a net reduction in the wholesale allowance, reflecting
credit quality improvements in the Oil & Gas, Natural Gas
Pipelines, and Metals & Mining portfolios (compared withadditions to the allowance in the prior year driven by
downgrades in the same portfolios)
largely offset by• a net increase in the consumer allowance, reflecting– additions to the allowance for the credit card andbusiness banking portfolios, driven by loan growth inboth of these portfolios and higher loss rates in thecredit card portfolio,
largely offset by– a reduction in the allowance for the residential realestate portfolio, predominantly driven by continued
improvement in home prices and delinquencies, and– the utilization of the allowance in connection with thesale of the student loan portfolio.
For additional information on the consumer and wholesalecredit portfolios, see Consumer Credit Portfolio on pages
102-107, Wholesale Credit Portfolio on pages 108–116 andNote 12.

117

Management’s discussion and analysis
Summary of changes in the allowance for credit losses
2017
Year ended December 31,(in millions, except ratios)

2016

Consumer,
excludingcredit card

Credit card

Wholesale

$

$

$

Total

Consumer,
excludingcredit card

Credit card

Wholesale

13,776

$

$

$

Total

Allowance for loan losses
Beginning balance at January 1,

5,198

4,034

4,544

$

5,806

3,434

4,315

$ 13,555

Gross charge-offs

1,779

4,521

212

6,512

1,500

3,799

398

5,697

Gross recoveries

(634)

(398)

(93)

(1,125)

(591)

(357)

(57)

(1,005)

Net charge-offs(a)

4,692

1,145

4,123

119

5,387

909

3,442

341

Write-offs of PCI loans(b)

86

—

—

86

156

—

—

156

Provision for loan losses

613

4,973

(286)

5,300

467

4,042

571

5,080

Other

(1)

Ending balance at December 31,

$

—

4,579

$

246

$

2

4,884

$

383

$

1

4,141

$

461

$

(10)

13,604

$

1,090

$

—

5,198

$

308

$

4,034

$

358

$

(1)

(11)

4,544

$ 13,776

Impairment methodology
Asset-specific(c)$Formula-based

2,108

PCI

4,501

2,225

Total allowance for loan losses

3,680

—

10,289

—

2,579

2,225

3,676

2,311

342

$

4,202

—

1,008
10,457

—

2,311

$

4,579

$

4,884

$

4,141

$

13,604

$

5,198

$

4,034

$

4,544

$ 13,776

$

26

$

—

$

1,052

$

1,078

$

14

$

—

$

772

Allowance for lending-related commitments
Beginning balance at January 1,
Provision for lending-related commitments

7

—

(17)

(10)

—

—

281

Other

—

—

—

—

12

—

(1)

Ending balance at December 31,

$

33

$

—

$

1,035

$

1,068

$

—

$

—

$

187

$

187

$

$

786
281
11

26

$

—

$

1,052

$

1,078

—

$

—

$

169

$

169

Impairment methodology
Asset-specific$

Formula-based

33

—

848

881

26

—

883

909

Total allowance for lending-related
commitments(d)

$

33

$

—

$

1,035

$

1,068

$

26

$

—

$

1,052

$

Total allowance for credit losses

$

4,612

$

4,884

$

5,176

$

14,672

$

5,224

$

4,034

$

5,596

$ 14,854

1,078

Memo:
Retained loans, end of period$ 372,553$ 149,387$ 402,898$ 924,838$ 364,406$ 141,711$ 383,790$ 889,907

Retained loans, average

366,798

139,918

392,263

898,979

358,486

131,081371,778

861,345

PCI loans, end of period

30,576—

3

30,57935,679—3

35,682Credit ratios
Allowance for loan losses to retained loans

1.23%

3.27%

1.03%

1.47%

1.43%

2.85%

1.18%

1.55%

Allowance for loan losses to retained nonaccrualloans(e)

109

NM

239

229

109

NM

233

205

Allowance for loan losses to retained nonaccrualloans excluding credit card

109

NM

239

147

109

NM

233

145

Net charge-off rate(a)

0.31

2.95

0.03

0.60

0.25

2.63

0.09

0.54

0.69

3.27

1.03

1.27

0.88

2.85

1.18

1.34

Allowance for loan losses to retained
nonaccrual loans(e)

56

NM

239

191

61

NM

233

171

Allowance for loan losses to retained nonaccrualloans excluding credit card

56

NM

239

109

61

NM

233

111

0.34%

2.95%

0.03%

0.62%

0.28%

2.63%

0.09%

0.57%

Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses toretained loans

Net charge-off rate(a)Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate forConsumer, excluding credit card would have been 0.18%; total Firm would have been 0.55%; Consumer, excluding credit card and PCI loans would havebeen 0.20%; and total Firm, excluding PCI would have been 0.57%.
(b) 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 aspurchase 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).
(c) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses 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.
(e) The Firm’s policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.

118

JPMorgan Chase & Co./2017 Annual ReportProvision for credit losses
The following table presents the components of the Firm’s provision for credit losses:

Consumer, excluding credit card

Provision for
lending-related commitments

Provision for loan losses

Year ended December 31,(in millions)

2017

2016

613 $

467 $

$

2015

2017

(82) $

2016

Total provision for credit losses

2015
$

2017

2016

620 $

467 $

2015

7 $

— $

1

—

—

—

4,973

4,042

3,122

(81)
3,041

Credit card

4,973

4,042

3,122

Total consumer

5,586

4,509

3,040

7

—

1

5,593

4,509

Wholesale

(286)

571

623

(17)

281

163

(303)

852

786

5,300 $

5,080 $

3,663

(10) $

281 $

164

5,290 $

5,361 $

3,827

Total

$

$

$

Provision for credit losses
The provision for credit losses decreased as of December
31, 2017 as a result of:• a net $422 million reduction in the wholesale allowancefor credit losses, reflecting credit quality improvements in
the Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in
the prior year driven by downgrades in the same
portfolios.
The decrease was predominantly offset by• a higher consumer provision driven by– $450 million of higher net charge-offs, primarily in thecredit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential realestate portfolio reflecting continued improvement inhome prices and delinquencies,– a $218 million impact in connection with the sale ofthe student loan portfolio, and– a $416 million higher addition to the allowance for
credit losses.
Current year additions to the consumer allowance
included:
an $850 million addition to the allowance for credit
losses in the credit card portfolio, compared to a$600 million addition in the prior year, due to higher
loss rates and loan growth in both years, anda $50 million addition to the allowance for credit
losses in the business banking portfolio, driven byloan growth
the additions were partially offset by
a $316 million net reduction in the allowance for
credit losses in the residential real estate portfolio,
compared to a $517 million net reduction in theprior year, reflecting continued improvement in homeprices and delinquencies in both years.

JPMorgan Chase & Co./2017 Annual Report119Management’s discussion and analysis
INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the lossof principal or a reduction in expected returns on
investments arising from the investment securities portfolio
held by Treasury and CIO in connection with the Firm’sbalance sheet or asset-liability management objectives orfrom principal investments managed in various LOBs in
predominantly privately-held financial assets andinstruments. Investments are typically intended to be held
over extended periods and, accordingly, the Firm has no
expectation for short-term realized gains with respect tothese investments.
Investment securities risk
Investment securities risk includes the exposure associatedwith the default of principal plus coupon payments. This risk
is minimized given that Treasury and CIO generally invest in
high-quality securities. At December 31, 2017, theinvestment securities portfolio was $248.0 billion, and theaverage credit rating of the securities comprising theportfolio was AA+ (based upon external ratings whereavailable and where not available, based primarily uponinternal ratings that correspond to ratings as defined by
S&P and Moody’s). For further information on theinvestment securities portfolio, see Note 10 on pages
203-208. For further information on the market risk
inherent in the portfolio, see Market Risk Management on
pages 121-128. For further information on related liquidity
risk, see Liquidity Risk on pages 92–97.
Governance and oversight
Investment securities risks are governed by the Firm’s Risk
Appetite framework, and discussed at the CIO, Treasury andCorporate (CTC) Risk Committee with regular updates to the
DRPC.
The Firm’s independent control functions are responsible
for reviewing the appropriateness of the carrying value ofinvestment securities in accordance with relevant policies.
Approved levels for investment securities are establishedfor each risk category, including capital and credit risks.

120

Principal investment risk
Principal investments are typically private non-tradedfinancial instruments representing ownership or otherforms of junior capital. Principal investments cover multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. As of
December 31, 2017, the carrying value of the principal
investment portfolios included tax-oriented investments(e.g., affordable housing and alternative energy
investments) of $14.0 billion and private equity and various
debt and equity instruments of $5.5 billion. Increasingly,
new principal investment activity seeks to enhance or
accelerate LOB strategic business initiatives. The Firm’s
principal investments are managed under various LOBs andare reflected within the respective LOB financial results.
Governance and oversight
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 byinvestment 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 ofinvestments in accordance with relevant policies. Approved
levels for investments are established for each relevantbusiness in order to manage the overall size of theportfolios.
Industry, geographic and position level concentration limits
have been set and are intended to ensure diversification of
the portfolios. The Firm also conducts stress testing onthese portfolios using specific scenarios that estimate losses
based on significant market moves and/or other risk events.

JPMorgan Chase & Co./2017 Annual Report

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 monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm’sCRO.
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:• Establishment of a market risk policy framework• Independent measurement, monitoring and control ofline of business and firmwide market risk
• Definition, approval and monitoring of limits• Performance of stress testing and qualitative risk
assessments

Risk measurement
Tools used to measure risk
There is no single measure to capture market risk andtherefore the Firm uses various metrics, both statistical andnonstatistical, to assess risk including:• VaR• Economic-value stress testing• Nonstatistical risk measures• Loss advisories• Profit and loss drawdowns• Earnings-at-risk• Other sensitivities

JPMorgan Chase & Co./2017 Annual Report

Risk monitoring and control
Market risk exposure is managed primarily through a seriesof limits set in the context of the market environment andbusiness strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, productliquidity and accommodation of client business, andmanagement experience. The Firm maintains different
levels of limits. Corporate level limits include VaR and stresslimits. Similarly, line of business limits include VaR andstress limits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be set within the lines ofbusiness, as well at the portfolio or legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate, with any changes
approved by line of business management and Market Risk
Management. 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 Management are escalated to senior
management. The lines of business are responsible foradhering to established limits against which exposures aremonitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, Market Risk Management andsenior management. In the event of a breach, Market Risk
Management consults with senior management of the Firm
and the line of business senior management to determine
the appropriate course of action required to return theapplicable positions 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%, areescalated to senior management and the Firmwide Risk
Committee.

121

Management’s discussion and analysis
The following table summarizes by line of business the predominant business activities that give rise to market risk, andcertain market risk tools used to measure those risks.
Risk identification and classification by line of businessLine ofBusiness

Predominant business activities
and related market risks

Positions included in Risk Management
VaR

Positions included inearnings-at-risk

CCB• Services mortgage loans whichgive rise to complex, non-linear
interest rate and basis risk
• Non-linear risk arises primarily
from prepayment options
embedded in mortgages andchanges in the probability of
newly originated mortgage
commitments actually closing• Basis risk results fromdifferences in the relative
movements of the rate indicesunderlying mortgage exposure
and other interest rates• Originates loans and takes
deposits• Mortgage pipeline loans, classified as
derivatives• Warehouse loans, classified as trading
assets – debt instruments• MSRs• Hedges of pipeline loans,
warehouse loans and MSRs, classified
as derivatives• Interest-only securities, classified as
trading assets - debt instruments, andrelated hedges, classified as
derivatives• Retained loan portfolio• Deposits

CIB• Makes markets and services
clients across fixed income,foreign exchange, equities andcommodities• Market risk arises from changes inmarket prices (e.g., rates andcredit spreads) resulting in a
potential decline in net income• Originates loans and takes
deposits• Trading assets/liabilities – debt and• Retained loan portfolio
marketable equity instruments, and• Deposits
derivatives, including hedges of theretained loan portfolio• Certain securities purchased, loaned orsold under resale agreements andsecurities borrowed• Fair value option elected liabilities• Derivative CVA and associated hedges

CB• Engages in traditional wholesalebanking activities which include
extensions of loans and credit
facilities and taking deposits• Risk arises from changes ininterest rates and prepayment
risk with potential for adverse
impact on net interest income andinterest-rate sensitive fees

• Retained loan portfolio• Deposits

AWM• Provides initial capital
investments in products such as
mutual funds, which give rise tomarket risk arising from changes
in market prices in such products• Originates loans and takes
deposits

Corporate• Manages the Firm’s liquidity,• Derivative positions measured at fair
funding, structural interest rate
value through noninterest revenue inand foreign exchange risks arisingearnings
from activities undertaken by the • Marketable equity investments
Firm’s four major reportablemeasured at fair value throughbusiness segments
noninterest revenue in earnings

122• Debt securities held in advance ofdistribution to clients, classified as
trading assets - debt instruments

Positions included in othersensitivity-based measures• Private equity investments
measured at fair value• Derivatives FVA and fair value
option elected liabilities DVA• Retained loan portfolio• Deposits• Initial seed capital investments
and related hedges, classified as
derivatives• Capital invested alongside thirdparty investors, typically inprivately distributed collective
vehicles managed by AWM (i.e.,
co-investments)• Deposits with banks• Investment securities
portfolio and related
interest rate hedges• Long-term debt andrelated interest rate
hedges• Private equity investments
measured at fair value• Foreign exchange exposure
related to Firm-issued non-USD
long-term debt (“LTD”) andrelated hedges

JPMorgan Chase & Co./2017 Annual Report

Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, toestimate the potential loss from adverse market moves in anormal 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 historicalsimulation based on data for the previous 12 months. The
framework’s approach assumes that historical changes inmarket values are representative of the distribution ofpotential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stablemeasure of VaR that is closely aligned to the day-to-day risk
management decisions made by the lines of business, andprovides the appropriate information needed to respond torisk events on a daily basis.
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 tomeasure risk profiles and levels of diversification acrossproduct types and is used for aggregating risks andmonitoring limits across businesses. VaR results arereported to senior management, the Board of Directors andregulators.
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 “back-testing exceptions,”
defined as losses greater than that predicted by VaRestimates, an average of five times every 100 trading days.
The number of VaR back-testing exceptions observed candiffer from the statistically expected number of back-testing
exceptions if the current level of market volatility ismaterially 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 forindividual 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 tomarket 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, assensitivities 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.

JPMorgan Chase & Co./2017 Annual Report

As VaR is based on historical data, it is an imperfectmeasure 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 stressevents. 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 measurecertain 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 notcaptured in VaR due to the lack of inherent liquidity andavailability 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 thatusing an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other measures such as stresstesting and nonstatistical measures, in addition to VaR, tocapture 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 whereproxies are used in VaR historical time series, the data
sources may differ (see Valuation process in Note 2 forfurther information on the Firm’s valuation process).
Because VaR model calculations require daily data and aconsistent source for valuation, it may not be practical touse the data collected in the VCG monthly valuation process
for VaR model calculations.
The Firm’s VaR model calculations are periodicallyevaluated and enhanced in response to changes in thecomposition of the Firm’s portfolios, changes in market
conditions, improvements in the Firm’s modeling techniquesand measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, see Model Risk
Management on page 137.
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 capitalrequirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology whichapproximates a 99% confidence level. Regulatory VaR isapplied 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 theFirm’s Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain VaR models.

123

Management’s discussion and analysis
For additional information on Regulatory VaR and the othercomponents of market risk regulatory capital for the Firm(e.g., VaR-based measure, stressed VaR-based measure andthe respective backtesting), see JPMorgan Chase’s Basel III

Pillar 3 Regulatory Capital Disclosures reports, which areavailable on the Firm’s website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).

The table below shows the results of the Firm’s Risk Management VaR measure using a 95% confidence level.
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

2017
Min

Avg.
$

Diversification benefit to CIB trading VaR

28
10
12
7

$

(30) (a)

20
4
8
4

$

NM

(b)
(b)

CIB trading VaR
Credit portfolio VaRDiversification benefit to CIB VaR
CIB VaR277(6) (a)
28

14
3
NM
17

CCB VaR
Corporate VaR
AWM VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR24—(1) (a)5(4) (a)
29
$

1
1
—
NM
2
NM
17

$

Max

(b)
(b)

(b)
(b)
(b)
(b)

40
20
19
10

$

NM

(b)

38
12
NM
39

(b)

4
16
—
NM
16
NM
$ 42

2016
Min

Avg.

(36) (a)

(b)
(b)

(c)

(b)
(b)
(b)
(b)

45
12
13
9

$

$

Max

33
7
5
7

$

65
27
32
11

NM

(b)

NM

(b)

43
12
(10) (a)
45

28
10
NM
32

(b)

79
16
NM
81

(b)

3
6
2
(3) (a)8(8) (a)
45

1
3
—
NM
4
NM
$ 33

(b)
(b)

(b)
(b)
(b)
(b)

6
13
4
NM
16
NM
$ 78

(b)
(b)

(c)

(b)
(b)
(b)
(b)

(a) Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflectsthat the risks are not perfectly correlated.
(b) Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification benefit
reflects the non-additive nature of VaR due to imperfect correlation across lines of business and risk types. 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 VaR was higher than the prior year, due to a Private Equity position that became publicly traded in the fourth quarter of 2017. Previously, thisposition was included in other sensitivity-based measures.

Average Total VaR decreased $16 million for the year-ended
December 31, 2017 as compared with the prior year. The
reduction is a result of refinements made to VaR models forcertain asset-backed products, changes made to the scopeof positions included in VaR in the third quarter of 2016,
and lower volatility in the one-year historical look-backperiod.
In addition, Credit Portfolio VaR declined by $5 million
reflecting the sale of select positions and lower volatility inthe one-year historical look-back period.
In the first quarter of 2017, the Firm refined the historicalproxy time series inputs to certain VaR models. These
refinements are intended to more appropriately reflect therisk exposure from certain asset-backed products. In theabsence of this refinement, the average Total VaR, CIB fixedincome VaR, CIB trading VaR and CIB VaR would have eachbeen higher by $4 million for the year ended December 31,
2017.

VaR back-testing
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 actually
recognized on market-risk related revenue.
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 riskrelated gains and losses are defined as: gains and losses on
the positions included in the Firm’s Risk Management VaR,
excluding fees, commissions, certain valuation adjustments(e.g., liquidity and FVA), net interest income, and gains andlosses arising from intraday trading.

VaR can vary significantly as positions change, market
volatility fluctuates, and diversification benefits change.

124

JPMorgan Chase & Co./2017 Annual Report

The following chart compares actual daily market risk-related gains and losses with the Firm’s Risk Management VaR for theyear ended December 31, 2017. As the chart presents market risk-related gains and losses related to those positions includedin the Firm’s Risk Management VaR, the results in the table below differ from the results of back-testing 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 tocovered positions. The chart shows that for the year ended December 31, 2017 the Firm observed 15 VaR back-testing
exceptions and posted gains on 145 of the 258 days.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2017

125

100

75

50

25

0

-25

-50

-75

-100

-125

JPMorgan Chase & Co./2017 Annual Report125Management’s discussion and analysis
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool inmeasuring and controlling risk. While VaR reflects the riskof loss due to adverse changes in markets using recent
historical market behavior as an indicator of losses, stresstesting is intended to capture the Firm’s exposure tounlikely but plausible events in abnormal markets. The Firm
runs weekly stress tests on market-related risks across thelines of business using multiple scenarios that assume
significant changes in risk factors such as credit spreads,
equity prices, interest rates, currency rates and commodity
prices.
The Firm uses a number of standard scenarios that capture
different risk factors across asset classes including
geographical factors, specific idiosyncratic factors andextreme tail events. The stress framework calculates
multiple magnitudes of potential stress for both market
rallies and market sell-offs for each risk factor andcombines them in multiple ways to capture different market
scenarios. For example, certain scenarios assess thepotential loss arising from current exposures held by the
Firm due to a broad sell-off in bond markets or an extreme
widening in corporate credit spreads. The flexibility of thestress testing framework allows risk managers to constructnew, specific scenarios that can be used to form decisions
about future possible stress events.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels
relative to those historically realized, and to stress test therelationships between market prices under extreme
scenarios. Stress scenarios are defined and reviewed byMarket Risk Management, and significant changes arereviewed by the relevant LOB Risk Committees and may be
redefined on a periodic basis to reflect current market
conditions.
Stress-test results, trends and qualitative explanations
based on current market risk positions are reported to therespective LOBs and the Firm’s senior management to allow
them to better understand the sensitivity of positions tocertain defined events and to enable them to manage theirrisks with more transparency. Results are also reported to
the Board of Directors.
The Firm’s stress testing framework is utilized in calculating
results for the Firm’s CCAR and ICAAP processes. In
addition, the results are incorporated into the quarterly
assessment of the Firm’s Risk Appetite Framework and arealso presented to the DRPC.

126

Nonstatistical risk measures
Nonstatistical risk measures include sensitivities tovariables used to value positions, such as credit spreadsensitivities, 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 ofbusiness and by risk type, and are also used for monitoring
internal market risk 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 thedecline in net profit and loss since the year-to-date peakrevenue level.
Earnings-at-risk
The VaR and sensitivity measures illustrate the economic
sensitivity of the Firm’s Consolidated balance sheets tochanges 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 riskarises not only from trading activities but also from the
Firm’s traditional banking activities, which include extensionof loans and credit facilities, taking deposits and issuingdebt. The Firm evaluates its structural interest rate risk
exposure through earnings-at-risk, which measures theextent to which changes in interest rates will affect the
Firm’s net interest income and interest rate-sensitive fees.
For a summary by line of business, identifying positions
included in earnings-at-risk, see the table on page 122.
The CTC Risk Committee establishes the Firm’s structuralinterest rate risk policies and market risk limits, which are
subject to approval by the DRPC. Treasury and CIO, working
in partnership with the lines of business, calculates the
Firm’s structural interest rate risk profile and reviews it withsenior management including the CTC Risk Committee andthe 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 aroundassumptions and establishing and monitoring limits forstructural interest rate risk. The Firm manages structuralinterest rate risk generally through its investment securities
portfolio and interest rate derivatives.

JPMorgan Chase & Co./2017 Annual Report

Structural interest rate risk can occur due to a variety offactors, including:• 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 offbalance sheet instruments that are repricing at the sametime
• Differences in the amounts by which short-term and longterm 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’s U.S. dollar sensitivities are presented in the tablebelow.
JPMorgan Chase’s 12-month earnings-at-risk sensitivity
profilesU.S. dollar

Instantaneous change in rates(in billions)+200 bps

December 31, 2017
December 31, 2016

$
$

2.4
4.0

$
$

+100 bps-100 bps-200 bps

1.7
2.4(3.6) (a)NM (b)

NM
NM

(b)
(b)

(a) As a result of the 2017 increase in the Fed Funds target rate to
between 1.25% and 1.50%, the -100 bps sensitivity has been
included.
(b) Given the level of market interest rates, these downward parallel
earnings-at-risk scenarios are not considered to be meaningful.

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 andmaturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. Alltransfer-pricing assumptions are dynamically reviewed.

The non-U.S. dollar sensitivities for an instantaneous
increase in rates by 200 and 100 basis points results in a
12-month benefit to net interest income of approximately$800 million and $500 million, respectively, at December
31, 2017 and were not material at December 31, 2016.
The non-U.S. dollar sensitivities for an instantaneous
decrease in rates by 200 and 100 basis points were notmaterial to the Firm’s earnings-at-risk at December 31,
2017 and 2016.

The Firm generates a baseline for net interest income andcertain interest rate-sensitive fees, and then conducts
simulations of changes for interest rate-sensitive assets andliabilities denominated in U.S. dollars and other currencies(“non-U.S. dollar” currencies). This simulation primarily
includes, retained loans, deposits, deposits with banks,
investment securities, long term debt and any related
interest rate hedges, and excludes other positions in risk
management VaR and other sensitivity-based measures as
described on page 122.

The Firm’s net U.S. dollar sensitivities for an instantaneous
increase in rates by 200 and 100 basis points decreased byapproximately $1.6 billion and $700 million, respectively,
when compared to December 31, 2016. The primary driverof that decrease was the updating of the Firm’s baseline toreflect higher interest rates. As higher interest rates arereflected in the Firm’s baselines, the magnitude of thesensitivity to further increases in rates would be expected
to be less significant.

Earnings-at-risk scenarios estimate the potential change inthis baseline, over the following 12 months utilizing
multiple assumptions. These scenarios consider the impact
on exposures as a result of changes in interest rates frombaseline rates, as well as pricing sensitivities of deposits,
optionality and changes in product mix. The scenarios
include forecasted balance sheet changes, as well as
modeled prepayment and reinvestment behavior, but do notinclude assumptions about actions that could be taken by
the Firm in response to any such instantaneous ratechanges. Mortgage prepayment assumptions are based on
scenario interest rates compared with underlying
contractual rates, the time since origination, and otherfactors which are updated periodically based on historicalexperience. The pricing sensitivity of deposits in thebaseline and scenarios use assumed rates paid which may
differ from actual rates paid due to timing lags and otherfactors. 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 inmarket conditions, improvements in the Firm’s simulationand other factors.

Separately, another U.S. dollar interest rate scenario usedby 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 benefit to
net interest income of approximately $700 million and$800 million at December 31, 2017 and 2016,
respectively. The increase in net interest income under this
scenario reflects the Firm reinvesting at the higher longterm rates, with funding costs remaining unchanged. The
results of the comparable non-U.S. dollar scenarios were
not material to the Firm at December 31, 2017 and 2016.

JPMorgan Chase & Co./2017 Annual Report

The Firm’s sensitivity to rates is largely a result of assets
repricing at a faster pace than deposits.

127

Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreignexchange 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 lines ofbusiness, primarily manage these risks on behalf of theFirm. Treasury and CIO may hedge certain of these risks
using derivatives within risk limits governed by the CTC Risk
Committee.

Other sensitivity-based measures
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in othersensitivity-based measures, please refer to the Risk identification and classification table on page 122.
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are notincluded in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with thepositions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss thatwould have been realized at December 31, 2017, as the movement in market parameters across maturities may vary and are
not intended to imply management’s expectation of future deterioration in these sensitivities.
Gain/(loss) (in millions)
Description

Sensitivity measure

December 31,
2017

Investment management activities

Consists of seed capital and related hedges;
and fund co-investments

10% decline in market
value

$

Other investments

Consists of private equity and otherinvestments held at fair value

Non-USD LTD cross-currency basis

Activity

December 31,
2016

Investment activities(110) $

(166)

10% decline in market
value

(338)

(358)

Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD

1 basis point paralleltightening of cross currency
basis

(10)

(7)

Non-USD LTD hedges foreign currency(“FX”) exposure

Primarily represents the foreign exchange
revaluation on the fair value of thederivative hedges

10% depreciation ofcurrency

(13)

(23)

Derivatives – funding spread risk

Impact of changes in the spread related toderivatives FVA

1 basis point parallel
increase in spread

(6)

(4)

Fair value option elected liabilities –
funding spread risk

Impact of changes in the spread related tofair value option elected liabilities DVA(a)1 basis point parallel
increase in spread

22

17

Fair value option elected liabilities –interest rate sensitivity

Interest rate sensitivity on fair value option
liabilities resulting from a change in the
Firm’s own credit spread(a)1 basis point parallel
increase in spread

(1)

NA

Funding activities(a) Impact recognized through OCI.

128

JPMorgan Chase & Co./2017 Annual Report

COUNTRY RISK MANAGEMENTThe Firm has a country risk management framework formonitoring and assessing how financial, economic, politicalor other significant developments adversely affect the valueof 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 to ensure the Firm’s
exposures are diversified and that exposure levels areappropriate 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
country risk originated across the Firm. The Firmwide Risk
Executive for Country Risk reports to the Firm’s CRO.
The Firm’s country risk management function includes thefollowing activities:• Establishing policies, procedures and standards
consistent with a comprehensive country risk framework• Assigning sovereign ratings, and assessing country risks
and establishing risk tolerance relative to a country• Measuring and monitoring country risk exposure andstress 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 ofpotential country risk concerns• Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending anddeposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities ina country. Under the Firm’s internal country risk
management approach, country exposure is reported basedon the country where the majority of the assets of theobligor, counterparty, issuer or guarantor are located orwhere the majority of its revenue is derived, which may bedifferent than the domicile (legal residence) or country ofincorporation of the obligor, counterparty, issuer orguarantor. Country exposures are generally measured byconsidering the Firm’s risk to an immediate default of thecounterparty or obligor, with zero recovery. Assumptions
are sometimes required in determining the measurement
and allocation of country exposure, particularly in the caseof certain non-linear or index exposures. The use ofdifferent measurement approaches or assumptions could
affect the amount of reported country exposure.

JPMorgan Chase & Co./2017 Annual Report

Under the Firm’s internal country risk measurement
framework:• 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• Deposits are measured as the cash balances placed withcentral and commercial banks• Securities financing exposures are measured at theirreceivable balance, net of collateral received• Debt and equity securities are measured at the fair valueof all positions, including both long and short positions• Counterparty exposure on derivative receivables ismeasured at the derivative’s fair value, net of the fairvalue of the related collateral. Counterparty exposure onderivatives can change significantly because of market
movements• Credit derivatives protection purchased and sold isreported based on the underlying reference entity and ismeasured at the notional amount of protection
purchased or sold, net of the fair value of the recognizedderivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm’s marketmaking activities is measured on a net basis, as suchactivities often result in selling and purchasingprotection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in thenormal course of business through the Firm’s credit,
market, and operational risk governance, rather than
through Country Risk Management.
The Firm’s internal country risk reporting differs from thereporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC’sreporting methodology, see Cross-border outstandings on
page 296 of the 2017 Form 10-K.
Stress testing
Stress testing is an important component of the Firm’s
country risk management framework, which aims toestimate and limit losses arising from a country crisis bymeasuring the impact of adverse asset price movements toa country based on market shocks combined withcounterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stressscenarios to test vulnerabilities to individual countries, orgroups of countries, in response to specific or potential
market events, sector performance concerns andgeopolitical risks. These tailored stress results are used toassess potential risk reduction across the Firm, as
necessary.

129

Management’s discussion and analysis
Risk Reporting
To enable effective risk management of country risk to theFirm, country nominal exposure and stress are measured
and reported weekly, and used by Country Risk
Management to identify trends, and monitor high usages
and breaches against limits.
The following table presents the Firm’s top 20 exposures bycountry (excluding the U.S.) as of December 31, 2017. The
selection of countries represents 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 toperiod due to client activity and market flows.
Top 20 country exposures (excluding the U.S.)(a)December 31, 2017
(in billions)Lending anddeposits(b)Germany$

Trading andinvesting(c)(d)Total
exposure

Other(e)43.3 $

13.8 $

0.3 $

57.4

United Kingdom

32.0

11.5

2.8

46.3

Japan

24.7

5.7

0.4

30.8

France

12.5

6.6

0.3

19.4

China

9.6

5.5

1.2

16.3

Canada

12.2

2.5

0.2

14.9

Switzerland

8.5

1.5

3.9

13.9

India

5.3

6.1

0.9

12.3

Australia

5.8

5.6

—

11.4

Luxembourg

8.7

0.8

—

9.5

Netherlands

6.6

0.8

0.6

8.0

Spain

4.7

2.1

0.1

6.9

South Korea

4.6

1.9

0.3

6.8

Italy

3.5

3.1

0.1

6.7

Singapore

4.0

1.2

1.1

6.3

Mexico

4.0

1.2

—

5.2

Brazil

3.2

1.4

0.5

5.1

Hong Kong

2.3

0.9

1.6

4.8

Saudi Arabia

3.8

0.7

—

4.5

Belgium

2.7

1.5

—

4.2

(a) Country exposures above reflect 86% of total firmwide non U.S.
exposure.
(b) Lending and deposits includes loans and accrued interest receivable(net of collateral and the allowance for loan losses), deposits withbanks (including central banks), acceptances, other monetary assets,
issued letters of credit net of participations, and unused commitments
to extend credit. Excludes intra-day and operating exposures, such as
from settlement and clearing activities.
(c) Includes market-making inventory, AFS securities, counterparty
exposure on derivative and securities financings net of collateral andhedging.
(d) Includes single reference entity (“single-name”), index and othermultiple reference entity transactions for which one or more of theunderlying reference entities is in a country listed in the above table.
(e) Includes capital invested in local entities and physical commodity
inventory.

130

JPMorgan Chase & Co./2017 Annual ReportOPERATIONAL RISK MANAGEMENT
Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or fromexternal events; operational risk includes cybersecurity risk,business and technology resiliency risk, payment fraud risk,
and third-party outsourcing risk. Operational risk isinherent in the Firm’s activities and can manifest itself invarious ways, including fraudulent acts, businessinterruptions, inappropriate employee behavior, failure tocomply with applicable laws and regulations or failure ofvendors to perform in accordance with their arrangements.
These events could result in financial losses, litigation andregulatory fines, as well as other damages to the Firm. The
goal is to keep operational risk at appropriate levels in lightof the Firm’s financial position, the characteristics of its
businesses, and the markets and regulatory environments
in which it operates.
Operational Risk Management Framework
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework (“ORMF”) which
is designed to enable the Firm to maintain a sound andwell-controlled operational environment. The ORMF hasfour main components: Governance, Risk Identification andAssessment, Measurement, and Monitoring and Reporting.
Governance
The lines of business and corporate functions are
responsible for owning and managing their operationalrisks. The Firmwide Oversight and Control Group, which
consists of control officers within each line of business andcorporate function, is responsible for the day-to-day
execution of the ORMF.
Line of business and corporate function control committees
oversee the operational risk and control environments of
their respective businesses and functions. These
committees escalate operational risk issues to the FCC, asappropriate. For additional information on the FCC, seeEnterprise-wide Risk Management on pages 75–137.
The Firmwide Risk Executive for Operational Risk
Governance (“ORG”), a direct report to the CRO, is
responsible for defining the ORMF and establishingminimum standards for its execution. Operational Risk
Officers report to both the line of business CROs and to the
Firmwide Risk Executive for ORG, and are independent of
the respective businesses or corporate functions they
oversee.
The Firm’s Operational Risk Governance Policy is approvedby the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm.

JPMorgan Chase & Co./2017 Annual Report

Risk identification and assessment
The Firm utilizes several tools to identify, assess, mitigate
and manage its operational risk. One such tool is the Risk
and Control Self-Assessment (“RCSA”) program which is
executed by LOBs and corporate functions in accordancewith the minimum standards established by ORG. As part of
the RCSA program, lines of business and corporate
functions identify key operational risks inherent in theiractivities, evaluate the effectiveness of relevant controls inplace to mitigate identified risks, and define actions to
reduce residual risk. Action plans are developed for
identified control issues and businesses and corporate
functions are held accountable for tracking and resolving
issues in a timely manner. Operational Risk Officers
independently challenge the execution of the RCSA programand evaluate the appropriateness of the residual risk
results.
In addition to the RCSA program, the Firm tracks andmonitors events that have led to or could lead to actual
operational risk losses, including litigation-related events.
Responsible businesses and corporate functions analyze
their losses to evaluate the effectiveness of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may berequired. ORG provides oversight of these activities and may
also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
Measurement
In addition to the level of actual operational risk losses,
operational risk measurement includes operational riskbased capital and operational risk loss projections underboth 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 andseverity of future operational risk loss projections based on
historical data. The LDA model is used to estimate anaggregate 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 thequarter following the period in which those losses wererealized, 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 theAdvanced Measurement Approach, incorporates internaland external losses as well as management’s view of tail risk
captured through operational risk scenario analysis, andevaluation of key business environment and internal control
metrics.

131

Management’s discussion and analysis
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops aforward 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 ICAAP processes.
For information related to operational risk RWA, CCAR or
ICAAP, see Capital Risk Management section, pages 82–91.
Monitoring and reporting
ORG has established standards for consistent operationalrisk monitoring and reporting. The standards also reinforce
escalation protocols to senior management and to theBoard of Directors. Operational risk reports are produced
on a firmwide basis as well as by line of business andcorporate function.
Subcategories and examples of operational risks
As mentioned previously, 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 leadto losses which are captured through the Firm’s operationalrisk measurement processes. More information on
Compliance risk, Conduct risk, Legal risk and Estimations
and Model risk subcategories are discussed on pages 134,
135, 136 and 137, respectively. Details on other selectexamples of operational risks are provided below.
Cybersecurity risk
Cybersecurity risk is an important, continuous and evolving
focus for the Firm. The Firm devotes significant resources toprotecting and continuing to improve the security of the
Firm’s computer systems, software, networks and othertechnology assets. The Firm’s security efforts are intended
to protect against, among other things, cybersecurity
attacks by unauthorized parties to obtain access toconfidential information, destroy data, disrupt or degrade
service, sabotage systems or cause other damage. The Firm
continues to make significant investments in enhancing its
cyberdefense capabilities and to strengthen its partnerships
with the appropriate government and law enforcement
agencies and other businesses in order to understand thefull spectrum of cybersecurity risks in the operating
environment, enhance defenses and improve resiliency
against cybersecurity threats. The Firm actively participatesin discussions of cybersecurity risks with law enforcement,
government officials, peer and industry groups, and has
significantly increased efforts to educate employees andcertain clients on the topic. Third parties with which the
Firm does business or that facilitate the Firm’s businessactivities (e.g., vendors, exchanges, clearing houses, central
depositories, and financial intermediaries) could also be
sources of cybersecurity risk to the Firm. Third party
cybersecurity incidents such as system breakdowns or
failures, misconduct by the employees of such parties, orcyberattacks could affect their ability to deliver a product orservice to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be
132

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 andclients regarding cybersecurity risks and opportunities toimprove security. However, where cybersecurity incidents
are due to client failure to maintain the security of theirown systems and processes, clients will generally be
responsible for losses incurred.
To protect the confidentiality, integrity and availability of
the Firm’s infrastructure, resources and information, theFirm leverages the ORMF to ensure risks are identified andmanaged within defined corporate tolerances. The Firm’s
Board of Directors and the Audit Committee are regularly
briefed on the Firm’s cybersecurity policies and practices
and ongoing efforts to improve security, as well as its
efforts regarding significant cybersecurity events.
Business and technology resiliency risk
Business disruptions can occur due to forces beyond the
Firm’s control such as severe weather, power ortelecommunications loss, flooding, transit strikes, terrorist
threats or infectious disease. The safety of the Firm’s
employees and customers is of the highest priority. The
Firm’s global resiliency program is intended to enable theFirm to recover its critical business functions andsupporting assets (i.e., staff, technology and facilities) inthe event of a business interruption. The program includes
corporate governance, awareness and training, as well as
strategic and tactical initiatives to identify, assess, andmanage business interruption and public safety risks.
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 after various events.
Payment fraud risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment, andexposing the Firm to financial or reputational harm. Overthe past year, the risk of payment fraud remained at aheightened level across the industry. The complexities ofthese attacks along with perpetrators’ strategies continue
to evolve. A Payments Control Program has been
established that includes Cybersecurity, Operations,Technology, Risk and the lines of business to manage therisk, implement controls and provide employee and client
education and awareness training. In addition, a newwholesale fraud detection solution has been introduced
which monitors high value payments for certain anomalies.
The Firm’s monitoring of customer behavior is periodicallyevaluated and enhanced, and attempts to detect andmitigate new strategies implemented by fraud perpetrators.
The Firm’s consumer and wholesale businesses collaborateclosely to deploy risk mitigation controls across theirbusinesses.

JPMorgan Chase & Co./2017 Annual ReportThird-party outsourcing risk
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight(“TPO”) framework to assist lines of business and corporate
functions in selecting, documenting, onboarding,monitoring and managing their supplier relationships. The
objective of the TPO framework is to hold third parties tothe same high level of operational performance as is
expected of the Firm’s internal operations. The Corporate
Third-Party Oversight group is responsible for Firmwide TPO
training, monitoring, reporting and standards.
Insurance
One of the ways in which operational risk may be mitigatedis through insurance maintained by the Firm. The Firmpurchases insurance from commercial insurers and utilizes
a wholly-owned captive insurer, Park Assurance Company,
to ensure 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 andapproved by senior management.

JPMorgan Chase & Co./2017 Annual Report

133

COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is therisk of failure to comply with applicable laws, rules andregulations.

Governance and oversightCompliance is led by the Firms’ CCO who reports to theFirm’s CRO.

Overview
Each line of business and function is accountable formanaging its compliance risk. The Firm’s Compliance
Organization (“Compliance”), which is independent of thelines of business, works closely with senior management toprovide independent review, monitoring and oversight ofbusiness operations with a focus on compliance with thelegal and regulatory obligations applicable to the deliveryof the Firm’s products and services to clients andcustomers.

The Firm maintains oversight and coordination of its
Compliance Risk Management practices through the Firm’s
CCO, lines of business CCOs and regional CCOs to implement
the Compliance program globally across the lines ofbusiness and regions. The Firm’s CCO is a member of the
FCC and the FRC. The Firm’s CCO also provides regular
updates to the Audit Committee and DRPC. In addition,certain Special Purpose Committees of the Board have been
established to oversee the Firm’s compliance withregulatory Consent Orders.

These compliance risks relate to a wide variety of legal andregulatory obligations, depending on the line of businessand the jurisdiction, and include those related to financial
products and services, relationships and interactions withclients 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 rules andregulations related to the offering of products and services
across jurisdictional borders, among others. Compliancerisk is also inherent in the Firm’s fiduciary activities,
including the failure to exercise the applicable highstandard 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.

The Firm has a Code of Conduct (the “Code”). Each
employee is given annual training on the Code and isrequired annually to affirm his or her compliance with theCode. All new hires must complete Code training shortly
after their start date with the Firm. The Code sets forth the
Firm’s expectation that employees will conduct themselveswith integrity at all times and provides the principles thatgovern employee conduct with clients, customers,
shareholders and one another, as well as with the markets
and communities in which the Firm does business. The Coderequires employees to promptly report any known orsuspected 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, customers, suppliers,
contract workers, business partners, or agents. The Codeprohibits retaliation against anyone who raises an issue orconcern in good faith. Specified compliance officers are
specially trained and designated as “code specialists” whoact as a resource to employees on questions related to theCode. Employees can report any known or suspectedviolations of the Code through the Code Reporting 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 24/7 globally, withtranslation services. It is maintained by an outside service
provider. Annually, the Chief Compliance Office and Human
Resources report to the Audit Committee on the Code of
Conduct program and provide an update on the employee
completion rate for Code of Conduct training andaffirmation.

Other Functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
Compliance implements various practices designed to
identify and mitigate compliance risk by establishingpolicies, testing, monitoring, training and providing
guidance.

134

JPMorgan Chase & Co./2017 Annual Report

CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the riskthat any action or inaction by an employee of the Firm could
lead to unfair client/customer outcomes, compromise theFirm’s reputation, impact the integrity of the markets inwhich the Firm operates, or reflect poorly on the Firm’s
culture.
Overview
Each line of business or function is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of aculture consistent with the Firm’s How We Do Business
Principles (“Principles”). The Principles serve as a guide forhow 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 conductbusiness ethically and in compliance with the law
everywhere the Firm operates. For further discussion of theCode, see Compliance Risk Management on page 134.
Governance and oversight
The CMDC is the Board-level Committee with primary
oversight of the firm’s Culture and Conduct Program. The
Audit Committee is responsible for reviewing the program
established by management to monitor compliance with theCode. Additionally, the DRPC reviews, at least annually, theFirm’s qualitative factors included in the Risk Appetite
Framework, including conduct risk. The DRPC also meetsannually with the CMDC to review and discuss aspects of the

JPMorgan Chase & Co./2017 Annual ReportFirm’s compensation practices. Finally, the Culture &Conduct Risk Committee provides oversight of certain
culture and conduct risk initiatives at the Firm.
Conduct risk management is incorporated into various
aspects of people management practices throughout theemployee life cycle, including recruiting, onboarding,training and development, performance management,
promotion and compensation processes. Businesses
undertake annual RCSA assessments, and, as part of thesereviews, identify their respective key inherent operationalrisks (including conduct risks), evaluate the design andeffectiveness of their controls, identify control gaps anddevelop associated action plans. Each LOB and designatedcorporate function completes an assessment of conduct risk
quarterly, reviews metrics and issues which may involve
conduct risk, and provides business conduct training as
appropriate.
The Firm’s Know Your Employee framework generally
addresses how the Firm manages, oversees and responds toworkforce conduct related matters that may otherwise
expose the Firm to financial, reputational, compliance andother operating risks. The Firm also has a HR Control
Forum, the primary purpose of which is to discuss conduct
and accountability for more significant risk and control
issues and review, when appropriate, employee actions
including but not limited to promotion and compensation
actions.

135

Management’s discussion and analysis
LEGAL RISK MANAGEMENT
Legal risk, a subcategory of operational risk, is the risk ofloss primarily caused by the actual or alleged failure tomeet legal obligations that arise from the rule of law injurisdictions in which the Firm operates, agreements withclients 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 andenforcement matters, including internal reviews andinvestigations 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• interpreting existing laws, rules and regulations, andadvising on changes thereto• advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and• providing legal advice to the LOBs and corporate
functions, in alignment with the lines of defense
described under Enterprise-wide Risk Management.

136

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 thepotential to create conflicts of interest for the Firm.
Governance and oversight
The Firm’s General Counsel reports to the CEO and is amember of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel’s leadership team includes a GeneralCounsel 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 formanaging legal risk across all lines of business andfunctions in the region.
The Firm’s General Counsel and other members of Legal
report on significant legal matters at each meeting of the
Firm’s Board of Directors, at least quarterly to the Audit
Committee, and periodically to the DRPC.
Legal serves on and advises various committees (including
new business initiative and reputation risk committees) andadvises the Firm’s businesses to protect the Firm’s
reputation beyond any particular legal requirements.

JPMorgan Chase & Co./2017 Annual ReportESTIMATIONS AND MODEL RISK MANAGEMENT
Estimations and Model risk, a subcategory of operationalrisk, is the potential for adverse consequences fromdecisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgmentbased estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as thevaluation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,and making business decisions. A dedicated independentfunction, Model Risk Governance and Review (“MRGR”),
defines and governs the Firm’s model risk management
policies and certain analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. MRGR reports
to the Firm’s CRO.
Model risks are owned by the users of the models within thevarious businesses and functions in the Firm based on thespecific purposes of such models. Users and developers ofmodels are responsible for developing, implementing andtesting their models, as well as referring models to theModel Risk function 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 theperformance 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 andmarket 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 modeland 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 themodel accurately reflects the characteristics of the productand its significant risks, the selection and reliability ofmodel inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, andsensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, theModel 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 areapproved by the appropriate level of management within
the Model Risk function based on the relevant model tier.
Under the Firm’s Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves newmodels, as well as material changes to existing models,prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm’s policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in theinterim. These actions will depend on the model and may
include, for example, limitation of trading activity.
The governance of analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting, and capital planning and analysis, within
MRGR’s scope, follows a consistent approach to thegovernance of models.
For a summary of valuations based on valuation models andother valuation techniques, see Critical Accounting
Estimates Used by the Firm on pages 138–140 and Note 2.

JPMorgan Chase & Co./2017 Annual Report137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 hasestablished policies and control procedures intended toensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently fromperiod to period. The methods used and judgments madereflect, 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 andportfolios. In addition, the policies and procedures areintended 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 abrief description of the Firm’s critical accounting estimates
involving significant judgments.
Allowance for credit losses
JPMorgan Chase’s allowance for credit losses covers theretained consumer and wholesale loan portfolios, as well as
the Firm’s wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended toadjust 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 lendingrelated commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of thesecomponents involves significant judgment on a number ofmatters. For further discussion of these components, areasof judgment and methodologies used in establishing the
Firm’s allowance for credit losses, see Note 13.
Allowance for credit losses sensitivity
The Firm’s allowance for credit losses is sensitive tonumerous factors, which may differ depending on theportfolio. Changes in economic conditions or in the Firm’s
assumptions and estimates could affect its estimate ofprobable credit losses inherent in the portfolio at thebalance sheet date. The Firm uses its best judgment toassess these economic conditions and loss data inestimating the allowance for credit losses and theseestimates are subject to periodic refinement based onchanges to underlying external or Firm-specific historical
data. The use of alternate estimates, data sources,
adjustments to modeled loss estimates for model
imprecision and other factors would result in a different
estimated allowance for credit losses, as well as impact any
related sensitivities described below. During the second
quarter of 2017, the Firm refined its loss estimates relating
to the wholesale credit portfolio. See Note 13 for further
discussion.

138

To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm’s
modeled credit loss estimates as of December 31, 2017,
without consideration of any offsetting or correlated effects
of other inputs in the Firm’s allowance for loan losses:• A combined 5% decline in housing prices and a 100
basis point increase in unemployment rates from current
levels could imply:
an increase to modeled credit loss estimates ofapproximately $525 million for PCI loans.
an increase to modeled annual credit loss estimatesof approximately $100 million for residential realestate, excluding PCI loans.
• For credit card loans, a 100 basis point increase in
unemployment rates from current levels could imply an
increase to modeled annual loss estimates ofapproximately $1.0 billion.
• An increase in PD factors consistent with a one-notch
downgrade in the Firm’s internal risk ratings for its
entire wholesale loan portfolio could imply an increasein the Firm’s modeled credit loss estimates ofapproximately $1.4 billion.
• A 100 basis point increase in estimated loss given
default (“LGD”) for the Firm’s entire wholesale loan
portfolio could imply an increase in the Firm’s modeledcredit loss estimates of approximately $175 million.
The purpose of these sensitivity analyses is to provide anindication of the isolated impacts of hypotheticalalternative assumptions on modeled loss estimates. Thechanges 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 notintended to estimate changes in the overall allowance forloan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates toreflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances andconditions.
It is difficult to estimate how potential changes in specificfactors might affect the overall allowance for credit losses
because management considers a variety of factors andinputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at thesame rate and may not be consistent across all geographies
or product types, and changes in factors may bedirectionally 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 loss estimates, management believes
that its current estimate of the allowance for credit losses isappropriate.

JPMorgan Chase & Co./2017 Annual Report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 aremeasured 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 otherloans, where the carrying value is based on the fair value ofthe underlying collateral.
Assets measured at fair value
The following table includes the Firm’s assets measured atfair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, see Note 2.
December 31, 2017
(in billions, except ratio data)
Trading debt and equity instruments
Derivative receivables(a)Trading assets
AFS securities
Loans
MSRs
Other
Total assets measured at fair value on
a recurring basis
Total assets measured at fair value on anonrecurring basis
Total assets measured at fair value
Total Firm assets
Level 3 assets as a percentage of total
Firm assets(a)Level 3 assets as a percentage of total
Firm assets at fair value(a)Total assets atfair value
$
325.3
56.5
381.8
202.2
2.5
6.0
33.2

$
$

Total level3 assets
$
5.4
6.0
11.4
0.3
0.3
6.0
1.2

625.7

19.2

1.3

0.8

627.0
2,533.6

$

20.0

0.8%
3.2%

(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $6.0 billion of derivative receivables classified
as level 3 does not reflect the netting adjustment as such netting is not relevant toa 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 theapplication 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 andother valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used toestimate 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 theappropriate valuation technique to use. Second, the lack ofobservability of certain significant inputs requires
management to assess all relevant empirical data inderiving valuation inputs including, for example, transaction
details, yield curves, interest rates, prepayment rates,
default rates, volatilities, correlations, equity or debt prices,
JPMorgan Chase & Co./2017 Annual Reportvaluations of comparable instruments, foreign exchange
rates and credit curves. For further discussion of thevaluation of level 3 instruments, including unobservable
inputs used, see Note 2.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level ofvaluation 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 typicallyaffected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within themarket as a whole. For further discussion of valuation
adjustments applied by the Firm see Note 2.
Imprecision in estimating unobservable market inputs orother factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate andconsistent with those of other market participants, themethods and assumptions used reflect management
judgment and may vary across the Firm’s businesses andportfolios.
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 2.
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 estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of the future earnings
potential of the Firm’s reporting units, long-term growth
rates and the estimated market cost of equity. Imprecisionin estimating these factors can affect the estimated fairvalue of the reporting units.
Based upon the updated valuations for all of its reporting
units, the Firm concluded that the goodwill allocated to its
reporting units was not impaired at December 31, 2017.
The fair values of these reporting units exceeded theircarrying values by approximately 15% or higher and did
not indicate a significant risk of goodwill impairment basedon current projections and valuations. Such valuations do
not reflect the impact of the TCJA that was enacted in
December 2017 as such impact would not alter theconclusion that goodwill is not impaired.
The projections for all of the Firm’s reporting units are
consistent with management’s current short-term businessoutlook assumptions, and in the longer term, incorporate a
set of macroeconomic assumptions and the Firm’s best
estimates of long-term growth and returns on equity of its

139

Management’s discussion and analysis
businesses. Where possible, the Firm uses third-party andpeer data to benchmark its assumptions and estimates.
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration ineconomic or market conditions, adverse estimates ofregulatory or legislative changes or increases in theestimated market cost of equity, could cause the estimatedfair values of the Firm’s reporting units or their associatedgoodwill to decline in the future, which could result in amaterial impairment charge to earnings in a future period
related to some portion of the associated goodwill.
For additional information on goodwill, see Note 15.
Credit card rewards liability
JPMorgan Chase offers credit cards with various reward
programs which allow cardholders to earn reward points
based on their account activity and the terms andconditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do they expire, and these points can be redeemed for avariety of rewards, including cash (predominantly in theform of account credits), gift cards and travel.
The Firm maintains a rewards liability which represents theestimated cost of reward points earned and expected to beredeemed by cardholders. The rewards liability is sensitive
to various assumptions, including cost per point andredemption rates for each of the various reward programs,
which are evaluated periodically. The liability is accrued as
the cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $4.9 billion
and $3.8 billion at December 31, 2017 and 2016,
respectively, and is recorded in accounts payable and otherliabilities on the Consolidated balance sheets.
Income taxes
JPMorgan Chase is subject to the income tax laws of thevarious jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. Theselaws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including theprovision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions andjudgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, aswell as make judgments regarding the timing of whencertain items may affect taxable income in the U.S. andnon-U.S. tax jurisdictions.
JPMorgan Chase’s interpretations of tax laws around theworld 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 atax position. These disputes over interpretations with thevarious taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systemsof the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may beassessed additional income taxes as a result of theresolution 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
140

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 operationsin any reporting period.
The Firm’s provision for income taxes is composed ofcurrent and deferred taxes. Deferred taxes arise fromdifferences between assets and liabilities measured forfinancial 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 NOLs.
The Firm performs regular reviews to ascertain whether its
deferred tax assets are realizable. These reviews include
management’s estimates and assumptions regarding futuretaxable income, which also incorporates various tax
planning strategies, including strategies that may beavailable 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 onrevised estimates of future taxable income or changes intax planning strategies, it is more likely than not that all orpart of the deferred tax asset will become realizable. As of
December 31, 2017, management has determined it ismore likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm will no longer maintain the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with theundistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.
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 thelargest amount of benefit that management believes ismore 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 thereassessment occurs.
The income tax expense for the current year includes areasonable estimate recorded under SEC Staff Accounting
Bulletin No. 118 resulting from the enactment of the TCJA.
For additional information on income taxes, see Note 24.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, seeNote 29.

JPMorgan Chase & Co./2017 Annual Report

ACCOUNTING AND REPORTING DEVELOPMENTS
SEC Staff Accounting Bulletin adopted during 2017
Bulletin

Summary of guidance

Effects on financial statements

Application of U.S.
GAAP related to theTax Cuts and Jobs Act(“TCJA”) (SEC Staff
Accounting Bulletin
No. 118)• Provides guidance on the accounting forincome taxes in the context of the TCJA.

• The TCJA resulted in a $2.4 billion decrease in net income driven by a deemed
repatriation charge and adjustments to the value of the Firm’s tax oriented
investments, partially offset by a benefit from the revaluation of the Firm’s net
deferred tax liability. Certain of these amounts may be refined in accordance withSEC Staff Accounting Bulletin No. 118.

Issued December 2017

• Provides a 1-year measurement period
in which to refine previously recorded
provisional amounts based on new
information or interpretations.

• For impacts of the tax law changes thatare reasonably estimable, requires therecognition of provisional amounts in
year-end 2017 financial statements.

• Refer to Note 24 for additional information related to the impacts of the TCJA.

FASB Standards issued but not adopted as of December 31, 2017
Standard

Summary of guidance

Effects on financial statements

Revenue recognition –revenue fromcontracts withcustomers• Requires that revenue from contracts
with customers be recognized upontransfer of control of a good or service
in the amount of consideration
expected to be received.

• Adopted January 1, 2018.

Issued May 2014

• Changes the accounting for certain
contract costs, including whether they
may be offset against revenue in theConsolidated statements of income, andrequires additional disclosures about
revenue and contract costs.
• May be adopted using a full
retrospective approach or a modified,cumulative effect approach wherein theguidance is applied only to existing
contracts as of the date of initial
application, and to new contracts
transacted after that date.

• The Firm adopted the revenue recognition guidance using the full retrospective
method of adoption.
• The adoption of the guidance did not result in any material changes in the timingof the Firm’s revenue recognition, but will require gross presentation of certain
costs currently offset against revenue. This change in presentation will bereflected in the first quarter of 2018 and will increase both noninterest revenue
and noninterest expense for the Firm by $1.1 billion and $900 million for theyears ended December 31, 2017 and 2016, respectively. The increase ispredominantly associated with certain distribution costs in AWM (currently offset
against Asset management, administration and commissions), with the remainderof the increase associated with certain underwriting costs in CIB (currently offset
against Investment banking fees).
• The Firm’s Note 6 qualitative disclosures are consistent with the guidance.

Recognition andmeasurement offinancial assets andfinancial liabilities• Requires that certain equity
instruments be measured at fair value,with changes in fair value recognized inearnings.

• The Firm early adopted the provisions of this guidance related to presenting DVA
in OCI for financial liabilities where the fair value option has been elected,
effective January 1, 2016. The Firm adopted the portions of the guidance thatwere not eligible for early adoption on January 1, 2018.

Issued January 2016

• Provides a measurement alternativefor equity securities without readily
determinable fair values to bemeasured at cost less impairment (ifany), plus or minus observable pricechanges from an identical or similar
investment of the same issuer. Any suchprice changes will be reflected inearnings beginning in the period of
adoption.

• Upon adoption, the Firm elected the measurement alternative for its equity
securities that do not have readily determinable fair values, and the Firm did notrecord a cumulative-effect adjustment related to the adoption of this guidance.

• Generally requires a cumulative-effectadjustment to retained earnings as of
the beginning of the reporting period of
adoption, except for those equity
securities that are eligible for themeasurement alternative.

JPMorgan Chase & Co./2017 Annual Report141Management’s discussion and analysis

FASB Standards issued but not adopted as of December 31, 2017 (continued)
Standard

Summary of guidance

Effects on financial statements

Classification ofcertain cash receipts
and cash payments inthe statement of cashflows

• Provides targeted amendments to theclassification of certain cash flows,
including treatment of cash payments
for settlement of zero-coupon debt
instruments and distributions received
from equity method investments.

• Adopted January 1, 2018.

Issued August 2016

• Requires retrospective application to all
periods presented.

Treatment of
restricted cash on thestatement of cashflows

• Requires inclusion of restricted cash in
the cash and cash equivalents balancesin the Consolidated statements of cash
flows.

Issued November 2016

• Requires additional disclosures tosupplement the Consolidated
statements of cash flows.

Definition of abusiness
Issued January 2017

• No material impact upon adoption as the Firm was either in compliance with theamendments or the amounts to which it is applied are immaterial.

• Adopted January 1, 2018.
• The adoption of the guidance will result in reclassification of restricted cash
balances into Cash and restricted cash on the Consolidated statements of cash
flows in the first quarter of 2018. The Firm will include Cash and due from banks
and Deposits with banks in Cash and restricted cash in the Consolidated
statements of cash flows, resulting in Deposits with banks no longer beingreflected in Investing activities.

• Requires retrospective application to all
periods presented.

• In addition, to align with the presentation of Cash and restricted cash on theConsolidated statements of cash flows, the Firm will reclassify restricted cash
balances to Cash and due from banks and to Deposits with banks from Other
assets and disclose the total for Cash and restricted cash on the Firm’s
Consolidated balance sheets in the first quarter of 2018.

• Narrows the definition of a business andclarifies that, to be considered abusiness, the fair value of the grossassets acquired (or disposed of) may
not be substantially all concentrated ina single identifiable asset or a group ofsimilar assets.

• Adopted January 1, 2018.
• No impact upon adoption because the guidance is to be applied prospectively.
Subsequent to adoption, fewer transactions will be treated as acquisitions or
dispositions of a business.

• In addition, in order to be considered abusiness, a set of activities and assets
must include, at a minimum, an input
and a substantive process that together
significantly contribute to the ability tocreate outputs.
Presentation of net
periodic pension costand net periodic
postretirement benefit
costIssued March 2017

• Requires the service cost component of
net periodic pension andpostretirement benefit cost to bereported separately in the consolidated
results of operations from the othercomponents (e.g., expected return on
assets, interest costs, amortization ofgains/losses and prior service costs).

• Adopted January 1, 2018.
• The adoption of the guidance in the first quarter of 2018 will result in an increasein compensation expense and a reduction in other expense of $223 million and$250 million for the years ended December 31, 2017 and 2016, respectively.

• Requires retrospective application andpresentation in the consolidated resultsof operations of the service cost
component in the same line item asother employee compensation costs
and presentation of the othercomponents in a different line itemfrom the service cost component.
Premium amortization
on purchased callable
debt securities
Issued March 2017

• Requires amortization of premiums to
the earliest call date on debt securities
with call features that are explicit,
noncontingent and callable at fixedprices and on preset dates.
• Does not impact securities held at a
discount; the discount continues to beamortized to the contractual maturity.
• Requires adoption on a modified
retrospective basis through acumulative-effect adjustment directly
to retained earnings as of the beginningof the period of adoption.

142• The Firm early adopted the new guidance on January 1, 2018.
• The new guidance primarily impacts obligations of U.S. states and municipalities
held in the Firm’s investment securities portfolio.
• The adoption of this guidance resulted in a cumulative-effect adjustment that
reduced retained earnings by approximately $505 million as of January 1, 2018,with a corresponding increase of $261 million (after tax) in AOCI and related
adjustments to securities and tax liabilities.
• Subsequent to adoption, although the guidance will reduce the interest income
recognized prior to the earliest call date for callable debt securities held at apremium, the effect of this guidance on the Firm’s net interest income is notexpected to be material.

JPMorgan Chase & Co./2017 Annual ReportFASB Standards issued but not adopted as of December 31, 2017 (continued)
Standard

Summary of guidance

Effects on financial statements

Hedge accounting• Reduces earnings volatility by betteraligning the accounting with theeconomics of the risk management
activities.
• Expands the ability for certain hedges
of interest rate risk to qualify for hedge
accounting.
• Allows recognition of ineffectiveness incash flow hedges and net investment
hedges in OCI.
• Allows a one-time election at adoption
to transfer certain securities classified
as held-to-maturity to available-forsale.
• Simplifies hedge documentation
requirements.

• The Firm early adopted the new guidance on January 1, 2018.

Issued August 2017

Reclassification of
Certain Tax Effects
from AOCI
Issued February 2018

• Provides an election to reclassify fromAOCI to retained earnings stranded tax
effects due to the revaluation ofdeferred tax assets and liabilities as aresult of changes in applicable tax rates
under the TCJA.
• Requires additional disclosures related
to the Firm’s election to reclassify
amounts from AOCI to retained
earnings and the Firm’s policy forreleasing income tax effects from AOCI.

• The adoption of the guidance resulted in a cumulative-effect adjustment that
increased retained earnings in the amount of $34 million, with related
adjustments to debt carrying values and AOCI.
• The Firm will also amend its qualitative and quantitative disclosures within its
derivative instruments note to the Consolidated Financial Statements in the firstquarter of 2018.
• In accordance with the new guidance, the Firm elected to transfer certain
securities from HTM to AFS. The amendments provide the Firm withadditional hedge accounting alternatives for its AFS securities (including thosetransferred under the election) to be considered as the Firm manages it structuralinterest rate risk and regulatory capital. The Firm is currently evaluating thoserisk management alternatives and intends to manage the transferred securities ina manner consistent with its existing AFS securities. This transfer is a non-cash
transaction at fair value.

• The Firm early adopted the new guidance on January 1, 2018.
• The adoption of the guidance resulted in a cumulative-effect adjustment that
increased retained earnings in the amount of $288 million in the first quarter of
2018. This amount is an estimate that may be refined in accordance with SEC
Staff Accounting Bulletin No. 118, and represents the removal of the stranded tax
effects from AOCI, thereby allowing the tax effects within AOCI to reflect the newrespective corporate income tax rates.
• Refer to Note 24 for additional information related to the impacts of the TCJA.

• The guidance may be applied on amodified retrospective basis through acumulative-effect adjustment directly
to retained earnings as of the beginningof the period of adoption.
LeasesIssued February 2016

• Requires lessees to recognize all leases
longer than twelve months on theConsolidated balance sheets as leaseliabilities with corresponding right-ofuse assets.
• Requires lessees and lessors to classify
most leases using principles similar toexisting lease accounting, but
eliminates the “bright line”
classification tests.
• Permits the Firm to generally accountfor its existing leases consistent withcurrent guidance, except for theincremental balance sheet recognition.

• Required effective date: January 1, 2019.(a)• The Firm is in the process of its implementation which has included an initial
evaluation of its leasing contracts and activities. As a lessee, the Firm isdeveloping its methodology to estimate the right-of-use assets and leaseliabilities, which is based on the present value of lease payments. The Firm
expects to recognize lease liabilities and corresponding right-of-use assets (attheir present value) related to predominantly all of the $10 billion of future
minimum payments required under operating leases as disclosed in Note 28.
However, the population of contracts subject to balance sheet recognition andtheir initial measurement remains under evaluation. The Firm does not expect
material changes to the recognition of operating lease expense in its Consolidated
statements of income.
• The Firm plans to adopt the new guidance in the first quarter of 2019.

• Expands qualitative and quantitative
disclosures regarding leasingarrangements.
• May be adopted using a modified
cumulative effect approach wherein theguidance is applied only to existing
contracts as of the date of initial
application, and to new contracts
transacted after that date.

JPMorgan Chase & Co./2017 Annual Report143Management’s discussion and analysis

FASB Standards issued but not adopted as of December 31, 2017 (continued)
Standard

Summary of guidance

Effects on financial statements

Financial instruments– credit losses• Replaces existing incurred loss
impairment guidance and establishes asingle allowance framework forfinancial assets carried at amortizedcost (including HTM securities), which
will reflect management’s estimate ofcredit losses over the full remaining
expected life of the financial assets.

• Required effective date: January 1, 2020.(a)Issued June 2016

• The Firm has begun its implementation efforts by establishing a Firmwide, crossdiscipline governance structure. The Firm is currently identifying key interpretive
issues, and is assessing existing credit loss forecasting models and processes
against the new guidance to determine what modifications may be required.
• The Firm expects that the new guidance will result in an increase in its allowancefor credit losses due to several factors, including:• Eliminates existing guidance for PCI
loans, and requires recognition of anallowance for expected credit losses on
financial assets purchased with morethan insignificant credit deterioration
since origination.

1. The allowance related to the Firm’s loans and commitments will increase tocover credit losses over the full remaining expected life of the portfolio, andwill consider expected future changes in macroeconomic conditions
2. The nonaccretable difference on PCI loans will be recognized as an allowance,
offset by an increase in the carrying value of the related loans
3. An allowance will be established for estimated credit losses on HTM securities• Amends existing impairment guidance
for AFS securities to incorporate anallowance, which will allow for reversalsof impairment losses in the event thatthe credit of an issuer improves.

• The extent of the increase is under evaluation, but will depend upon the natureand characteristics of the Firm’s portfolio at the adoption date, and themacroeconomic conditions and forecasts at that date.

• Requires a cumulative-effectadjustment to retained earnings as of
the beginning of the reporting period of
adoption.
Goodwill
Issued January 2017

• Requires an impairment loss to berecognized when the estimated fairvalue of a reporting unit falls below its
carrying value.
• Eliminates the second condition in thecurrent guidance that requires an
impairment loss to be recognized only if
the estimated implied fair value of the
goodwill is below its carrying value.

• Required effective date: January 1, 2020.(a)• Based on current impairment test results, the Firm does not expect a material
effect on the Consolidated Financial Statements.
• After adoption, the guidance may result in more frequent goodwill impairment
losses due to the removal of the second condition.
• The Firm is evaluating the timing of adoption.

(a) Early adoption is permitted.

144

JPMorgan Chase & Co./2017 Annual Report

FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will makeforward-looking statements. These statements can be
identified by the fact that they do not relate strictly tohistorical or current facts. Forward-looking statements
often use words such as “anticipate,” “target,” “expect,”“estimate,” “intend,” “plan,” “goal,” “believe,” or otherwords of similar meaning. Forward-looking statements
provide JPMorgan Chase’s current expectations or forecastsof future events, circumstances, results or aspirations.
JPMorgan Chase’s disclosures in this Annual Report containforward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995. The Firm
also may make forward-looking statements in its otherdocuments filed or furnished with the SEC. In addition, theFirm’s senior management may make forward-looking
statements orally to investors, analysts, representatives ofthe 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 arecertain factors which could cause actual results to differ
from those in the forward-looking statements:
•
•

•

•
•
•
•
•

•
•
•
•
•

Local, regional and global business, economic andpolitical conditions and geopolitical events;
Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm’s
businesses, and the ability of the Firm to address thoserequirements;
Heightened regulatory and governmental oversight andscrutiny of JPMorgan Chase’s business practices,
including dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
Changes in income tax laws and regulations;
Securities and capital markets behavior, includingchanges in market liquidity and volatility;
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital andliquidity, including approval of its capital plans bybanking regulators;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
Damage to the Firm’s reputation;
Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption;
Technology changes instituted by the Firm, its
counterparties or competitors;
The success of the Firm’s business simplification
initiatives and the effectiveness of its control agenda;

JPMorgan Chase & Co./2017 Annual Report

•

•

•
•
•
•
•

•
•
•
•

•

•

•

•

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 theirinitiation or origination;
Acceptance of the Firm’s new and existing products andservices 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
employees;
Ability of the Firm to control expenses;
Competitive pressures;
Changes in the credit quality of the Firm’s customers
and counterparties;
Adequacy of the Firm’s risk management framework,
disclosure controls and procedures and internal control
over financial reporting;Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies, including the
introduction of new accounting standards;
Ability of the Firm to determine accurate values ofcertain assets and liabilities;
Occurrence of natural or man-made disasters orcalamities or conflicts 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 andother operational systems and facilities;
Ability of the Firm to withstand disruptions that may becaused by any failure of its operational systems or thoseof third parties;
Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorizedparties to access information of the Firm or its
customers or to disrupt the Firm’s systems; andThe 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, 2017.

Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, andJPMorgan Chase does not undertake to update forwardlooking statements. The reader should, however, consult
any further disclosures of a forward-looking nature theFirm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.

145

Management’s report on internal control over financial reporting
Management of JPMorgan Chase & Co. (“JPMorgan Chase”
or the “Firm”) is responsible for establishing andmaintaining adequate internal control over financial
reporting. Internal control over financial reporting is aprocess 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 andother personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation offinancial statements for external purposes in accordancewith accounting principles generally accepted in the UnitedStates 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 anddispositions of the Firm’s assets; (2) provide reasonableassurance that transactions are recorded as necessary topermit preparation of financial statements in accordancewith generally accepted accounting principles, and thatreceipts and expenditures of the Firm are being made onlyin accordance with authorizations of JPMorgan Chase’s
management and directors; and (3) provide reasonableassurance regarding prevention or timely detection ofunauthorized 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 overfinancial reporting may not prevent or detect
misstatements. Also, projections of any evaluation ofeffectiveness 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 thepolicies or procedures may deteriorate. Management hascompleted an assessment of the effectiveness of the Firm’s
internal control over financial reporting as of December 31,
2017. In making the assessment, management used the“Internal Control — Integrated Framework” (“COSO 2013”)
promulgated by the Committee of Sponsoring Organizationsof the Treadway Commission (“COSO”).

146

Based upon the assessment performed, management
concluded that as of December 31, 2017, 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 overfinancial reporting as of December 31, 2017.
The effectiveness of the Firm’s internal control overfinancial reporting as of December 31, 2017, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their reportwhich appears herein.

James Dimon
Chairman and Chief Executive Officer

Marianne Lake
Executive Vice President and Chief Financial Officer

February 27, 2018

JPMorgan Chase & Co./2017 Annual ReportReport of independent registered public accounting firm

To the Board of Directors and Stockholders 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, 2017 and 2016, and the related
consolidated statements of income, comprehensive income,changes in stockholders’ equity and cash flows for each of thethree years in the period ended December 31, 2017,
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 ofDecember 31, 2017, based on criteria established in Internal
Control - Integrated Framework (2013) issued by theCommittee 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, 2017 and 2016, andthe results of their operations and their cash flows for each of
the three years in the period ended December 31, 2017 inconformity 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, 2017, based on
criteria established in Internal Control – Integrated Framework(2013) issued by the COSO.
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 theeffectiveness of internal control over financial reporting,included in the accompanying Management’s report oninternal 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 accordancewith 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 andperform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free ofmaterial misstatement, whether due to error or fraud, andwhether effective internal control over financial reporting
was maintained in all material respects.

PricewaterhouseCoopers LLP

300 Madison Avenue

JPMorgan Chase & Co./2017 Annual Report

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 proceduresthat 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 usedand significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control overfinancial reporting included obtaining an understanding ofinternal control over financial reporting, assessing the riskthat 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 considerednecessary 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 aprocess designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation offinancial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s
internal control over financial reporting includes thosepolicies and procedures that (i) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of thecompany; (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 thecompany are being made only in accordance withauthorizations 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 amaterial effect on the financial statements.
Because of its inherent limitations, internal control overfinancial 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 thedegree of compliance with the policies or procedures may
deteriorate.

February 27, 2018
We have served as the Firm’s auditor since 1965.

New York, NY 10017

147

Consolidated statements of income

Year ended December 31, (in millions, except per share data)

2017

2016

2015

Revenue
Investment banking fees

$

7,248

$

6,448

$

6,751

Principal transactions

11,347

11,566

10,408

Lending- and deposit-related fees

5,933

5,774

5,694

Asset management, administration and commissions

15,377

14,591

15,509

(66)

141

202

Mortgage fees and related income

1,616

2,491

2,513

Card income

4,433

4,779

5,924

Securities gains/(losses)

Other income

3,639

3,795

3,032

Noninterest revenue

49,52749,58550,033

Interest income

64,372

55,90150,973

Interest expense

14,275

9,818

7,463

Net interest income

50,09746,08343,510Total net revenue

99,624

95,66893,543

Provision for credit losses

5,290

5,361

3,827

Compensation expense

31,00929,97929,750Occupancy expense

3,723

3,638

3,768

Technology, communications and equipment expense

7,706

6,846

6,193

Professional and outside services

6,840

6,655

7,002

Marketing

2,900

2,897

2,708

Other expense

6,256

5,756

9,593

Total noninterest expense

58,43455,77159,014

Income before income tax expense

35,90034,53630,702

Income tax expense

11,4599,803

Noninterest expense

6,260

Net income$

24,441$

24,733$24,442

Net income applicable to common stockholders(a)$22,567$

22,834$22,651

$

6.35

$

6.24

$

6.05

Net income per common share data
Basic earnings per share
Diluted earnings per share

6.31

6.19

6.00

Weighted-average basic shares(a)3,551.6

3,658.8

3,741.2

Weighted-average diluted shares(a)3,576.8

3,690.0

Cash dividends declared per common share

$

2.12

$

1.88

3,773.6$

1.72(a) The prior period amounts have been revised to conform with the current period presentation. The revision had no impact on the Firm’s reported earnings
per share.

The Notes to Consolidated Financial Statements are an integral part of these statements.

148

JPMorgan Chase & Co./2017 Annual ReportConsolidated statements of comprehensive income

Year ended December 31, (in millions)
Net income

2017$

24,441

2016$

24,733

2015$

24,442Other comprehensive income/(loss), after–tax
Unrealized gains/(losses) on investment securities

640(1,105)(2,144)

Translation adjustments, net of hedges

(306)

(2)

(15)

Cash flow hedges

176

(56)

51

Defined benefit pension and OPEB plans

738

(28)

111

DVA on fair value option elected liabilities

(192)

(330)

—

Total other comprehensive income/(loss), after–tax

1,056(1,521)(1,997)

Comprehensive income$

25,497$

23,212$

22,445The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2017 Annual Report149Consolidated balance sheets
December 31, (in millions, except share data)
AssetsCash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements (included $14,732 and $21,506 at fair value)
Securities borrowed (included $3,049 and $0 at fair value)
Trading assets (included assets pledged of $110,061 and $115,847)
Securities (included $202,225 and $238,891 at fair value and assets pledged of $17,969 and $16,115)
Loans (included $2,508 and $2,230 at fair value)
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
Other assets (included $16,128 and $7,557 at fair value and assets pledged of $1,526 and $1,603)
Total assets(a)Liabilities
Deposits (included $21,321 and $13,912 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $697 and $687 at fairvalue)

2017

2016

$

25,827 $404,294
198,422
105,112
381,844249,958
930,697(13,604)
917,093
67,72914,15954,392
114,770
2,533,600 $

23,873
365,762
229,967
96,409372,130
289,059
894,765(13,776)
880,989
52,33014,131
54,246
112,076
2,490,972$

1,443,982

1,375,179$

Short-term borrowings (included $9,191 and $9,105 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $9,208 and $9,120 at fair value)
Beneficial interests issued by consolidated VIEs (included $45 and $120 at fair value)
Long-term debt (included $47,519 and $37,686 at fair value)
Total liabilities(a)Commitments and contingencies (see Notes 27, 28 and 29)
Stockholders’ equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Shares held in restricted stock units (“RSU”) trust, at cost (472,953 shares)
Treasury stock, at cost (679,635,064 and 543,744,003 shares)
Total stockholders’ equity
Total liabilities and stockholders’ equity$$

158,916

165,666

51,802
123,663
189,383
26,081
284,080
2,277,907

34,443
136,659
190,543
39,047295,245
2,236,782

26,068
4,105
90,579177,676(119)(21)(42,595)
255,6932,533,600 $

26,068
4,105
91,627
162,440(1,175)(21)(28,854)254,1902,490,972(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2017 and 2016. The difference between total
VIE assets and liabilities represents the Firm’s interests in those entities, which were eliminated in consolidation.
December 31, (in millions)

2017

AssetsTrading assets

$

Loans

2016
1,449

$

68,995All other assets

2,674

Total assets

3,185
75,614
3,321$

73,118$82,120$26,081$

39,047$39,537

Liabilities
Beneficial interests issued by consolidated VIEs
All other liabilities
Total liabilities

349$

26,430490

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, 2017 and 2016, the Firm provided limited program-wide credit enhancement of $2.7 billion and $2.4 billion, respectively, related to its Firm-administeredmulti-seller conduits, which are eliminated in consolidation. For further discussion, see Note 14.

The Notes to Consolidated Financial Statements are an integral part of these statements.

150

JPMorgan Chase & Co./2017 Annual ReportConsolidated statements of changes in stockholders’ equity
Year ended December 31, (in millions, except per share data)

2017

2016

2015

Preferred stock
Balance at January 1$

Issuance

26,068$1,258

26,068—$20,063
6,005

Redemption(1,258)——

Balance at December 31

26,06826,06826,068

4,105

4,105

4,105

Common stock
Balance at January 1 and December 31
Additional paid-in capital
Balance at January 1

91,62792,50093,270Shares issued and commitments to issue common stock for employee share-based compensation awards

(734)

(334)

(436)

Other

(314)

(539)

(334)

90,57991,62792,500

162,440

146,420

129,977

—

(154)

—

24,441

24,73324,442Preferred stock(1,663)(1,647)(1,515)

Common stock ($2.12, $1.88 and $1.72 per share for 2017, 2016 and 2015, respectively)(7,542)(6,912)(6,484)

177,676

162,440

146,420(1,175)

192

2,189

—

154

—

Other comprehensive income/(loss)

1,056(1,521)(1,997)

Balance at December 31(119)(1,175)

192

(21)

(21)

(21)

Balance at January 1(28,854)(21,691)(17,856)

Repurchase(15,410)(9,082)(5,616)

Reissuance

1,669

1,919

1,781

Balance at December 31
Retained earnings
Balance at January 1
Cumulative effect of change in accounting principle
Net income
Dividends declared:

Balance at December 31
Accumulated other comprehensive income
Balance at January 1
Cumulative effect of change in accounting principle

Shares held in RSU Trust, at cost
Balance at January 1 and December 31
Treasury stock, at cost

Balance at December 31(42,595)(28,854)(21,691)

Total stockholders’ equity$ 255,693$ 254,190$ 247,573

The Notes to Consolidated Financial Statements are an integral part of these statements.

JPMorgan Chase & Co./2017 Annual Report151Consolidated statements of cash flows
Year ended December 31, (in millions)

2017

2016

2015

Operating activities
Net income$

24,441$

24,733$24,442Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses

5,290

5,361

3,827

Depreciation and amortization

6,179

5,478

4,940

Deferred tax expense

2,312

4,651

1,333

Other

2,136

1,799

1,785

Originations and purchases of loans held-for-sale(94,628)(61,107)(48,109)

Proceeds from sales, securitizations and paydowns of loans held-for-sale

93,27060,19649,363

Trading assets

5,673(20,007)62,212

Securities borrowed(8,653)

2,313

12,165

Accrued interest and accounts receivable(15,868)(5,815)22,664

4,318(4,517)(3,701)

Trading liabilities(26,256)

5,198(28,972)

Accounts payable and other liabilities(23,361)

Net change in:

Other assets(8,518)3,740

Other operating adjustments

7,803(1,827)(5,122)

Net cash provided by/(used in) operating activities(2,501)

20,196

73,466

Deposits with banks(38,532)(25,747)

144,462

Federal funds sold and securities purchased under resale agreements

31,448(17,468)

3,190

Proceeds from paydowns and maturities

4,563

6,218

6,099

Purchases(2,349)(143)(6,204)

Proceeds from paydowns and maturities

56,11765,95076,448Proceeds from sales

90,201

48,59240,444(105,309)(123,959)(70,804)

Investing activities
Net change in:

Held-to-maturity securities:

Available-for-sale securities:

Purchases
Proceeds from sales and securitizations of loans held-for-investment

15,791

15,42918,604

Other changes in loans, net(61,650)(80,996)(108,962)

All other investing activities, net(563)(2,825)

3,703(10,283)(114,949)

106,980

Deposits

57,022

97,336(88,678)

Federal funds purchased and securities loaned or sold under repurchase agreements(6,739)13,007(39,415)

Short-term borrowings

16,540(2,461)(57,828)

Beneficial interests issued by consolidated VIEs

(1,377)(5,707)(5,632)

Proceeds from long-term borrowings

56,271

83,07079,611

Payments of long-term borrowings

Net cash provided by/(used in) investing activities
Financing activities
Net change in:(83,079)(68,949)(67,247)

Proceeds from issuance of preferred stock

1,258

—

5,893

Redemption of preferred stock(1,258)——Treasury stock repurchased(15,410)(9,082)(5,616)

Dividends paid

(8,993)(8,476)(7,873)

407

(467)

(726)

14,642

98,271(187,511)

All other financing activities, net
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash and due from banks
Net increase/(decrease) in cash and due from banks
Cash and due from banks at the beginning of the period

96

(135)

(276)

1,954

3,383

(7,341)

23,873

20,49027,831

Cash and due from banks at the end of the period$

25,827$23,873$

20,490Cash interest paid$

14,153

$

9,508

$

7,220

Cash income taxes paid, net

4,325

2,405

9,423

The Notes to Consolidated Financial Statements are an integral part of these statements.

152

JPMorgan Chase & Co./2017 Annual Report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 and oneof the largest banking institutions in the U.S., with
operations worldwide. The Firm is a leader in investmentbanking, 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 31.

(i.e., kick-out rights), based on a simple majority vote, orthe non-affiliated partners or members have rights toparticipate 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 participatingrights, the Firm evaluates the funds as VIEs andconsolidates if it is the general partner or managing
member and has 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 theaccounting and reporting guidelines prescribed byregulatory authorities.

The Firm’s investment companies have investments in bothpublicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for underinvestment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fairvalue, and are recorded in other assets, with income or loss
included in noninterest revenue.

Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
The Consolidated Financial Statements include the accountsof 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 notincluded on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity isa 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 thatenable them to make significant decisions relating to theentity’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 rightsthat 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) areaccounted 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, withincome or loss included in other income.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or certain limited liability
companies. For many of these entities, the Firm is thegeneral partner or managing member, but the non-affiliatedpartners or members have the ability to remove the Firm as
the general partner or managing member without cause
JPMorgan Chase & Co./2017 Annual Report

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 otherparties, or (2) have equity investors that do not have theability to make significant decisions relating to the entity’s
operations through voting rights, or do not have theobligation to absorb the expected losses, or do not have theright to receive the residual returns of the entity.
The most common type of VIE is an SPE. SPEs are commonlyused in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets toinvestors. 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 otherentities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has acontrolling financial interest) is required to consolidate theassets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activitiesof the VIE that most significantly impact the VIE’s economic
performance; and (2) through its interests in the VIE, theobligation 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 theactivities of a VIE that most significantly impact the VIE’s
economic performance, the Firm considers all the facts andcircumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that mostsignificantly impact the VIE’s economic performance; and153

Notes to consolidated financial statements
second, identifying which party, if any, has power over those
activities. In general, the parties that make the mostsignificant 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 havethe 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 andequity investments, servicing fees, and derivatives or otherarrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment indetermining whether these interests, in the aggregate, areconsidered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordinationof 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 theFirm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority votinginterest framework have become VIEs, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts andcircumstances regarding the Firm’s involvement with a VIE
cause the Firm’s consolidation conclusion to change.
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 theseestimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue andexpense 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 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.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and therelated 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
154

under securities loan agreements to be presented net when
specified conditions are met, including the existence of alegally enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative, securities repurchase and reverse repurchase,and securities loaned and borrow transactions. A masternetting agreement is a single agreement with acounterparty that permits multiple transactions governedby that agreement to be terminated or accelerated andsettled through a single payment in a single currency in theevent of a default (e.g., bankruptcy, failure to make arequired payment or securities transfer or deliver collateralor 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 arenetted 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 repurchaseagreements and securities loan agreements in general (i) all
transactions are terminated and accelerated, (ii) all valuesof 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.
Typical master netting agreements for these types oftransactions also often contain a collateral/marginagreement 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 requiresa 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 themaster 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 theright to liquidate collateral/margin and to apply theproceeds to an amount payable by the counterparty.
For further discussion of the Firm’s derivative instruments,
see Note 5. For further discussion of the Firm’s repurchaseand reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 11.
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.

JPMorgan Chase & Co./2017 Annual ReportSignificant accounting policies
The following table identifies JPMorgan Chase’s othersignificant accounting policies and the Note and page wherea detailed description of each policy can be found.
Fair value measurement

Note 2

Page 155

Fair value option

Note 3

Page 174

Derivative instruments

Note 5

Page 179

Noninterest revenue

Note 6

Page 192

Interest income and interest expense

Note 7

Page 195

Pension and other postretirement
employee benefit plans

Note 8Page 195

Employee share-based incentives

Note 9Page 201

Securities

Note 10

Page 203

Securities financing activities

Note 11

Page 208

Loans

Note 12Page 211

Allowance for credit losses

Note 13

Page 231

Variable interest entities

Note 14

Page 236

Goodwill and Mortgage servicing rights

Note 15

page 244

Premises and equipment

Note 16

page 248

Long-term debt

Note 19

page 249

Income taxes

Note 24

page 255

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

Note 27

page 261

Litigation

Note 29

page 268

consistent with those of other market participants, themethods and assumptions used reflect management
judgment and may vary across the Firm’s businesses andportfolios.
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 thereporting date.
Valuation process
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on theConsolidated balance sheets at fair value. The Firm’s VCG,
which is part of the Firm’s Finance function andindependent of the risk-taking functions, is responsible forverifying 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 ofsenior finance and risk executives and is responsible foroverseeing the management of risks arising from valuation
activities conducted across the Firm. The 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.

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 andliabilities that are measured and reported at fair value on
the Firm’s Consolidated balance sheets). Certain assets(e.g., held-for-sale loans), liabilities and unfunded lendingrelated commitments are measured at fair value on anonrecurring basis; that is, they are not measured at fairvalue 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 tosell an asset or paid to transfer a liability in an orderlytransaction between market participants at themeasurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are notavailable, fair value is based on valuation models and othervaluation techniques that consider relevant transaction
characteristics (such as maturity) and use as inputs
observable or unobservable market parameters, including
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 theFirm believes its valuation methods are appropriate andJPMorgan Chase & Co./2017 Annual Report155Notes to consolidated financial statements
Price verification process
The VCG verifies fair value estimates provided by the risktaking functions by leveraging independently derived prices,valuation inputs and other market data, where available.
Where independent prices or inputs are not available, theVCG performs additional review to ensure thereasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to thoseused 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 berequired 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 (see below for further information on the fairvalue hierarchy). For other positions, judgment is required
to assess the need for valuation adjustments toappropriately reflect liquidity considerations, unobservableparameters, and, for certain portfolios that meet specified
criteria, the size of the net open risk position. The
determination of such adjustments follows a consistentframework 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 applied anddetermined based on current market conditions. Factorsthat may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bidoffer spread for the instrument being traded; (2)alternative pricing points for similar instruments inactive 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 thefair value of such portfolios on the basis of a transfer ofthe entire net open risk position in an orderlytransaction. 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 thenet open risk position to a normal market-size.

parameter valuation adjustments are applied 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 appropriatelyreflect counterparty credit quality (CVA), the Firm’s own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments see Credit and funding
adjustments on page 171 of this Note.

Valuation model review and approval
If prices or quotes are not available for an instrument or asimilar instrument, fair value is generally determined using
valuation models that consider relevant transaction datasuch as maturity and use as inputs market-based or
independently sourced parameters. Where this is the casethe price verification process described above is applied tothe inputs to those models.
Under the Firm’s Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves newmodels, as well as material changes to existing models,prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm’s policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in theinterim. 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 establishedunder 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 themeasurement date. The three levels are defined as follows.
•

Level 1 – inputs to the valuation methodology arequoted 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 thefull term of the financial instrument.

•

Level 3 – one or more inputs to the valuation
methodology are unobservable and significant to the fairvalue measurement.

A financial instrument’s categorization within the valuation
hierarchy is based on the lowest level of input that issignificant to the fair value measurement.

Unobservable parameter valuation adjustments may bemade 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 orparameters must be estimated and are, therefore,
subject to management judgment. Unobservable
156

JPMorgan Chase & Co./2017 Annual Report

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.
Product/instrument

Valuation methodology

Classifications in the valuation
hierarchy

Securities financing agreements

Valuations are based on discounted cash flows, which consider:
Predominantly level 2• Derivative features: for further information refer to the discussionof derivatives below.
• Market rates for the respective maturity• Collateral characteristics
Loans and lending-related commitments — wholesale
Loans carried at fair value
Where observable market data is available, valuations are based on:
Level 2 or 3
(e.g., trading loans and non• Observed market prices (circumstances are infrequent)
trading loans) and associated• Relevant broker quotes
lending-related commitments• Observed market prices for similar instruments
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

Loans held-for-investment andassociated lending-related
commitments• Prepayment speed• Collateral characteristics
Valuations are based on discounted cash flows, which consider:
Predominantly level 3• Credit spreads, derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating• Prepayment speed
Lending-related commitments are valued similarly 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.
For information regarding the valuation of loans measured atcollateral value, see Note 12.

Loans — consumer
Held-for-investment consumer
loans, excluding credit card

Valuations are based on discounted cash flows, which consider:
Predominantly level 2• Credit losses – which consider expected and current default rates,
and loss severity• Prepayment speed• Discount rates• Servicing costs
For information regarding the valuation of loans measured atcollateral value, see Note 12.

Held-for-investment credit card Valuations are based on discounted cash flows, which consider:receivables• Credit costs - the allowance for loan losses is considered areasonable proxy for the credit cost
• Projected interest income, late-fee revenue and loan repayment
rates• Discount rates

Level 3

• Servicing costs
Trading loans — conforming
residential mortgage loans
expected to be sold (CCB, CIB)

Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments tothese prices to account for differences between the securities and thevalue of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.

JPMorgan Chase & Co./2017 Annual Report

Predominantly level 2

157

Notes to consolidated financial statements
Product/instrument

Valuation methodology, inputs and assumptions

Classifications in the valuation
hierarchy

Investment and trading
securities

Quoted market prices are used where available.

Level 1In the absence of quoted market prices, securities are valued based on:• Observable market prices for similar securities• Relevant broker quotes• Discounted cash flows
In addition, the following inputs to discounted cash flows are used forthe 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 severity• Credit spreads• Credit rating data
Valued using observable market prices or data.
Exchange-traded derivatives that are actively traded and valued using
the exchange price.

Level 2 or 3

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 andthe 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.

Level 2 or 3

Physical commodities
Derivatives

Predominantly level 1 and 2
Level 1

In addition, specific inputs used for derivatives that are valued based onmodels 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:• Equity volatilities• Equity correlation• Equity-FX correlation• Equity-IR correlation
Interest rate and FX exotic options specific inputs include:• Interest rate spread volatility• Interest rate correlation• Foreign exchange correlation• Interest rate-FX correlation
Commodity derivatives specific inputs include:• Commodity volatility• Forward commodity price
Additionally, adjustments are made to reflect counterparty credit quality(CVA) and the impact of funding (FVA). See page 171 of this Note.

158

JPMorgan Chase & Co./2017 Annual ReportProduct/instrument

Valuation methodology, inputs and assumptions

Classification in the valuation
hierarchy

Mortgage servicing rights

See Mortgage servicing rights in Note 15.

Level 3

Private equity direct investments Fair value is estimated using all available information; the range ofpotential inputs include:

Level 2 or 3

• Transaction prices• Trading multiples of comparable public companies• Operating performance of the underlying portfolio company• Adjustments as required, since comparable public companies are
not identical to the company being valued, and for companyspecific issues and lack of liquidity.
Fund investments (e.g., mutual/collective investment funds,
private equity funds, hedge
funds, and real estate funds)• Additional available inputs relevant to the investment.
Net asset value• NAV is supported by the ability to redeem and purchase at the NAV Level 1
level.
• Adjustments to the NAV as required, for restrictions on redemption
Level 2 or 3(a)(e.g., lock-up periods or withdrawal limitations) or whereobservable activity is limited.

Beneficial interests issued byconsolidated VIEs

Valued using observable market information, where available.

Long-term debt, not carried atfair value

Valuations are based on discounted cash flows, which consider:
Predominantly level 2• Market rates for respective maturity• Valuations are based on discounted cash flow analyses that
Level 2 or 3
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 orunobservable 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 madeto this base valuation to reflect the Firm’s own credit risk (DVA).
See page 171 of this Note.

Structured notes (included indeposits, short-term borrowings
and long-term debt)

Level 2 or 3

In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIE.

(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.

JPMorgan Chase & Co./2017 Annual Report159Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2017 and 2016, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy

December 31, 2017 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities
Corporate debt securities
Loans(b)Asset-backed securities
Total debt instruments

Level 1$Equity securities
Physical commodities(c)OtherTotal debt and equity instruments(d)Derivative receivables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative receivables(e)(f)Total trading assets(g)Available-for-sale securities:
Mortgage-backed securities:
U.S. government agencies(a)Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)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
Equity securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(g)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:
Debt and equity instruments(d)Derivative payables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative payables(e)(f)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

160

$
$

$

Level 2— $—Derivative
netting
adjustments

Level 3

14,732
3,049

$

—
—

$

Total fair value— $—14,732
3,049

—
—
—
—
30,758——28,887———59,64541,515
1,835
1,645
44,995
6,475
9,067
226
28,831
24,14635,242
3,284
152,266

307
60
11
378
1
744
—
78
312
2,719
153
4,385

—
—
—
—
—
—
—
—
—
—
—
—

41,822
1,895
1,656
45,37337,2349,811
226
57,79624,45837,961
3,437
216,296

87,346
4,924—
151,915

197
1,322
14,197
167,982

295
—
690
5,370

—
—
—
—

87,8386,246
14,887
325,267181—
841

314,107
21,995
158,834

1,704
1,209
557

(291,319)(22,335)(144,081)

24,673869
16,151——
1,022
152,937

37,722
19,875552,533
720,515

2,318
210
5,998
11,368(32,158)(13,137)(503,030)(503,030)

7,882
6,948
56,523
381,790————
22,745——
18,140—70,28011,366
5,025
86,671—32,338
59
9,154
2,757

—
1
—
1
—
—
—
—
—

—
—
—
—
—
—
—
—
—

70,28011,367
5,025
86,672
22,74532,33859
27,294
2,757

—
—
547
41,432——
13,795
208,164 $— $20,7208,817—
160,5162,232—
343
901,387
17,179

276
—
—
277
276
6,030
1,265
19,216
4,142

$
$

$
$

—
—
—
—
—
—
—
(503,030) $— $20,9968,817
547
202,225
2,508
6,030
15,403625,737
21,321

—
—

697
7,526

—
1,665

—
—

697
9,191

64,664

21,18339—

85,886

170
—
794
—
—
964
65,628
9,074——
74,702 $282,825
22,009154,075
39,66821,017
519,594
540,777121
631,394
597,700

1,440
1,244
953
5,727
884
10,248
10,28713
39
16,12532,271$$(277,306)(21,954)(143,349)(36,203)(14,217)(493,029)(493,029)———(493,029) $

7,129
1,299
12,473
9,192
7,684
37,777
123,663
9,208
45
47,519211,644

JPMorgan Chase & Co./2017 Annual ReportFair value hierarchy

December 31, 2016 (in millions)
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)Obligations of U.S. states and municipalities
Certificates of deposit, bankers’ acceptances and commercial paper
Non-U.S. government debt securities
Corporate debt securities
Loans(b)Asset-backed securities
Total debt instruments
Equity securities
Physical commodities(c)OtherTotal debt and equity instruments(d)Derivative receivables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative receivables(e)Total trading assets(g)Available-for-sale securities:
Mortgage-backed securities:
U.S. government agencies(a)Residential – nonagency
Commercial – nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies(a)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
Equity securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets(g)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:
Debt and equity instruments(d)Derivative payables:
Interest rate
CreditForeign exchange
EquityCommodity
Total derivative payables(e)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

Level 1$$$$

Level 2— $—Derivative
netting
adjustments

Level 321,506
—

$

—
—

$

Total fair value——$

21,506—13——
13
19,554——28,443———48,01096,7595,341—
150,110

40,586
1,552
1,321
43,459
5,201
8,403
1,649
23,07622,751
28,965
5,250
138,754
281
1,620
9,341
149,996

392
83
17
492
—
649
—
46
576
4,837
302
6,902
231
—
761
7,894

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

40,991
1,635
1,338
43,96424,755
9,052
1,649
51,56523,32733,802
5,552
193,666
97,271
6,961
10,102
308,000

715
—
812
—
158
1,685
151,795

602,747
28,256
231,743
34,032
18,360915,138
1,065,134

2,501
1,389
870
908
125
5,793
13,687(577,661)(28,351)(210,154)(30,001)(12,371)(858,538)(858,538)

28,302
1,294
23,271
4,939
6,272
64,078372,078————
44,072——
22,793—64,005
14,442
9,104
87,55129
31,592
106
12,495
4,958

—
1
—
1
—
—
—
—
—

—
—
—
—
—
—
—
—
—

64,005
14,443
9,104
87,552
44,101
31,592
10635,288
4,958

—
—
926
67,791——
4,357
223,943 $— $——26,738
6,967—
170,436
1,660——
1,258,736
11,795
687
7,971

663
—
—
664
570
6,096
2,223
23,240
2,117
—
1,134

—
—
—
—
—
—
—
(858,538)———

27,401
6,967
926
238,891
2,230
6,096
6,580
647,381
13,912687
9,105

68,30419,08143—

87,428

539
—
902
—
173
1,614
69,9189,107——
79,025 $569,001
27,375
231,815
35,202
20,079883,472
902,553—72
24,836
947,914

1,238
1,291
2,254
3,160
210
8,153
8,196
13
48
12,85024,358(559,963)(27,255)(214,463)(30,222)(12,105)(844,008)(844,008)———(844,008)

10,815
1,411
20,5088,140
8,357
49,231
136,659
9,120
120
37,686207,289

$
$

(h)
(h)

$

$
$

(h)
(h)

$

$
$

$

(a) At December 31, 2017 and 2016, included total U.S. government-sponsored enterprise obligations of $78.0 billion and $80.6 billion, respectively, which were predominantly
mortgage-related.
(b) At December 31, 2017 and 2016, included within trading loans were $11.4 billion and $16.5 billion, respectively, of residential first-lien mortgages, and $4.2 billion and $3.3
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 $5.7 billion and $11.0 billion, respectively, and reverse mortgages of $836 million and $2.0 billion, respectively.
(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 theinventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when net

JPMorgan Chase & Co./2017 Annual Report161Notes to consolidated financial statements
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 forchanges in fair value. For a further discussion of the Firm’s hedge accounting relationships, see Note 5. To provide consistent fair value disclosure information, all physicalcommodities 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 ofan asset or liability. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.
(f) Reflects the Firm’s adoption of rulebook changes made by two CCPs that require or allow the Firm to treat certain OTC-cleared derivative transactions as daily settled. For
further information, see Note 5.
(g) 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 fairvalue hierarchy. At December 31, 2017 and 2016, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds,
were $779 million and $1.0 billion, respectively. Included in these balances at December 31, 2017 and 2016, were trading assets of $54 million and $52 million, respectively,
and other assets of $725 million and $977 million, respectively.
(h) The prior period amounts have been revised to conform with the current period presentation.

Transfers between levels for instruments carried atfair value on a recurring basis
For the years ended December 31, 2017 and 2016, there
were no significant transfers between levels 1 and 2.
During the year ended December 31, 2017, transfers fromlevel 3 to level 2 included the following:•$1.5 billion of trading loans driven by an increase inobservability.

•$1.2 billion of gross equity derivative payables as aresult of an increase in observability and a decrease in
the significance of unobservable inputs.

•

During the year ended December 31, 2015, transfers fromlevel 3 to level 2 included the following:•$3.1 billion of long-term debt and $1.0 billion ofdeposits driven by an increase in observability on
certain structured notes with embedded interest rateand FX derivatives and a reduction in the significance ofunobservable inputs for certain structured notes withembedded equity derivatives.

•$2.1 billion of gross equity derivatives for both
receivables and payables as a result of an increase inobservability and a decrease in the significance ofunobservable inputs; partially offset by transfers intolevel 3 resulting in net transfers of approximately $1.2
billion for both receivables and payables.

•$2.8 billion of trading loans driven by an increase inobservability of certain collateralized financing
transactions.

•$2.4 billion of corporate debt driven by a decrease in
the significance of unobservable inputs and an increasein observability for certain structured products.

During the year ended December 31, 2017, transfers fromlevel 2 to level 3 included the following:••$1.0 billion of gross equity derivative receivables and$2.5 billion of gross equity derivative payables as aresult of a decrease in observability and an increase in
the significance of unobservable inputs.
$1.7 billion of long-term debt driven by a decrease inobservability and an increase in the significance ofunobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers fromlevel 3 to level 2 included the following:•$1.4 billion of long-term debt driven by an increase inobservability and a reduction in the significance ofunobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers fromlevel 2 to level 3 included the following:•$1.0 billion of trading loans driven by a decrease inobservability.

During the year ended December 31, 2015, there were no
significant transfers from level 2 to level 3.
All transfers are assumed to occur at the beginning of thequarterly reporting period in which they occur.

$1.1 billion of gross equity derivative receivables and$1.0 billion of gross equity derivative payables as aresult of an decrease in observability and an increase in
the significance of unobservable inputs.

162

JPMorgan Chase & Co./2017 Annual Report

Level 3 valuations
The Firm has established well-structured processes fordetermining fair value, including for instruments where fairvalue 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 fairvalue for individual financial instruments, see pages 155–159
of this Note.
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 toestimate 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 theappropriate valuation model or other valuation technique touse. Second, due to the lack of observability of significant
inputs, management must assess all relevant empirical data
in deriving valuation inputs including transaction details,
yield curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations ofcomparable instruments, foreign exchange rates and credit
curves.
The following table presents the Firm’s primary level 3
financial instruments, the valuation techniques used tomeasure the fair value of those financial instruments, thesignificant unobservable inputs, the range of values for those
inputs and, for certain instruments, the weighted averages ofsuch inputs. While the determination to classify an
instrument within level 3 is based on the significance of theunobservable 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 theunobservable 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 areclassified within levels 1 or 2 of the fair value hierarchy.

In the Firm’s view, the input range and the weighted averagevalue do not reflect the degree of input uncertainty or anassessment of the reasonableness of the Firm’s estimates andassumptions. Rather, they reflect the characteristics of thevarious instruments held by the Firm and the relative
distribution of instruments within the range ofcharacteristics. 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 andweighted average values will therefore vary from period-toperiod and parameter-to-parameter based on thecharacteristics of the instruments held by the Firm at eachbalance sheet date.
For the Firm’s derivatives and structured notes positionsclassified within level 3 at December 31, 2017, interest rate
correlation inputs used in estimating fair value wereconcentrated towards the upper end of the range; equity
correlation, equity-FX and equity-IR correlation inputs wereconcentrated in the middle of the range; commodity
correlation inputs were concentrated in the middle of therange; credit correlation inputs were concentrated towards
the lower end of the range; and the interest rate-foreignexchange (“IR-FX”) correlation inputs were concentrated
towards the lower end of the range. In addition, the interest
rate spread volatility inputs used in estimating fair value were
distributed across the range; equity volatilities andcommodity volatilities were concentrated towards the lower
end of the range; and forward commodity prices used inestimating the fair value of commodity derivatives wereconcentrated towards the lower end of the range. Recovery
rate, yield, prepayment speed, conditional default rate, loss
severity and price inputs used in estimating the fair value ofcredit derivatives were distributed across the range; andcredit spreads were concentrated towards the lower end of
the range.

The range of values presented in the table is representativeof the highest and lowest level input used to value thesignificant groups of instruments within a product/instrumentclassification. 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.

JPMorgan Chase & Co./2017 Annual Report163Notes to consolidated financial statements
Level 3 inputs(a)December 31, 2017
Product/Instrument

Fair value(in millions)

Residential mortgage-backed securities
and loans(b)

$

1,418

Principal valuation
technique
Discounted cash flows

Unobservable inputs(g)Range of input values

Weighted
average

Yield

3%

–

16%

6%

Prepayment speed

0%

–

13%

9%

Conditional default rate

0%

–

5%

1%

Loss severity

0%

–

84%

3%

Commercial mortgage-backed securities
and loans(c)714Market comparables

Price

$

0

–

$100

$94

Obligations of U.S. states andmunicipalities

744

Market comparables

Price

$ 59

–

$100

$98

Corporate debt securities

312

Market comparables

Price

$

3

$111

$82

1,242

Market comparables

Price

$

4

–
–

$103

$84

276

Discounted cash flows

Credit spread–

205bps205bpsLoans(d)Asset-backed securities

204bps

Prepayment speed

20%

20%

Conditional default rate2%

2%

Loss severity

Net interest rate derivatives

153

Market comparables

Price

28

Option pricing

–

$160

Interest rate spread
volatility

27bps

–

38bps

Interest rate correlation

(50)%

–

98%

IR-FX correlation

60%

–

70%

Prepayment speed

0%

–

30%

(37) Discounted cash flows

Credit correlation

40 % –

75%

Credit spread

6bps– 1,489bps

Recovery rate

20%

–

70%

Yield

1%

–

20%

Prepayment speed

4%

–

21%

Conditional default rate

0%

–

100%

4%

–

100%

–

70%

Loss severity
2
Net foreign exchange derivatives
Net equity derivatives

Net commodity derivatives

MSRs
Other assets

Other level 3 assets and liabilities, net(f)Market comparables

Price(200) Option pricing

IR-FX correlation(196) Discounted cash flows

Prepayment speed(3,409) Option pricing(674) Option pricing

$ 10
(50)%

$79

$98
7%

Equity volatility

20%

–

55%

Equity correlation

0 %

–

85%

Equity-FX correlation(50 )%–

30%

Equity-IR correlation

10 %

–

40%

Forward commodity price$ 54– $68 per barrel

Commodity volatility

5 %Commodity correlation(40 )%

–

46%
70%

6,030

Discounted cash flows

Refer to Note 15

984

Discounted cash flows

Credit spread

40bps

–

70bps

55bps

Yield

8%

–

60%

47%

Market comparables

EBITDA multiple

4.7x

–

10.6x

8.9x

Option pricing

Interest rate spread
volatility

27bps

–

38bps

Interest rate correlation

(50)%

–

98%

IR-FX correlation

(50)%

–

70%

Equity correlation

0%

–

85%

Equity-FX correlation

(50)%

–

30%

Equity-IR correlation

10%

–

40%

971
Long-term debt, short-term borrowings,
and deposits(e)30%2Discounted cash flows

236
Net credit derivatives

30%$

21,932283(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidatedbalance 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.
164

JPMorgan Chase & Co./2017 Annual Report(b) Includes U.S. government agency securities of $297 million, nonagency securities of $61 million and trading loans of $1.1 billion.
(c) Includes U.S. government agency securities of $10 million, nonagency securities of $11 million, trading loans of $417 million and non-trading loans of $276
million.
(d) Includes trading loans of $1.2 billion.
(e) Long-term debt, short-term borrowings 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 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 pricebased internal valuation techniques. The price input is expressed assuming a par value of $100.

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 interrelationshipbetween unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as achange 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 resultin 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 mortgagebacked security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level ofthe coupon paid by the instrument (which may notcorrespond 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 thesubordination of the security being valued and thecharacteristics of the underlying mortgages within thecollateralized 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 andother similar instruments, credit spreads reflect the credit
quality of the obligor and the tenor of the obligation.

JPMorgan Chase & Co./2017 Annual Report

Prepayment speed – The prepayment speed is a measure of
the voluntary unscheduled principal repayments of aprepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in adecrease in a fair value measurement of assets valued at apremium to par and an increase in a fair value measurementof assets valued at a discount to par.
Prepayment speeds may vary from collateral pool tocollateral pool, and are driven by the type and location of theunderlying borrower, and the remaining tenor of theobligation as well as the level and type (e.g., fixed or floating)of interest rate being paid by the borrower. Typicallycollateral pools with higher borrower credit quality have ahigher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is ameasure of the reduction in the outstanding collateralbalance underlying a collateralized obligation as a result ofdefaults. While there is typically no direct relationshipbetween 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 theconditional default rate, in isolation, would result in adecrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying asecuritization and the structure of the securitization itself.
Based on the types of securities owned in the Firm’s marketmaking portfolios, conditional default rates are most typicallyat the lower end of the range presented.
Loss severity – The loss severity (the inverse concept is therecovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particularloan, expressed as the net amount of loss relative to theoutstanding 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 theunderlying mortgages, including the LTV ratio, the nature of
the lender’s lien on the property and other instrumentspecific factors.

165

Notes to consolidated financial statements
Correlation – Correlation is a measure of the relationshipbetween the movements of two variables (e.g., how thechange 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 thenature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will resultin an increase in the other parameter. When parameters arenegatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase incorrelation can result in an increase or a decrease in a fairvalue measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result ina decrease in a fair value measurement. The range ofcorrelation inputs between risks within the same asset classare 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.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number offactors including the nature of those risks. For example, thecorrelation 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 thecorrelation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent onmarket conditions and could have a relatively wide range oflevels within or across asset classes over time, particularly involatile market conditions.

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 acompany in order to estimate the company’s value. An
increase in the EBITDA multiple, in isolation, net ofadjustments, 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 Consolidatedbalance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 ofthe fair value hierarchy for the years ended December 31,
2017, 2016 and 2015. When a determination is made toclassify a financial instrument within level 3, thedetermination is based on the significance of theunobservable 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, componentsthat are actively quoted and can be validated to externalsources); accordingly, the gains and losses in the table below
include changes in fair value due in part to observable factorsthat 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 areclassified within level 1 or 2 of the fair value hierarchy; asthese 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.

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, andinterest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a longposition 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 besignificantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike priceof the option.

166

JPMorgan Chase & Co./2017 Annual ReportFair value measurements using significant unobservable inputs

Year ended
December 31, 2017
(in millions)Fairvalue atJanuary
1, 2017

Total
realized/unrealized
gains/(losses)

Purchases(f)Sales

Settlements(g)Transfers intolevel 3(h)Transfers (outof) level 3(h)Fairvalue atDec. 31,2017

Change inunrealized
gains/(losses)
related tofinancial
instruments heldat Dec. 31,
2017

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

161 $

(171)

(70) $

49 $(43) $

307

Residential – nonagency

83

19

53

(30)

(64)

132

(133)

60

11

Commercial – nonagency

17

9

27

(44)

(13)

64

(49)

11

1

Total mortgage-backed
securities$

392 $ (11)

$

$

$

(20)

492

17

241

(245)

(147)

245

(225)

378

(8)

U.S. Treasury and government
agencies

—

—

—

—

—

1

—

1

—

Obligations of U.S. states andmunicipalities

649

18

152

(70)

(5)

—

—

744

15

Non-U.S. government debt
securities

46

—

559

(518)

—

62

(71)

78

—

Corporate debt securities

576

11

872

(612)

(497)

157

(195)

312

18

4,837

333

2,389

(2,832)(1,323)806(1,491)

2,719

43

302

32

354

(356)

(56)

75

(198)

153

—

Total debt instruments

6,902

411

4,567

(4,633)(2,028)1,346(2,180)4,38568Equity securities

231

39

176

(148)

(4)

59

(58)

295

21

Other

761

100

30

(46)

(162)

17

(10)

690

39

7,894

550

4,773

(4,827)(2,194)

1,422(2,248)

5,370

128

Loans
Asset-backed securities

Total trading assets – debt andequity instruments

(c)

(c)

Net derivative receivables:(a)Interest rate

1,263

72

60

(82)

(1,040)

(8)

(1)

264

(473)

98

(164)

1

(6)

—

77

(41)

(35)

32

Foreign exchange(1,384)

43

13

(10)

854

(61)

149

(396)

42

Equity(2,252)

(417)

1,116

(551)

(245)

(1,482)422(3,409)(161)

CreditCommodity
Total net derivative receivables

(85)

(149)

(2,360)(615) (c)

—

—

(433)

(6)

(1)

(674)

(718)

1,190

(649)

(864)

(1,480)528(4,250)(1,278) (c)

663
1

15

—

(50)

(352)

—

—

276

14

—

—

—

—

—

—

1

664

15

(d)

—

—

(50)

(352)

—

—

277

14

(d)
(c)

Available-for-sale securities:
Asset-backed securities
Other
Total available-for-sale securities
Loans

570

35

(c)

—

(26)

(303)

—

—

276

3

Mortgage servicing rights

6,096(232) (e)

1,103

(140)

(797)

—

—

6,030

(232) (e)Other assets

2,223

244

66

(177)

(870)

—

(221)

1,265

74

(c)

(c)

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2017
(in millions)
Liabilities:

Fair
value atJanuary
1, 2017

Total
realized/unrealized(gains)/lossesPurchases

Sales

Issuances Settlements(g)Transfers intolevel 3(h)Transfers (outof) level 3(h)Fairvalue atDec. 31,2017

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31,
2017

(b)

Deposits$ 2,117 $ 152— $— $ 3,027 $

—

—

—

—

—

—

—

—

—

—

3,289

(2,748)

150

(202)

1,665

7

(c)(i)(3) (c)

(46)

48

—

3

3

(9)

39

—

(c)

13

(2)

(1)

—

—

3

—

—

13

(2)

48

2

(122)

39

—

(6)

78

—

39

—

12,850

1,067

—

—

12,458(10,985)

1,660

(925)

16,125552

Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Short-term borrowings

—

—

1,134

42

Trading liabilities – debt and equity
instruments

43

Accounts payable and other liabilities
Beneficial interests issued byconsolidated VIEs
Long-term debt

JPMorgan Chase & Co./2017 Annual Report(c)(i)(c)(i)(c)(c)(i)$(291) $

11 $(874) $ 4,142$ 198(c)(i)(c)(c)(i)

167

Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs

Year ended
December 31, 2016
(in millions)

Fair value
at January
1, 2016

Total
realized/unrealized
gains/(losses)

Purchases(f)

$

$

Sales

Settlements(g)Transfers
intolevel 3(h)Change inunrealized
gains/(losses)
related tofinancial
instruments heldat Dec. 31,
2016

Fair
value at
Dec.
31,
2016

Transfers(out of)level 3(h)Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

715$ (20)(115) $

111 $(139) $

392

Residential – nonagency

194

4

252

(319)

(20)

67

(95)

83

5

Commercial – nonagency

115

(11)

69

(29)

(3)

173

(297)

17

3

1,024

(27)

456

(643)

(138)

351

(531)

492

(28)

149

(132)

(38)

—

—

649

—

Total mortgage-backed
securities
Obligations of U.S. states andmunicipalities

135 $ (295)

$

$

(36)

651

19

Non-U.S. government debt
securities

74

(4)

91

(97)

(7)

19

(30)

46

(7)

Corporate debt securities

736

2

445

(359)

(189)

148

(207)

576

(22)

Loans

6,604

(343)

2,228

(2,598)(1,311)

1,044

(787)

4,837

(169)

Asset-backed securities

1,832

39

655

(712)

(968)

288

(832)

302

19

Total debt instruments

10,921

(314)

4,024

(4,541)(2,651)

1,850(2,387)

6,902

(207)

Equity securities

265

—

90

(108)

(40)

29

(5)

231

7

Other

744

79

649

(287)

(360)

26

(90)

761

28

11,930(235) (c)4,763

(4,936)(3,051)

1,905(2,482)

7,894(172) (c)——Total trading assets – debt andequity instruments
Net derivative receivables:(a)—Interest rate

876

756

193

(57)

(713)

(14)

222

1,263

(144)

Credit

549

(742)

10

(2)

211

36

36

98

(622)

Foreign exchange

(725)

67

64

(124)

(649)

(48)

31

(1,384)(350)(1,514)

(145)

277

(852)

213

94

(325) (2,252)

(86)

(935)

194

1

10

645

8

(8)

(1,749)130545(1,025)(293)76(44) (2,360)

EquityCommodity
Total net derivative receivables

(c)

(85)

(36)
(1,238) (c)Available-for-sale securities:
Asset-backed securities
Other
Total available-for-sale securities

823

1

—

—

(119)

—

(42)

663

1

1

—

—

—

—

—

—

1

—

824

1

(d)

—

—

(119)

—

(42)

664

1

(d)
(c)

Loans

1,518

(49) (c)

259

(7)

(838)

—

(313)

570

—

Mortgage servicing rights

6,608(163) (e)

679

(109)

(919)

—

—

6,096

(163) (e)Other assets

2,401

130

487

(496)

(299)

—

—

2,223

48

(c)

(c)

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2016
(in millions)
Liabilities:

Fair
value atJanuary
1, 2016

Total
realized/unrealized(gains)/lossesPurchases$ 2,950$ (56) (c)

$

Sales

IssuancesSettlements(g)Transfers
intolevel 3(h)Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31,
2016

Fair
value at
Dec.
31,
2016

Transfers(out of)level 3(h)(b)

Deposits
Federal funds purchased andsecurities loaned or sold under
repurchase agreements

— $

— $

1,375

$

(1,283) $— $(869) $ 2,117

$

23

(c)

—

—

—

—

—

(2)

6

(4)

—

Short-term borrowings

639(230) (c)

—

—

1,876

(1,210)

114

(55)

1,134

(70) (c)Trading liabilities – debt and equity
instruments

63(12) (c)

(15)

23

—

(22)

13

(7)

43

(18) (c)

19

—

—

—

—

(6)

—

—

13

—

(31) (c)

—

—

143

—

48

147

—

—

8,140

Accounts payable and otherliabilities
Beneficial interests issued byconsolidated VIEs
Long-term debt

168

549
11,447(j)(c)(j)

(j)

(613)

—

(5,810)315(1,389) 12,850

—

6
(j)

639

(c)
(c)(j)

JPMorgan Chase & Co./2017 Annual ReportFair value measurements using significant unobservable inputs

Fairvalue atJanuary
1, 2015

Year ended
December 31, 2015
(in millions)Total
realized/unrealized
gains/(losses)

Purchases(f)Sales

Settlements(g)Transfers
intolevel 3(h)

$

$

$

Fair valueatDec. 31,2015

Transfers(out of)level 3(h)Change inunrealized
gains/(losses)
related tofinancial
instruments heldat Dec. 31,
2015

Assets:Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies

327$ (303)25 $(96) $

715

Residential – nonagency$

922 $ (28)
663

130

253

(611)

(132)
(23)

180

(398)

194

$

(27)
4

Commercial – nonagency

306

(14)

246

(262)

(22)

117

(256)

115

(5)

Total mortgage-backed
securities

1,891

88

826

(1,176)

(177)

322

(750)

1,024

(28)

Obligations of U.S. states andmunicipalities

1,273

14

352

(133)

(27)

5

(833)

651

(1)
(16)

Non-U.S. government debt
securities

302

9

205

(123)

(64)

16

(271)

74

Corporate debt securities

2,989

(77)

1,171

(1,038)

(125)

179

(2,363)

736

2

Loans

13,287

(174)

3,532

(4,661)(3,112)509(2,777)

6,604

(181)

(252)

1,832

(32)

(7,246) 10,921

(256)

1,264

(41)

1,920

(1,229)(35)

205

Total debt instruments

Asset-backed securities

21,006

(181)

8,006

(8,360)(3,540)1,236

Equity securities

431

96

89

(193)

(26)

51

(183)

265

2

(2)

—

—

—

—

—

—

—

1,050

119

1,581

(1,313)

192

33

(918)

744

85

22,48932

9,676(9,866)(3,374)

1,320

Interest rate

626

962

513

(173)

(732)

6

(326)

876

263

Credit

189

118

129

(136)

165

29

55

549

260

Foreign exchange

(526)

657

19

(149)

(296)

36

(466)

(725)

49

(1,785)731

890(1,262)

(158)

17

53

(1,514)

5

(565)

(856)

1

(24)

512

(30)

27

(935)

(41)

1,552

(1,744)(509)

58(657) (1,749)

536

Physical commodities
Other
Total trading assets – debt andequity instruments

(c)

82

(8,347) 11,930(89) (c)Net derivative receivables:(a)EquityCommodity
Total net derivative receivables
Available-for-sale securities:(2,061) 1,612

(c)

(c)

—

Asset-backed securities

908

(32)

51

(43)

(61)

—

—

823

Other

129

—

—

—

(29)

—

(99)

1

(28)
—

Total available-for-sale securities

1,037(32) (d)

51

(43)

(90)

—

(99)

824

(28) (d)

Loans

2,541

(133) (c)

1,290

(92)

(1,241)

—

(847)

1,518

(32) (c)Mortgage servicing rights

7,436(405) (e)

985

(486)

(922)

—

—

6,608

(405) (e)Other assets

3,184(29) (c)

346

(509)

(411)

—

(180)

2,401

(289) (c)Fair value
at Dec. 31,
2015

Change inunrealized(gains)/losses
related tofinancial
instruments heldat Dec. 31,
2015

Fair value measurements using significant unobservable inputs

Year ended
December 31, 2015
(in millions)Fairvalue atJanuary
1, 2015

Total
realized/unrealized(gains)/lossesPurchases

Sales

Issuances Settlements(g)Transfers
intolevel 3(h)Transfers(out of)level 3(h)Liabilities:(b)Deposits— $1,993 $

1,453(697) (c)

—

—

3,334

(2,963)

243

(731)

639

(57) (c)Trading liabilities – debt and equity
instruments

72

15

(c)

(163)

160

—

(17)

12

(16)

63

(4) (c)Accounts payable and other liabilities

26

—

(c)

—

—

—

(7)

—

—

19

—

(227)

549

Short-term borrowings$ 2,859 $ (39) (c)

$

—

$

(850)

$

— $

Beneficial interests issued byconsolidated VIEs

1,146(82) (c)

—

—

286

(574)

—

Long-term debt

11,877(480) (c)

(58)

—

9,359

(6,465) (j)315(1,013) $ 2,950(3,101) 11,447$(29) (c)(63) (c)(j)385(c)(j)(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.

JPMorgan Chase & Co./2017 Annual Report169Notes to consolidated financial statements(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%, 12% and 13% at
December 31, 2017, 2016 and 2015, respectively.
(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, andmortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in securities gains. Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were zero, zero, and $(7) million for theyears ended December 31, 2017, 2016 and 2015, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $15 million, $1 million and $(25) million for the years
ended December 31, 2017, 2016 and 2015, respectively.
(e) Changes in fair value for CCB MSRs are reported in mortgage fees and related income.
(f) Loan originations are included in purchases(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidation associated with beneficial interests in VIEs and otheritems.
(h) All transfers into and/or out of level 3 are based on changes in the observability of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which
they occur.
(i) 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. Unrealized gains
were $48 million for the year ended December 31, 2017. There were no realized gains for the year ended December 31, 2017.
(j) The prior period amounts have been revised to conform with the current period presentation.

Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on anonrecurring basis) were 0.8% of total Firm assets at
December 31, 2017. The following describes significant
changes to level 3 assets since December 31, 2016, for those
items measured at fair value on a recurring basis. For further
information on changes impacting items measured at fairvalue on a nonrecurring basis, see Assets and liabilities
measured at fair value on a nonrecurring basis on page 172.
For the year ended December 31, 2017
Level 3 assets were $19.2 billion at December 31, 2017,reflecting a decrease of $4.0 billion from December 31,
2016, largely due to the following:•$2.5 billion decrease in trading assets — debt and equity
instruments was predominantly driven by a decrease of$2.1 billion in trading loans largely due to settlements,
and a $1.0 billion decrease in other assets due tosettlements and transfers from level 3 to level 2 as aresult of increased observability in certain valuation
inputs170

Gains and losses
The following describes significant components of total
realized/unrealized gains/(losses) for instruments measured
at fair value on a recurring basis for the years ended
December 31, 2017, 2016 and 2015. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 166–170.
2017• $1.3 billion of net losses on liabilities largely driven bymarket movements in long-term debt
2016
• There were no individually significant movements for theyear ended December 31, 2016.
2015• $1.6 billion of net gains in interest rate, foreign exchange
and equity derivative receivables largely due to market
movements; partially offset by losses on commodity
derivatives due to market movements• $1.3 billion of net gains in liabilities due to market
movements

JPMorgan Chase & Co./2017 Annual Report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 ascounterparty nonperformance risk, the Firm’s own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fairvalue to reflect these factors.
CVA represents the adjustment, relative to the relevantbenchmark 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 eachcounterparty, and then estimates losses based on theprobability of default and estimated recovery rate as aresult 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) estimatedrecovery 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.

The following table provides the impact of credit andfunding adjustments on principal transactions revenue inthe respective periods, excluding the effect of any
associated hedging activities. The FVA reported below
include 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.
Year ended December 31,(in millions)

2017

2016

2015

Credit and funding adjustments:
Derivatives CVA
Derivatives FVA

$

802
(295)

$

(84) $

620

7

73

Valuation adjustments on fair value option electedliabilities
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. Effective January 1, 2016,
the effect of DVA on fair value option elected liabilities isrecognized in OCI. See Note 23 for further information.

FVA represents the adjustment to reflect the impact offunding and is recognized where there is evidence that amarket 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 witheach 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 isestimated by discounting expected future cash flows at therelevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore aseparate FVA is not necessary.

JPMorgan Chase & Co./2017 Annual Report171Notes to consolidated financial statements
Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets reported on a nonrecurring basis at fair value as of December 31, 2017 and 2016, bymajor product category and fair value hierarchy.
Fair value hierarchy
December 31, 2017 (in millions)Level 1Loans$

Other assets
Total assets measured at fair value on a nonrecurring basis$

Level 2

— $

238

—

283

— $

521

Total fairvalue

Level 3
$

596

(a)

$

834

(a)

$

1,300

183
$

779

466

Fair value hierarchy
December 31, 2016 (in millions)Level 1Loans$

Other assets
Total assets measured at fair value on a nonrecurring basis$

Level 2

— $

730

—

5

— $

735

Total fairvalue

Level 3
$

590

$

232
$

822

1,320
237

$

1,557

(a) Of the $779 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2017, $442 million related to residential real estate loans carried at the
net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts areclassified 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 thebroker price opinions ranged from 13% to 48% with a weighted average of 27%.

There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2017 and 2016.
Nonrecurring fair value changes
The following table presents the total change in value of
assets and liabilities for which a fair value adjustment has
been recognized for the years ended December 31, 20172016 and 2015, related to financial instruments held at
those dates.
December 31, (in millions)

deposit intangibles and credit card relationships. In theopinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this Note.

2017

2016

2015

$ (159)$ (209)$ (226)

(148)

37

(60)

Accounts payable and other liabilities

(1)

—

(8)

Total nonrecurring fair value gains/(losses)$ (308)$ (172)$ (294)Loans
Other Assets

For further information about the measurement of impaired
collateral-dependent loans, and other loans where thecarrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off inaccordance with regulatory guidance), see Note 12.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidatedbalance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value ofcertain financial instruments, and the methods andsignificant 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 disclosuresprovided in the following table include only a partial
estimate of the fair value of JPMorgan Chase’s assets andliabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit baseand credit card accounts, commonly referred to as core
172

Financial instruments for which carrying value approximatesfair value
Certain financial instruments that are not carried at fairvalue on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their shortterm nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits withbanks, federal funds sold, securities purchased under resaleagreements and securities borrowed, short-term
receivables and accrued interest receivable, short-termborrowings, federal funds purchased, securities loaned andsold under repurchase agreements, accounts payable, andaccrued liabilities. In addition, U.S. GAAP requires that thefair value of deposit liabilities with no stated maturity (i.e.,demand, savings and certain money market deposits) beequal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.

JPMorgan Chase & Co./2017 Annual Report

The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2017 and 2016, 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. 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 156–159 of this Note.

Carryingvalue(in billions)

December 31, 2017

December 31, 2016

Estimated fair value hierarchy

Estimated fair value hierarchy

Level 1

Level 2Total
estimated
fair value

Level 3Carrying
value

Level 1

Level 2Total
estimated
fair value

Level 3Financial assets
Cash and due from banks

25.8 $

25.8 $— $25.8

23.9 $

23.9 $— $23.9

Deposits with banks

$

404.3

401.8

2.5

— $

—

404.3

$

365.8

362.0

3.8

— $

—

365.8

Accrued interest and accounts
receivable

67.0

—

67.0

—

67.0

52.3

—

52.2

0.1

52.3

Federal funds sold andsecurities purchased underresale agreements
Securities borrowed

183.7

—

183.7

—

183.7

208.5

—

208.3

0.2

208.5

102.1

—

102.1

—

102.1

96.4

—

96.4

—

96.4

Securities, held-to-maturity

47.7

—

48.7

—

48.7

50.2

—

50.9

—

50.9

Loans, net of allowance forloan losses(a)(b)

914.6

—

213.2

707.1

920.3

878.8

—

24.1

851.0

875.1

Other

62.9

—

52.9

16.5

69.4

71.4

0.1

60.8

14.3

75.2

Financial liabilities
Deposits$ 1,422.7 $— $ 1,422.7 $— $ 1,422.7— $ 1,361.3 $— $ 1,361.3

165.0

—

165.0

—

165.0

25.3

—

25.3

—

25.3

151.8

148.0

—

144.8

3.4

148.2

—

26.0

38.9

—

38.9

—

38.9

3.2

243.5

257.5

—

260.0

2.0

262.0

Federal funds purchased andsecurities loaned or soldunder repurchase agreements
Short-term borrowings

158.2

—

158.2

—

158.2

42.6

—

42.4

0.2

42.6

Accounts payable and otherliabilities

152.0

—

148.9

2.9

Beneficial interests issued byconsolidated VIEs

26.0

—

26.0

Long-term debt and juniorsubordinated deferrable
interest debentures

236.6

—

240.3

$ 1,361.3 $(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractualinterest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination orsecondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fairvalue 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 forloan 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 156–
159.
(b) For the year ended December 31, 2017, the Firm transferred certain residential mortgage loans from Level 3 to Level 2 as a result of an increase in observability.

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidatedbalance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value ofthese wholesale lending-related commitments were as follows for the periods indicated.
December 31, 2017

December 31, 2016

Estimated fair value hierarchy(in billions)

Carrying
value(a)Wholesale lendingrelated commitments $Level 1

1.1 $Level 2— $Estimated fair value hierarchy

Level 3— $Totalestimated
fair value

1.6 $

1.6

Carrying
value(a)$1.1 $Level 1

Level 2
— $Level 3— $Totalestimated
fair value

2.1 $

2.1

(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 theguarantees.

The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce orcancel 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 157 of this Note.
JPMorgan Chase & Co./2017 Annual Report173Notes to consolidated financial statements
Note 3 – 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, andwritten loan commitments.
The Firm has elected to measure certain instruments at fairvalue for several reasons including to mitigate income
statement volatility caused by the differences between themeasurement basis of elected instruments (e.g., certain
instruments elected were previously 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 aremanaged on a fair value basis.

174

The Firm’s election of fair value includes the following
instruments:• Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,or managed on a fair value basis, including lendingrelated commitments• Certain securities financing arrangements with anembedded derivative and/or a maturity of greater than
one year• Owned beneficial interests in securitized financial assetsthat contain embedded credit derivatives, which would
otherwise be required to be separately accounted for asa derivative instrument• Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that areissued as part of CIB’s client-driven activities• Certain long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value

JPMorgan Chase & Co./2017 Annual ReportChanges in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2017, 2016 and 2015, 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.
2017

December 31, (in millions)

Principaltransactions

Federal funds sold and securities
purchased under resaleagreements$

Securities borrowed
Trading assets:
Debt and equity instruments,
excluding loans
Loans reported as trading
assets:Changes in instrumentspecific credit risk
Other changes in fair value
Loans:
Changes in instrument-specificcredit risk
Other changes in fair value
Other assets
Deposits(a)Federal funds purchased andsecurities loaned or sold under
repurchase agreements
Short-term borrowings
Trading liabilities
Beneficial interests issued byconsolidated VIEs
Long-term debt(a)(b)2016

All otherincome(97) $

—

50

—

1,943

2

330
217

Total
changesin fair
value
recorded$Principaltransactions(97) $

2015

All otherincomeTotalchangesin fair
value
recorded$Principaltransactions

All otherincomeTotalchangesin fair
value
recorded(76) $—(76) $(38) $

—

50

1

—

1

(6)

—

$

(38)
(6)

(c)

1,945

120

(1) (c)119756(10) (c)

746

14

(c)

344

461

43

(c)

504

138

41

(c)

179

747

(c)

964

79

684

(c)

763

232

818

(c)

1,050

(1)

—

(1)

13

—

13

35

—

35

(12)
11
(533)

3 (c)
(55) (d)
—

(9)
(44)
(533)

(7)
20
(134)

—
62
—

(7)
82
(134)

4
79
93

—
(1) (d)
—

4
78
93

11

—

11

19

—

19

8

—

8

(747)
(1)

—
—

(747)
(1)

(236)
6

—
—

(236)
6

1,996
(20)

—
—

1,996
(20)

—

—

—

23

—

23

49

—

49

(2,022)—(2,022)

(773)

—

(773)

1,388

—

1,388

(a)

(d)

(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI, while realized
gains/(losses) are recorded in principal transactions revenue. DVA for 2015 was included in principal transactions revenue, and 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 subsequent to issuance. See Notes 2 and 23 forfurther information. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transaction revenue were not material for the years ended
December 31, 2017 and 2016.
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively managed, thegains/(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.

Determination of instrument-specific credit risk for items
for which a fair value election was madeThe following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
• Loans and lending-related commitments: For floatingrate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for theperiod is made between those changes in value that areinterest 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.

JPMorgan Chase & Co./2017 Annual Report••

Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principallyfrom observable changes in the Firm’s credit spread.
Resale and repurchase agreements, securities borrowed
agreements and securities lending agreements:
Generally, for these types of agreements, there is arequirement that collateral be maintained with a market
value equal to or in excess of the principal amountloaned; as a result, there would be no adjustment or an
immaterial adjustment for instrument-specific credit risk
related to these agreements.

175

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 principalbalance outstanding as of December 31, 2017 and 2016, for loans, long-term debt and long-term beneficial interests forwhich the fair value option has been elected.
2017

December 31, (in millions)2016

Contractual
principal
outstanding

Fair value$$

Fair value
over/(under)contractual
principal
outstanding

Contractual
principal
outstanding

Fair value

Fair value
over/(under)contractual
principal
outstanding

Loans

(a)

Nonaccrual loans
Loans reported as trading assets

1,371 $

(2,848) $

Loans

4,219
39

—

(39)

3,338
—

$

748 $
—

(2,590)—Subtotal

4,258

1,371

(2,887)

3,338

748

(2,590)Loans reported as trading assets

38,15736,590(1,567)35,47733,054(2,423)

Loans

2,539

2,508

(31)

2,259

2,228

(31)

$

40,469 $(4,485) $41,074$36,030 $(5,044)$

23,848 $(2,449) $21,602$

19,195 $(2,407)

23,671NANA

All other performing loans

Total loans$

44,954$

26,297Long-term debt
Principal-protected debt(c)

Nonprincipal-protected debt(b)NATotal long-term debt

NA$47,519NA

NA

Nonprincipal-protected debt

NA

$

45

NA

Total long-term beneficial interests

NA

$

45

NA

(c)

18,491NA$

37,686

NA

NA

$

120

NA

NA

$

120

NA

Long-term beneficial interests(a) There were no performing loans that were ninety days or more past due as of December 31, 2017 and 2016.
(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 astated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in thenote. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm’s next call date.

At December 31, 2017 and 2016, the contractual amount of lending-related commitments for which the fair value option waselected was $7.4 billion and $4.6 billion respectively, with a corresponding fair value of $(76) million and $(118) million,
respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 27.

176

JPMorgan Chase & Co./2017 Annual Report

Structured note products by balance sheet classification and risk component
The following table presents the fair value of the structured notes issued by the Firm, by balance sheet classification and theprimary risk type.
December 31, 2017
(in millions)Long-term Short-term
debtborrowings

December 31, 2016

Deposits

Total

LongShort-term
term debt borrowings

Deposits

Total

Risk exposure
Interest rate

$ 22,056 $69 $ 8,058 $ 30,183$ 16,296 $184 $4,296 $ 20,776

Credit

4,329

1,312

—

5,641

3,267

225

—

Foreign exchange

2,841

147

38

3,026

2,365

135

6

2,506

Equity17,581

7,106

6,548

31,235

14,831

8,234

5,481

28,546

230

15

4,468

4,713

488

37

1,811

2,336

Commodity
Total structured notes$ 47,037 $

8,649 $ 19,112 $ 74,798$ 37,247 $

3,492

8,815 $ 11,594 $ 57,656

Note 4 – Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similarbusiness activities or activities in the same geographic
region, or when they have similar economic features thatwould cause their ability to meet contractual obligations tobe 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 areadjusted as needed to reflect the Firm’s risk appetite.

In the Firm’s consumer portfolio, concentrations areevaluated primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at theportfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry andmonitored regularly on both an aggregate portfolio leveland on an individual client or counterparty basis. The Firm’s
wholesale exposure is managed through loan syndications
and participations, loan sales, securitizations, credit
derivatives, master netting agreements, collateral and otherrisk-reduction techniques. For additional information onloans, see Note 12.
The Firm does not believe that its exposure to any
particular loan product (e.g., option ARMs), 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.
Terms of loan products and collateral coverage are includedin the Firm’s assessment when extending credit andestablishing its allowance for loan losses.

JPMorgan Chase & Co./2017 Annual Report177Notes to consolidated financial statements
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, 2017 and 2016.
In 2017 the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage
concentrations. This largely resulted in the re-assignment of holding companies from Other to the industry of risk category
based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions
below, the prior period amounts have been revised to conform with the current period presentation.

Creditexposure(f)December 31, (in millions)
Consumer, excluding credit card
Receivables from customers(a)Total Consumer, excluding credit card
Credit Card

2017

2016

On-balance sheet

On-balance sheet

Loans

Derivatives$ 421,234 $ 372,681 $Off-balance
sheet(g)— $48,553Creditexposure

Loans

Derivatives$ 417,891 $ 364,644 $Off-balance
sheet(g)— $53,247

133

—

—

—

120

—

—

—

421,367

372,681—

48,553418,011364,644—

53,247722,342

149,511—572,831

695,707

141,816—

553,891

1,143,709

522,192—

621,384

1,113,718

506,460—

607,138

Real Estate

139,409

113,648

153

25,608134,287

105,802207

28,278Consumer & Retail

87,67931,044

1,114

55,52184,80429,9291,082

53,793

Technology, Media & Telecommunications

59,274

13,6652,265

43,344

63,324

14,063

1,293

47,968

Healthcare

55,997

16,273

2,191

37,53349,445

15,5452,280

31,620Industrials

55,272

18,161

1,163

35,94855,733

17,295

1,658

36,780Banks & Finance Cos

49,03725,8796,816

16,342

48,39322,714

12,257

13,422

Oil & Gas

41,317

12,621

1,727

26,96940,367

13,253

1,878

25,236

Asset Managers

32,531

11,480

7,998

13,05333,201

10,33910,82012,042

Utilities

29,317

6,187

2,084

21,046

29,672

7,208

888

21,576

State & Municipal Govt(c)28,633

12,134

2,888

13,611

28,263

12,416

2,096

13,751

Central Govt

19,182

3,375

13,937

1,870

20,4083,964

14,2352,209

Chemicals & Plastics

15,9455,654

208

10,083

15,043

5,292

271

9,480

Transportation

15,797

6,733

977

8,087

19,096

8,996

751

9,349

Automotive

14,820

4,903

342

9,575

16,736

4,964

1,196

10,576

Metals & Mining

14,171

4,728

702

8,741

13,419

4,350

439

8,630

Insurance

14,089

1,411

2,804

9,874

13,510

1,119

3,382

9,009

Financial Markets Infrastructure

5,036

351

3,499

1,186

8,732

347

3,884

4,501

Securities Firms

4,113

952

1,692

1,469

4,211

1,059

1,913

1,239

All other(d)147,900

113,699

3,963

30,238137,238

105,135

3,548

28,555

Subtotal

Total consumer-related
Wholesale-related

829,519402,898

56,523370,098

815,882

383,79064,078368,014

5,607

5,607

—

—

4,515

4,515

—

—

Receivables from customers and other(a)26,139———17,440———Total wholesale-related

861,265

408,505

56,523370,098

837,837

388,305

64,078368,014$ 2,004,974 $ 930,697 $

56,523 $ 991,482$ 1,951,555 $ 894,765 $

64,078 $ 975,152(a) Receivables from customers primarily represent held-for-investment margin loans to brokerage customers (Prime Services in CIB, AWM and CCB) that arecollateralized through assets maintained in the clients' brokerage accounts, as such no allowance is held against these receivables. These receivables are reported
within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
(b) The industry rankings presented in the table as of December 31, 2016, are based on the industry rankings of the corresponding exposures at December 31, 2017,
not actual rankings of such exposures at December 31, 2016.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, the Firm held:$9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion and $14.5 billion,
respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 10.
(d) All other includes: individuals; SPEs; and private education and civic organizations. For more information on exposures to SPEs, see Note 14.
(e) Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, 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) Represents lending-related financial instruments.
(h) The prior period amounts have been revised to conform with the current period presentation.

178

(h)

(h)

(b)

Loans held-for-sale and loans at fair value

Total exposure(e)(f)(h)

JPMorgan Chase & Co./2017 Annual Report(h)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 marketmaking or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into formarket-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity andcommodity risks. The Firm actively manages the risks fromits exposure to these derivatives by entering into otherderivative transactions or by purchasing or selling otherfinancial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposuresusing derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets andliabilities.
Interest rate contracts are used to minimize fluctuations inearnings that are caused by changes in interest rates. Fixedrate 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 variablerate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequentorigination or issuance of fixed-rate assets and liabilities atcurrent market rates. Gains or losses on the derivative
instruments that are related to such assets and liabilities
are expected to substantially offset this variability inearnings. The Firm generally uses interest rate swaps,
forwards and futures to manage the impact of interest rate
fluctuations on earnings.
Foreign currency forward contracts are used to manage theforeign exchange risk associated with certain foreign
currency–denominated (i.e., non-U.S. dollar) assets andliabilities 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 aresult of fluctuations in foreign currencies, the U.S. dollar–
equivalent values of the foreign currency–denominatedassets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency–denominatedassets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.

JPMorgan Chase & Co./2017 Annual Report

Commodities contracts are used to manage the price risk ofcertain commodities inventories. Gains or losses on thesederivative 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 acredit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. For a further discussion of credit derivatives, see thediscussion in the Credit derivatives section on pages 189–
191 of this Note.
For more information about risk management derivatives,
see the risk management derivatives gains and losses tableon page 189 of this Note, and the hedge accounting gains
and losses tables on pages 187–189 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiatedand 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 thetransactions. OTC-cleared derivatives are traded on abilateral 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 derivative
exchanges and clearing houses. 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 27.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on theConsolidated 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 thederivative counterparty. For further discussion of theoffsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends onwhether or not the transaction has been designated andqualifies for hedge accounting. Derivatives that are notdesignated as hedges are reported and measured at fairvalue through earnings. The tabular disclosures on pages
183–189 of this Note provide additional information on theamount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 2 and 3.

179

Notes to consolidated financial statements
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 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 ashedges. 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 designatedas 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, andhow 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 dollarvalue comparisons of the change in the fair value of thederivative 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 offsettingchanges 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 orloss on the designated derivative instrument does notexactly offset the change in the hedged item attributable tothe 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.

180

There are three types of hedge accounting designations: fairvalue 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 thevalue of the hedged item for the risk being hedged, arerecognized in earnings. If the hedge relationship isterminated, 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 amortizedto earnings as a yield adjustment. Derivative amounts
affecting earnings are recognized consistent with theclassification 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 fromfloating-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 valueof the derivative is recorded in OCI and recognized in theConsolidated statements of income when the hedged cash
flows affect earnings. Derivative amounts affecting earnings
are recognized consistent with the classification of thehedged 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 isterminated, then the value of the derivative recorded in
AOCI is recognized in earnings when the cash flows thatwere hedged affect earnings. For hedge relationships thatare discontinued because a forecasted transaction is notexpected to 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 thevalue 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 thederivatives are recorded in the translation adjustments
account within AOCI.

JPMorgan Chase & Co./2017 Annual Report

The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Type of Derivative

Use of Derivative

Affected
Designation and disclosure segment or unit

Page
referenceManage specifically identified risk exposures in qualifying hedge accounting relationships:• Interest rate

Hedge fixed rate assets and liabilities

Fair value hedge

Corporate

187• Interest rate

Hedge floating-rate assets and liabilities

Cash flow hedge

Corporate

188• Foreign exchange

Hedge foreign currency-denominated assets and liabilities

Fair value hedge

Corporate

187• Foreign exchange

Hedge foreign currency-denominated forecasted revenue andexpenseCash flow hedge

Corporate

188• Foreign exchange

Hedge the value of the Firm’s investments in non-U.S. dollar
functional currency entities
Hedge commodity inventory

Net investment hedge

Corporate

189

Fair value hedge

CIB

187

• Commodity

Manage specifically identified risk exposures not designated in qualifying hedge accounting
relationships:• Interest rate

Manage the risk of the mortgage pipeline, warehouse loans and MSRs Specified risk management

CCB

189

• Credit

Manage the credit risk of wholesale lending exposures

Specified risk management

CIB

189

• Commodity

Manage the risk of certain commodities-related contracts andinvestments
Manage the risk of certain other specified assets and liabilities

Specified risk management

CIB

189

Specified risk management

Corporate

189• Interest rate andforeign exchange

Market-making derivatives and other activities:• Various

Market-making and related risk management

Market-making and other

CIB

189

• Various

Other derivatives

Market-making and other

CIB, Corporate

189

JPMorgan Chase & Co./2017 Annual Report181Notes to consolidated financial statements
Notional amount of derivative contracts
The following table summarizes the notional amount ofderivative contracts outstanding as of December 31, 2017and 2016.
Notional amounts(b)December 31, (in billions)

2017

2016

Interest rate contracts
Swaps$ 21,043$ 22,000

Futures and forwards

4,904

5,289

Written options

3,576

3,091

Purchased options

3,987

3,482

Total interest rate contracts

33,51033,862Credit derivatives(a)

1,522

2,032

Cross-currency swaps

3,953

3,359

Spot, futures and forwards

5,923

5,341

Written options

786

734

Purchased options

776

721

11,438

10,155

Swaps

367

258

Futures and forwards

90

59

Written options

531

417

Purchased options

453

345

Total equity contracts

1,441

1,079

Swaps

116

102

Spot, futures and forwards

168

130

Written options

98

83

Purchased options

93

94

Foreign exchange contracts

Total foreign exchange contracts
Equity contracts

Commodity contracts

Total commodity contracts
Total derivative notional amounts

475

409

$ 48,386$ 47,537(a) For more information on volumes and types of credit derivative
contracts, see the Credit derivatives discussion on pages 189–191.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.

While the notional amounts disclosed above give an
indication of the volume of the Firm’s derivatives activity,
the notional amounts significantly exceed, in the Firm’sview, the possible losses that could arise from suchtransactions. For most derivative transactions, the notionalamount is not exchanged; it is used simply as a reference tocalculate payments.

182

JPMorgan Chase & Co./2017 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) thatare reflected on the Firm’s Consolidated balance sheets as of December 31, 2017 and 2016, by accounting designation (e.g.,whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Gross derivative balances as of December 31, 2017, reflect the Firm’s adoption of rulebook changes made by two CCPs, that
require or allow the Firm to treat certain OTC-cleared derivative transactions with that CCP as settled each day. If such rulebook
changes had been in effect as of December 31, 2016, the impact would have been a reduction in gross derivative receivables
and payables of $227.1 billion and $224.7 billion, respectively, and a corresponding decrease in amounts netted, with no
impact to the Consolidated balance sheets.
Free-standing derivative receivables and payables(a)Gross derivative receivables
December 31, 2017
(in millions)Not
designatedas hedges$ 313,276

Gross derivative payables

Designatedas hedges

Total
derivative
receivables

Net
derivative
receivables(b)Notdesignatedas hedges

Designatedas hedges

$

$

$

Total
derivative
payablesNet
derivative
payables(b)Trading assets andliabilities
Interest rate

2,716

$ 315,992

24,673$ 283,092

Credit23,205—23,205869

23,252—

23,252

1,299

Foreign exchange

159,740491

160,231

16,151

154,601

1,221

155,822

12,473Equity40,040—40,0407,882

45,395—45,395

9,192

Commodity

20,06619

20,085

6,948

21,498403

21,901

7,684

3,226

$ 559,553

56,523$ 527,838

2,968 $ 530,806$ 37,777

Net
derivative
receivables(b)Notdesignatedas hedges

Designatedas hedges$$ 567,894$

Total fair value of trading
assets and liabilities$ 556,327

December 31, 2016
(in millions)Not
designatedas hedges

Designatedas hedges

Total
derivative
receivables$ 601,557$$ 605,963$$

Gross derivative receivables$

1,344 $ 284,436

$

7,129

Gross derivative payables
Total
derivative
payablesNet
derivative
payables(b)2,884 $ 570,778$ 10,815

Trading assets andliabilities
Interest rate

4,406

28,302Credit29,645—29,645

1,294

28,666—

28,666

1,411

Foreign exchange

232,137

1,289

233,426

23,271

233,8231,148

234,971

20,508Equity34,940—34,9404,939

38,362—38,362

8,140

Commodity

18,505137

18,642

6,272

20,283179

20,462

8,357

5,832

$ 922,616

64,078$ 889,028

4,211 $ 893,239$ 49,231

Total fair value of trading
assets and liabilities$ 916,784$$$(a) Balances exclude structured notes for which the fair value option has been elected. See 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 andpayables when a legally enforceable master netting agreement exists.

JPMorgan Chase & Co./2017 Annual Report183Notes to consolidated financial statements
Derivatives netting
The following tables present, as of December 31, 2017 and 2016, gross and net derivative receivables and payables bycontract 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 andpayables, 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 non-cash financial instruments (generally U.S. government and agency securities and other G7
government securities) and cash collateral held at third party custodians, which are shown separately as “Collateral notnettable on the Consolidated balance sheets” in the tables below, up to the fair value exposure amount.
• the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as ofthe 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 notbeen either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
2017

December 31, (in millions)Grossderivative
receivables

Amounts nettedon theConsolidatedbalance sheets

2016
Net
derivative
receivables

Grossderivative
receivables

Amounts nettedon theConsolidatedbalance sheets

$

$

Net
derivative
receivables$

U.S. GAAP nettable derivative receivables
Interest rate contracts:
Over-the-counter (“OTC”)

365,227$ (342,173)

6,531(6,318)213

235,399(235,261)

185

(84)

101

241

(227)

14

312,285(291,319)

20,966600,867(577,661)

23,206OTC

15,390(15,165)

225

23,130(22,612)518

OTC–cleared

7,225(7,170)55

5,746(5,739)7

22,615(22,335)

280

28,876(28,351)525

155,289(142,420)

12,869226,271(208,962)

17,3091,696(1,654)42

1,238(1,165)

73

141

(7)

134

104

(27)

77

157,126(144,081)

13,045

227,613(210,154)

17,459OTC

22,024(19,917)

2,107

20,868(20,570)

298

Exchange-traded(a)14,188(12,241)

1,947

11,439(9,431)

2,008

Total equity contracts

36,212(32,158)

4,054

32,307(30,001)

2,306

OTC

10,903(4,436)

6,467

11,571(5,605)

5,966

Exchange-traded(a)8,854(8,701)

153

6,794

(6,766)28

OTC–cleared
Exchange-traded(a)Total interest rate contracts$ 305,569 $ (284,917)

20,652

23,054138

Credit contracts:

Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)Total foreign exchange contracts
Equity contracts:

Commodity contracts:

19,757(13,137)

6,620

18,365(12,371)

5,994

Derivative receivables with appropriate legal
opinionTotal commodity contracts

547,995(503,030) (b)44,965908,028(858,538) (b)49,490Derivative receivables where an appropriate legal
opinion has not been either sought or obtained

11,558

11,558

14,588

Total derivative receivables recognized on theConsolidated balance sheets$ 559,553$

Collateral not nettable on the Consolidated balance
sheets(c)(d)Net amounts

184

56,523$922,616

14,588$(13,363)$

43,16064,078(18,638)$

45,440

JPMorgan Chase & Co./2017 Annual Report

2017
Gross
derivative
payablesDecember 31, (in millions)

Amounts nettedon theConsolidatedbalance sheets

2016
Net
derivative
payablesAmounts nettedon theConsolidatedbalance sheetsNet
derivative
payables338,502$ (329,325)$

230,464(230,463)

Grossderivative
payablesU.S. GAAP nettable derivative payables
Interest rate contracts:
OTC$

OTC–cleared

276,960 $ (271,294)
6,004

Exchange-traded(a)Total interest rate contracts$(5,928)

5,666

$

76

9,177
1

127

(84)

43

196

(175)

21

283,091(277,306)

5,785

569,162(559,963)

9,199

16,194(15,170)

1,024

22,366(21,614)752

Credit contracts:
OTC
OTC–cleared

6,801(6,784)17

5,641(5,641)—

22,995(21,954)

1,041

28,007(27,255)752

150,966(141,789)

9,177

228,300(213,296)

15,004

1,555(1,553)2

1,158(1,158)

—

98

(7)

91

328

(9)

319

152,619(143,349)

9,270

229,786(214,463)

15,323OTC

28,193(23,969)

4,224

24,688(20,808)

3,880

Exchange-traded(a)12,720(12,234)486

10,004(9,414)590

Total equity contracts

40,913(36,203)

4,710

34,692(30,222)

4,470

OTC

12,645(5,508)7,137

12,885(5,252)

7,633

Exchange-traded(a)8,870(8,709)

161

7,099

(6,853)

246

21,515(14,217)

7,298

19,984(12,105)

7,879

Derivative payables with appropriate legal opinion

521,133(493,029) (b)28,104

881,631(844,008) (b)37,623

Derivative payables where an appropriate legal
opinion has not been either sought or obtained

9,673

9,673

11,608

Total credit contracts
Foreign exchange contracts:
OTC
OTC–cleared
Exchange-traded(a)Total foreign exchange contracts
Equity contracts:

Commodity contracts:

Total commodity contracts

Total derivative payables recognized on theConsolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(c)(d)Net amounts$

530,806$

37,777$893,239

11,608$(4,180)$33,59749,231(8,925)$40,306(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Net derivatives receivable included cash collateral netted of $55.5 billion and $71.9 billion at December 31, 2017 and 2016, respectively. Net derivatives
payable included cash collateral netted of $45.5 billion and $57.3 billion related to OTC and OTC-cleared derivatives at December 31, 2017 and 2016,
respectively.
(c) Represents liquid security collateral as well as 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 withthat counterparty.
(d) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.

JPMorgan Chase & Co./2017 Annual Report185

Notes to consolidated financial statements
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 thederivative 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 tomitigate derivative counterparty credit risk. The amount ofderivative 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.

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 adowngrade of either the Firm or the counterparty, at thefair value of the derivative contracts. The following tableshows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that containcontingent collateral or termination features that may betriggered upon a ratings downgrade, and the associatedcollateral the Firm has posted in the normal course ofbusiness, at December 31, 2017 and 2016.

While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as thederivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value

December 31, (in millions)

OTC and OTC-cleared derivative payables containing
downgrade triggers
2017

Aggregate fair value of net derivative payables
Collateral posted

2016$ 11,916 $ 21,550
9,973

19,383

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, 2017 and 2016, 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 beposted 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
2017
December 31, (in millions)Single-notch
downgradeAmount of additional collateral to be posted upon downgrade(a)$Amount required to settle contracts with termination triggers upon downgrade(b)

79 $
320

2016
Two-notch
downgrade
1,989
650

Single-notch
downgrade$

Two-notch
downgrade

560 $

2,497

606

1,049

(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. There were no such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2017, and such transfers at
December 31, 2016 were not material.

186

JPMorgan Chase & Co./2017 Annual ReportImpact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as wellas pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2017,2016 and 2015, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in thesame line item in the Consolidated statements of income.
Gains/(losses) recorded in income
Year ended December 31, 2017 (in millions)

Derivatives

Income statement impact due to:Hedged items

Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)

$

$

$

$

Contract typeInterest rate(a)(b)

$

(481)

1,359

878

(18)

896

Foreign exchange(c)(3,509)

3,507

(2)

—

(2)

Commodity(d)(1,275)

1,348

73

29

44

Total

$

(5,265)

$

6,214

$

949

Gains/(losses) recorded in income
Year ended December 31, 2016 (in millions)

Derivatives Hedged items

$

11

$

938

Income statement impact due to:Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)

$

$

$

Contract typeInterest rate(a)(b)

$

(482)

$

1,338

856

6

850

Foreign exchange(c)2,435(2,261)

174

—

174

Commodity(d)

(536)

586

50

(9)

59

Total

$

1,417

$

(337)

$

1,080

Gains/(losses) recorded in income
Year ended December 31, 2015 (in millions)

Derivatives Hedged items

$

(3)

$

1,083

Income statement impact due to:Total income
statement
impactHedge
ineffectiveness(e)Excludedcomponents(f)

$

$

$

Contract typeInterest rate(a)(b)

$

38

$

911

949

3

946

Foreign exchange(c)6,030(6,006)24—

24

Commodity(d)1,153(1,142)

11

(13)

24

Total

$

7,221

$

(6,237)

$

984

$

(10)

$

994

(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.
(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.
(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, were recorded primarily in principal transactions revenue andnet interest income.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (netrealizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on thehedged item attributable to the hedged risk.
(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts and time values.

JPMorgan Chase & Co./2017 Annual Report187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, andthe pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2017, 2016 and 2015,
respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item inthe same line item in the Consolidated statements of income.
Gains/(losses) recorded in income and other comprehensive income/(loss)

Year ended December 31, 2017
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded directly
in income(c)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(17)

$

(117)
$

(134)

—

$

—
$

—

(17)

$

(117)
$

(134)

12

$

29

135
$

147

252
$

281

Gains/(losses) recorded in income and other comprehensive income/(loss)

Year ended December 31, 2016
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded directly
in income(c)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(74)

$

(286)
$

(360)

—

$

—
$

—

(74)

$

(286)
$

(360)

(55)

$

19

(395)
$

(450)

(109)
$

(90)

Gains/(losses) recorded in income and other comprehensive income/(loss)

Year ended December 31, 2015
(in millions)

Derivatives –effective portion
reclassified fromAOCI to income

Hedge
ineffectivenessrecorded directly
in income(c)Total income
statement impact

Derivatives –effective
portionrecorded in OCI

Total change
in OCI
for period

Contract typeInterest rate(a)$Foreign exchange(b)
Total

(99)

$

(81)
$

(180)

—

$

—
$

—

(99)

$

(81)
$

(180)

(44)

$

(53)
$

(97)

55
28

$

83

(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in
net interest income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains
and losses follows the hedged item – primarily noninterest revenue and compensation expense.
(c) 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.

The Firm did not experience any forecasted transactions that failed to occur for the years ended 2017 and 2016. In 2015, theFirm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it wasprobable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale
non-operating deposits.
Over the next 12 months, the Firm expects that approximately $96 million (after-tax) of net gains recorded in AOCI at
December 31, 2017, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are remaining is approximately five years. For open cash flow hedges, themaximum 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.

188

JPMorgan Chase & Co./2017 Annual Report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, 2017, 2016 and2015.
Gains/(losses) recorded in income and other comprehensive income/(loss)
2017

Year ended December 31,(in millions)Excludedcomponents
recorded
directly inincome(a)Foreign exchange derivatives$(172)

2016

Effective
portionrecorded in OCI

Excludedcomponents
recorded
directly inincome(a)$(1,294)$(282)

2015

Effective
portionrecorded in OCI

Excludedcomponents
recorded
directly inincome(a)Effective
portionrecorded in OCI$262$(379)$1,885(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreignexchange forward contracts. Amounts related to excluded components are recorded in other 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 2017, 2016 and 2015.

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 the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures,
foreign currency denominated assets and liabilities, andcommodities-related contracts and investments.
Derivatives gains/(losses)
recorded in income
Year ended December 31,(in millions)Contract typeInterest rate(a)Credit(b)Foreign exchange(c)Commodity(d)
Total

$

$

2017

2016

2015

331 $
(74)
(33)
—
224 $

1,174 $
(282)
27
—
919 $

853
70
25
(12)
936

(a) Primarily represents interest rate derivatives used to hedge theinterest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouseloans. Gains and losses were recorded predominantly in mortgage feesand related income.
(b) Relates to credit derivatives used to mitigate credit risk associatedwith 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 isincluded in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded inprincipal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange riskof specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.

JPMorgan Chase & Co./2017 Annual Report

Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet theneeds 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 notincluded 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 6 for
information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value isderived from the credit risk associated with the debt of athird-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk toanother party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness ofthe protection seller, as the protection seller is required tomake payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, afailure to pay its obligation or a restructuring. The seller ofcredit 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 thecredit 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 ofcustomers. 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 fromcertain financial instruments in the Firm’s market-making
businesses. Following is a summary of various types ofcredit derivatives.
189

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 singlename and index-reference obligations. Single-name CDS andindex 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 withthe broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consistsof a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a newunderlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in theindex experiences a credit event, then the reference entitythat defaulted is removed from the index. CDS can also bereferenced against specific portfolios of reference names oragainst customized exposure levels based on specific clientdemands: for example, to provide protection against thefirst $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under theterms 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 thedifference between the face value of the CDS contract andthe 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 thedebt instrument of the underlying reference entity in orderto receive amounts due under the CDS contract when acredit event occurs.

190

Credit-related notes
A credit-related note is a funded credit derivative where theissuer 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 parvalue 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 atmaturity 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, theissuer pays the investor the difference between the parvalue 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 notionalamounts of credit derivatives and credit-related notes theFirm sold and purchased as of December 31, 2017 and2016. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the fullnotional amount of net protection sold, as the amountactually 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 oncontracts to sell protection by purchasing protection withidentical 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.

JPMorgan Chase & Co./2017 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 valueof the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, therisks associated with such derivatives.
Total credit derivatives and credit-related notes
Maximum payout/Notional amountProtection purchasedwith identicalunderlyings(b)Protection
sold

December 31, 2017 (in millions)

Net protection(sold)/
purchased(c)Otherprotection
purchased(d)Credit derivatives
Credit default swaps
Other credit derivatives$(690,224)(a)

Total credit derivatives$

702,098$

11,874 $

5,045(54,157)

59,158

5,001

11,747(744,381)

761,256

16,875

16,792

(18)

—

(18)

7,915

16,857 $

24,707

Credit-related notes
Total

$

(744,399)$

761,256$

Maximum payout/Notional amountProtection purchasedwith identicalunderlyings(b)Protection
sold

December 31, 2016 (in millions)

Net protection(sold)/
purchased(c)Otherprotection
purchased(d)Credit derivatives
Credit default swaps

13,249 $7,935

Other credit derivatives(a)$(961,003)(36,829)

31,859(4,970)19,991

Total credit derivatives(997,832)

1,006,111

8,279

27,926

(41)

—

(41)

4,505

8,238 $

32,431Credit-related notes
Total

$

(997,873)$$

974,252

1,006,111$$(a) Other credit derivatives largely consists of credit swap options.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notionalamount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(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 thebuyer of protection in determining settlement value.
(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.

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, 2017 and 2016, 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 therating 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 profilereflected below.
Protection sold – credit derivatives and credit-related notes ratings(a)/maturity profile
December 31, 2017
(in millions)<1 year

1–5 years>5 years

Total notionalamountFair value of
receivables(b)Fair value of
payables(b)Net fairvalue$ (39,429)

$

$

8,516

$

$ 7,382$

15,923

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total
December 31, 2016
(in millions)$ (159,286)$(73,394)$ (232,680)$<1 year(319,726)(518,441)(134,125)(18,439)(453,851)$ (57,868)$>5 years

Total notionalamount(383,586)$ (39,281)$(170,046)(23,317)(553,632)$ (62,598)

1–5 years(225,958)(744,399)

7,407(1,134)(5,313)

2,094(6,447)$ 9,476

Fair value of
receivables(b)Fair value of
payables(b)Net fair
value

$

$

(3,055)$ 4,786(8,570)(386)(11,625)$ 4,400$

Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total$ (273,688)$(107,955)$ (381,643)$(696,555)(301,318)$(997,873)

7,841
8,184

$

16,025$(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 and cash collateral received by the Firm.

JPMorgan Chase & Co./2017 Annual Report

191Notes to consolidated financial statements
Note 6 – Noninterest revenue and noninterest expense
Investment banking fees
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 instruments and equity
securities. Underwriting fees are primarily based on theissuance price and quantity of the underlying instruments,
and are recognized as revenue typically upon execution of
the client’s transaction. The Firm also manages andsyndicates loan arrangements. Credit arrangement andsyndication fees, included within debt underwriting fees,
are recorded as revenue after satisfying certain retention,
timing and yield criteria.
The Firm also provides advisory services, assisting its clientswith mergers and acquisitions, divestitures, restructuring
and other complex transactions. Advisory fees arerecognized as revenue typically upon execution of theclient’s transaction.
Year ended December 31,(in millions)2015

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 holdother commodities inventories under financing and otherarrangements with clients.
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 ofthe overall performance of the Firm’s client-driven marketmaking activities. See Note 7 for further information oninterest income and interest expense. Trading revenue ispresented primarily by instrument type. The Firm’s clientdriven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, thetrading revenue presented in the table below is not
representative of the total revenue of any individual line ofbusiness.

2017

2016

Equity$ 1,394$ 1,146

Debt

3,710

3,207

3,232

Total underwriting

5,104

4,353

4,640

Advisory

2,144

2,095

2,111

Trading revenue by instrument
type
Interest rate

$ 7,248$ 6,448

6,751

Credit

1,329

2,096

1,735

Foreign exchange

2,746

2,827

2,557

Equity

3,873

2,994

2,990

661

1,067

842

Total trading revenue

11,08811,30910,057

Private equity gains

259

257

351

$ 11,347$ 11,566$ 10,408

Underwriting

Total investment banking fees

$

$

1,408

Investment banking fees are earned primarily by CIB. See
Note 31 for segment results.
Principal transactions
Principal transactions revenue is driven by many factors,
including the bid-offer spread, which is the difference
between the price at which the Firm is willing to buy afinancial or other instrument and the price at which the
Firm is willing to sell that instrument. It also consists of therealized (as a result of the sale of instruments, closing out
or termination of transactions, or interim cash payments)
and unrealized (as a result of changes in valuation) gains
and losses on financial and other instruments (including
those accounted for under the fair value option) primarily
used in client-driven market-making activities and on
private equity investments. In connection with its clientdriven 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 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 ofcommodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk andcommodity risk, and (c) other derivatives. For further
information on the income statement classification of gains
and losses from derivatives activities, see Note 5.
192

Year ended December 31,(in millions)

2017

$

2,479

Commodity

Principal transactions

2016

$

2,325

2015

$

1,933

Principal transactions revenue is earned primarily by CIB.
See Note 31 for segment results.
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. Depositrelated fees include fees earned in lieu of compensatingbalances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.
Year ended December 31, (in millions)

2017

2016

2015

Lending-related fees

$ 1,110$ 1,114$ 1,148

Deposit-related fees

4,823

4,660

4,546

$ 5,933$ 5,774$ 5,694

Total lending- and deposit-related fees

Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. See Note 31 for segment results.

JPMorgan Chase & Co./2017 Annual Report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 onbehalf of its clients, including investors in Firm-sponsoredfunds and owners of separately managed investment
accounts. Management fees are typically based on the valueof assets under management and are collected andrecognized 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 otherperformance 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 andother services in connection with its asset management
activities. Amounts paid to third-party service providers arerecorded in professional and outside services expense.
Year ended December 31,(in millions)

2017

2016

2015

Asset management fees
Investment management fees

9,526

$ 8,865

294

336

352

Total asset management fees

9,820

9,201

9,755

Total administration fees

2,029

1,915

2,015

Brokerage commissions(c)

2,239

2,151

2,304

All other commissions and fees

1,289

1,324

1,435

Total commissions and fees

3,528

3,475

3,739

$ 15,377$ 14,591$ 15,509

All other asset management fees(a)

(b)

$

$

9,403

Commissions and other fees

Total asset management,
administration andcommissions(a) The Firm receives other asset management fees for services that are
ancillary to investment management services, including commissions
earned on sales or distribution of mutual funds to clients. These fees arerecorded as revenue at the time the service is rendered or, in the case ofcertain distribution fees based on the underlying fund’s asset value and/or
investor redemption, recorded over time as the investor remains in the fundor upon investor redemption.
(b) The Firm receives administrative fees predominantly from custody,
securities lending, fund services and securities clearance fees. These fees
are recorded as revenue over the period in which the related service isprovided.
(c) The Firm acts as a broker, facilitating its clients’ purchase and sale ofsecurities and other financial instruments. It collects and recognizes
brokerage commissions as revenue upon occurrence of the clienttransaction. The Firm reports certain costs paid to third-party clearing
houses and exchanges net against commission revenue.

Asset management, administration and commissions areearned primarily by AWM, CIB, CCB, and CB. See Note 31 forsegment results.

JPMorgan Chase & Co./2017 Annual ReportMortgage fees and related income
This revenue category primarily reflects CCB’s Home
Lending production and servicing revenue, including fees
and income derived from mortgages originated with theintent to sell; mortgage sales and servicing including losses
related to the repurchase of previously sold loans; theimpact of risk-management activities associated with themortgage 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 aschanges in fair value for mortgage loans originated with theintent to sell and measured at fair value under the fair value
option. Changes in the fair value of MSRs are reported in
mortgage fees and related income. For a further discussionof MSRs, see Note 15. Net interest income from mortgage
loans is recorded in interest income.
Card income
This revenue category includes interchange income fromcredit and debit cards and fees earned from processing cardtransactions for merchants, both of which are recognizedwhen purchases are made by a cardholder. Card income
also includes annual and other lending fees and costs, which
are deferred and recognized on a straight-line basis over a
12-month period.
Certain Chase credit card products offer the cardholder theability 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.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous cobrand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to thecustomers of such partners. These partners endorse the cobrand credit card programs and provide their customer ormember 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 cobrand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.

193

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 noninterest expense. Payments forpartner 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 12month period. Payments to partners based on sales
volumes are reported as a reduction of card income when
the related interchange income is earned.
Card income is earned primarily by CCB and CB. See Note
31 for segment results.

194

Other income
Other income on the Firm’s Consolidated statements ofincome included the following:
Year ended December 31, (in millions)

2017

2016

2015

Operating lease income$ 3,613$ 2,724$ 2,081

Operating lease income is recognized on a straight–linebasis over the lease term.

Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements ofincome included the following:
Year ended December 31,(in millions)
Legal expense/(benefit)
FDIC-related expense

2017$(35) $
1,492

2016

2015

(317) $

2,969

1,296

1,227

JPMorgan Chase & Co./2017 Annual ReportNote 7 – Interest income and Interest expense
Interest income and interest expense are recorded in theConsolidated statements of income and classified based on
the nature of the underlying asset or liability.
The following table presents the components of interest
income and interest expense:
Year ended December 31,(in millions)

2017

2016

2015

Interest Income
Loans$ 41,008 $ 36,634 $ 33,134

Taxable securities

5,535

5,538

6,550

Non-taxable securities(a)

1,847

1,766

1,706

Total securities

7,382

7,304

8,256

Trading assets

7,610

7,292

6,621

Federal funds sold and securities
purchased under resaleagreements
Securities borrowed(b)

2,327

2,265

1,592

(37)

(332)

(532)

Deposits with banks

4,219

1,863

1,250

All other interest-earning assets(c)

1,863

875

652

Total interest income$ 64,372 $ 55,901 $ 50,973

Interest expense
Interest bearing deposits
Federal funds purchased andsecurities loaned or sold under
repurchase agreements$

2,857 $

1,356 $

1,252

1,611

1,089

609

Short-term borrowings

481

203

175

Trading liabilities - debt and allother interest-bearing liabilities(e)

2,070

1,102

557

Long-term debt

6,753

5,564

4,435

503

504

435

9,818 $

7,463

(d)

Beneficial interest issued byconsolidated VIEs
Total interest expense$ 14,275 $Net interest income$ 50,097 $ 46,083 $ 43,510

Provision for credit losses
Net interest income after
provision for credit losses

5,290

5,361

3,827

$ 44,807 $ 40,722 $ 39,683(a) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(b) Negative interest income is related to client-driven demand for certain
securities combined with the impact of low interest rates. This is matchedbook activity and the negative interest expense on the corresponding
securities loaned is recognized in interest expense.
(c) Includes held-for-investment margin loans, which are classified in
accrued interest and accounts receivable, and all other interest-earning
assets included in other assets.
(d) Includes commercial paper.
(e) Other interest-bearing liabilities include brokerage customer payables.

Interest income and interest expense includes the currentperiod 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, arereported 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. For further information on
JPMorgan Chase & Co./2017 Annual Reportaccounting for interest income and interest expense related
to loans, securities, securities financing (i.e. securities
purchased or sold under resale or repurchase agreements;
securities borrowed; and securities loaned) and long-term
debt, see Notes 12, 10, 11 and 19, respectively.

Note 8 – Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees. The Firm
has a qualified noncontributory U.S. defined benefit pension
plan that provides benefits to substantially all U.S.
employees. The Firm also has defined benefit pension plansthat are offered in certain non-U.S. locations based on
factors such as eligible compensation, age and/or years ofservice. It is the Firm’s policy to fund the pension plans inamounts sufficient to meet the requirements underapplicable laws. The Firm does not anticipate at this time
any contribution to the U.S. defined benefit pension plan in
2018. The 2018 contributions to the non-U.S. defined
benefit pension plans are expected to be $46 million ofwhich $30 million are contractually required.
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 currently provides two qualified defined
contribution plans in the U.S. and maintains other similararrangements in certain non-U.S. locations.
The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to qualifying U.S. and U.K. employees.
The Firm defrays the cost of its U.S. OPEB obligation
through corporate-owned life insurance (“COLI”) purchasedon the lives of eligible employees and retirees. While theFirm owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only toreimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The Firm has
generally funded its postretirement benefit obligations
through contributions to the relevant trust on a pay-as-you
go basis. On December 21, 2017, the Firm contributed$600 million of cash to the trust as a prefunding of a
portion of its postretirement benefit obligations. The U.K.
OPEB plan is unfunded.
Pension and OPEB accounting generally requires that thedifference 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 overbenefit obligation) are recorded in other assets and plansthat are underfunded (excess benefit obligation over plan
assets) are recorded within other liabilities. Gains or losses
resulting from changes in the benefit obligation and thevalue of plan assets are recorded in other comprehensive
income (“OCI”) and recognized as part of the net periodic
195

Notes to consolidated financial statements
benefit cost over subsequent periods as discussed in theGains and losses section of this Note. Additionally, service
cost, interest cost, and investment returns that would

otherwise be classified separately are aggregated andreported net within compensation expense.

The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and
OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm’s defined benefit pension and OPEB plans, andthe weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.
Defined benefit
pension plans

As of or for the year ended December 31,(in millions)

2017

OPEB plans(f)

2016

2017

2016

Change in benefit obligation
Benefit obligation, beginning of year$

(15,594)$(15,259)

$

(708)

$

(744)

Benefits earned during the year

(330)

(332)

—

—

Interest cost on benefit obligations

(598)

(629)

(28)

(31)

(7)

(7)

(16)

(19)

Net gain/(loss)

(721)

(743)

(4)

4

Benefits paid

841

851

76

76

Employee contributions

Plan settlements

30

21

—

—

Expected Medicare Part D subsidy receipts

NA

NA

(1)

—

Foreign exchange impact and otherBenefit obligation, end of year(a)

(321)

504

(3)

6

$

(16,700)$(15,594)

$

(684)

$

(708)

$

17,703$

17,636

$

1,956

$

1,855

Change in plan assets
Fair value of plan assets, beginning of year
Actual return on plan assets

2,356

1,375

233

Firm contributions

78

86

602

2

Employee contributions

7

7

—

—

(841)

(851)

(34)

(32)
—

Benefits paid
Plan settlements

(30)

(21)

—

Foreign exchange impact and other

330

(529)

—

131

—

Fair value of plan assets, end of year (a)(b)(c)$

19,603$

17,703

$

2,757

$

1,956

Net funded status (d)

$

2,903

$

2,109

$

2,073

$

1,248

Accumulated benefit obligation, end of year$

(16,530)$(15,421)$(2,800)$(3,667)

NA

NA

Pretax pension and OPEB amounts recorded in AOCI
Net gain/(loss)
Prior service credit/(loss)
Accumulated other comprehensive income/(loss), pretax, end of year6$

(2,794)$42$(3,625)

271

$

—
$

271

138
—

$

138

Weighted-average actuarial assumptions used to determine benefit obligations
Discount Rate (e)0.60 - 3.70%

0.60 - 4.30%

3.70%

4.20%

Rate of compensation increase (e)2.25 – 3.00

2.25 – 3.00

NA

NA

Assumed for next year

NA

NA

5.00

5.00

Ultimate

NA

NA

5.00

5.00

Year when rate will reach ultimate

NA

NA

2018

2017

Health care cost trend rate:(a) At December 31, 2017 and 2016, included non-U.S. benefit obligations of $(3.8) billion and $(3.4) billion, and plan assets of $3.9 billion and $3.4 billion, respectively,
predominantly in the U.K.
(b) At December 31, 2017 and 2016, approximately $302 million and $390 million, respectively, of U.S. defined benefit pension plan assets included participation rights underparticipating annuity contracts.
(c) At December 31, 2017 and 2016, defined benefit pension plan amounts that were not measured at fair value included $377 million and $130 million, respectively, of accrued
receivables, and $587 million and $224 million, respectively, of accrued liabilities, for U.S. plans.
(d) Represents plans with an aggregate overfunded balance of $5.6 billion and $4.0 billion at December 31, 2017 and 2016, respectively, and plans with an aggregate
underfunded balance of $612 million and $639 million at December 31, 2017 and 2016, respectively.
(e) For the U.S. defined benefit pension plans, the discount rate assumption is 3.70% and 4.30%, and the rate of compensation increase is 2.30% and 2.30%, for 2017 and 2016
respectively.
(f) Includes an unfunded postretirement benefit obligation of $32 million and $35 million at December 31, 2017 and 2016, respectively, for the U.K. plan.

196

JPMorgan Chase & Co./2017 Annual ReportGains and losses
For the Firm’s defined benefit pension plans, fair value isused 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 amortizedover the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently eight years and for the non-U.S.
defined benefit pension plans is the period appropriate forthe affected plan. In addition, prior service costs areamortized over the average remaining service period of
active employees expected to receive benefits under theplan when the prior service cost is first recognized. The
average remaining amortization period for the U.S. defined
benefit pension plan for current prior service costs is three
years.

For the Firm’s OPEB plans, a calculated value thatrecognizes changes in fair value over a five-year period isused to determine the expected return on plan assets. Thisvalue is referred to as the market-related value of assets.
Amortization of net gains and losses, adjusted for gains andlosses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gainor 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 amortizedover the average expected lifetime of retired participants,
which is currently eleven years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which iscurrently two years.

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 thedefined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the net periodic
benefit cost.
Pension plans
Year ended December 31, (in millions)

2017

OPEB plans

2016

2015

2017

2016

2015

Components of net periodic benefit cost
Benefits earned during the year

$

330

$

332

$

377

$

—

$

—

$

1

Interest cost on benefit obligations

598

629

610

28

31

31

Expected return on plan assets(968)(1,030)(1,079)

(97)

(105)

(106)

Net (gain)/loss

250

257

282

—

—

—

Prior service cost/(credit)

(36)

(36)

(36)

—

—

—

Special termination benefits

—

—

1

—

—

—

Settlement loss

2

4

—

—
(69) $(74) $

(74)

NA

NA

NA

$

(69) $(74) $

(74)

NA

NA

NA

948

$

(69) $(74) $

(74)

(50)

$

Amortization:

Net periodic defined benefit cost$

176

Other defined benefit pension plans(a)Total defined benefit plans

$

200

$

1,014

Total defined contribution plans
Total pension and OPEB cost included in compensation expense

$

156

24

$

155

25
$

181

814

$

179

789
$

$

24
769

970

$

395

$

Changes in plan assets and benefit obligations recognized in other comprehensive income
Net (gain)/loss arising during the year

$

(669)

(133) $

(29) $

21

(250)

(257)

(282)

—

—

—

Amortization of prior service (cost)/credit

36

36

36

—

—

—

Settlement loss

(2)

(4)

—

—

—

—

Foreign exchange impact and other

54

(77)

(33)

—

—

—

Amortization of net loss$

Total recognized in other comprehensive income

$

(831)

$

93

$

(329)

$

(133) $

(29) $

21

Total recognized in net periodic benefit cost and othercomprehensive income

$

(655)

$

249

$

(174)

$

(202) $

(103) $

(53)

Weighted-average assumptions used to determine net periodic benefit costs
Discount rate(b)0.60 - 4.30 %0.90 – 4.50%

1.00 – 4.00%

4.20%

4.40%

4.10%

Expected long-term rate of return on plan assets (b)0.70 - 6.00

0.80 – 6.50

0.90 – 6.50

5.00

5.75

6.00

Rate of compensation increase (b)2.25 - 3.00

2.25 – 4.30

2.75 – 4.20

NA

NA

NA

Assumed for next year

NA

NA

NA

5.00

5.50

6.00

Ultimate

NA

NA

NA

5.00

5.00

5.00

Year when rate will reach ultimate

NA

NA

NA

2017

2017

2017

Health care cost trend rate(a) Includes various defined benefit pension plans which are individually immaterial.
(b) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which is 2.30% for 2017 and3.50% for 2016 and 2015, respectively.

JPMorgan Chase & Co./2017 Annual Report197Notes to consolidated financial statements
The estimated pretax amounts that will be amortized fromAOCI into net periodic benefit cost in 2018 are as follows.

Net loss/(gain)

Defined benefit
pension plans$
106

Prior service cost/(credit)

$

(25)

Total

$

81

(in millions)

Plan assumptions
JPMorgan Chase’s expected long-term rate of return for
defined benefit pension and OPEB plan assets is a blended
weighted average, by asset allocation of the projected longterm returns for the various asset classes, taking into
consideration local market conditions and the specificallocation of plan assets. Returns on asset classes aredeveloped using a forward-looking approach and are notstrictly based on historical returns. Consideration is also
given to current market conditions and the short-term
portfolio mix of each plan.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans wasprovided by the Firm’s actuaries. This rate was selected byreference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan’s
projected cash flows. 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 the
Firm’s actuaries.
At December 31, 2017, the Firm decreased the discountrates 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 increase expense byapproximately $66 million in 2018. The 2018 expectedlong-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 5.50% and4.00%, respectively. As of December 31, 2017, the interest
crediting rate assumption remained at 5.00%.
As of December 31, 2017, the effect of a one-percentagepoint increase or decrease in the assumed health care costtrend rate is not material to the accumulated
postretirement benefit obligation or total service andinterest cost.

Investment strategy and asset allocation
The assets of the Firm’s defined benefit pension plans areheld in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash andcash equivalents, and alternative investments (e.g., hedge
funds, private equity, real estate and real assets). The trustowned assets of the Firm's U.S. OPEB plan are invested in
cash and cash equivalents. COLI policies used to defray thecost of the Firm's U.S. OPEB plan are invested in separate
accounts of an insurance company and are allocated toinvestments intended to replicate equity and fixed income
indices.
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 eachplan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal andexternal investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as otherfactors that impact the portfolios, which are rebalanced
when deemed necessary.
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, theinvestments in each of the common/collective trust funds
and/or registered investment companies are further
diversified into various financial instruments. As of
December 31, 2017, assets held by the Firm's defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposuresthrough 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$6.0 billion and $4.6 billion, as of December 31, 2017 and2016, respectively.

The following table represents the effect of a 25-basis point
decline in the three listed rates below on estimated 2018
defined benefit pension and OPEB plan expense, as well as
the effect on the postretirement benefit obligations.

(in millions)Defined benefit
pension and OPEB
plan expense

Expected long-term rate of return$

Discount rate

$

59

$

583

Interest crediting rate for U.S. plans$(41) $(193)

198

Benefitobligation

54

NA

JPMorgan Chase & Co./2017 Annual Report

The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 forthe years indicated, as well as the respective approved asset allocation ranges by asset class.
Defined benefit pension plans
Asset
December 31,% of plan assets

Allocation

2017

OPEB plan(c)
Asset

2016

% of plan assets

Allocation

2017(d)2016

Asset class
Debt securities(a)

0-80%

42%

35%

30-70%

61%

50%

Equity securities

0-85

42

47

30-70

39

50

Real estate

0-10

3

4

—

—

—

Alternatives (b)

0-35

13

14

—

—

—

Total

100%

100%

100%

100%

100%

100%

(a) Debt securities primarily include cash, corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
(d) Change in percentage of plan assets due to the contribution to the U.S. OPEB plan.

Fair value measurement of the plans’ assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and thevaluation methods employed by the Firm, see Note 2.
Pension and OPEB plan assets and liabilities measured at fair value
Defined benefit pension plans
2017
December 31,(in millions)Level 1

Cash and cash equivalents$

Level 2

173

$

2016
Total fairvalue

Level 3
1

$

—

$

174

Equity securities

6,407

194

2

6,603

Mutual funds

325

—

—

Common/collective trust funds(a)

778

—

—

Limited partnerships(b)60—

Corporate debt securities(c)

—

2,644

U.S. federal, state, local and non-U.S.
government debt securities

Level 1$

Level 2

196$

Total fairvalue

Level 3
2

$

—

$

198

6,158

166

2

6,326

325

—

—

—

—

778

384

—

—

384

—

60

62

—

—

62

4

2,648

—

2,506

4

2,510

1,096

784

—

1,880

1,139

804

—

1,943

Mortgage-backed securities

92

100

2

194

42

75

—

117

Derivative receivables

—

203

—

203

—

243

—

243

2,353

60

302

2,715

1,497

53

390

1,940

$ 15,580$ 13,723

Other(d)Total assets measured at fair value(e)$ 11,284

$

3,986

$

310

$

9,478

$

3,849

$

396

Derivative payables

$

—

$

(141) $—$

(141) $—$

(208) $

—

$

(208)

$

—

$

(141) $—$

(141) $—$

(208) $

—

$

(208)

Total liabilities measured at fair value(e)(a) At December 31, 2017 and 2016, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity
investments (including index) and real estate funds.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $605 million and $735 million for 2017 and 2016, respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(d) Other consists primarily of money market funds and participating and non-participating annuity contracts. Money market 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 a lack of market mechanisms for transferring each policy and surrender restrictions.
(e) At December 31, 2017 and 2016, excludes $4.4 billion and $4.2 billion of certain investments that are measured at fair value using the net asset value pershare (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy, $377 million and $130 million of defined
benefit pension plan receivables for investments sold and dividends and interest receivables, $561 million and $203 million of defined benefit pension planpayables for investments purchased, and $26 million and $21 million of other liabilities, respectively.

The assets of the U.S. OPEB plan consisted of $600 million and $0 million in cash and cash equivalents classified in level
1 of the valuation hierarchy and $2.2 billion and $2.0 billion of COLI policies classified in level 3 of the valuation
hierarchy at December 31, 2017 and 2016, respectively.

JPMorgan Chase & Co./2017 Annual Report

199

Notes to consolidated financial statements
Changes in level 3 fair value measurements using significant unobservable inputs
Fair value,
Beginningbalance(in millions)

Actual return on plan assets
Realized
gains/(losses)

Unrealized
gains/(losses)

Purchases, sales
and settlements,
net

Transfers in
and/or outof level 3

Fair value,
EndingbalanceYear ended December 31, 2017
U.S. defined benefit pension plan
Annuity contracts and other (a)

$

396

$

—

$

1

$

(87) $—$

310

U.S. OPEB plan
COLI policies

$

1,957

$

—

$

200

$

—

$

—

$

2,157

Year ended December 31, 2016
U.S. defined benefit pension plan
Annuity contracts and other (a)

$

539

$

—

$

(157) $

—

$

14

$

396

$

1,855

$

—

$

102

—

$

—

$

1,957

U.S. OPEB plan
COLI policies$(a) Substantially all are participating and non-participating annuity contracts.

Estimated future benefit payments
The following table presents benefit payments expected tobe 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.
Definedbenefitpensionplans

Year ended December 31,(in millions)
2018

$

926

OPEB
beforeMedicarePart Dsubsidy

MedicarePart Dsubsidy

$

$

65

1

2019

922

63

2020

927

60

1

2021

944

57

—

960

55

—

4,925

235

2

2022
Years 2023–2027

200

1

JPMorgan Chase & Co./2017 Annual ReportNote 9 – Employee share-based incentives
Employee share-based awards
In 2017, 2016 and 2015, JPMorgan Chase granted longterm share-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015.
Under the terms of the LTIP, as of December 31, 2017, 67
million shares of common stock were available for issuancethrough May 2019. The LTIP is the only active plan underwhich the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firmplans and plans assumed as the result of acquisitions, arereferred to collectively as the “LTI Plans,” and such plansconstitute the Firm’s share-based incentive plans.
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 andare converted into shares of common stock as of the vestingdate. 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 otherrestrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result incancellation under certain specified circumstances.
Generally, RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on theunderlying common stock during the period the RSUs areoutstanding and, as such, are considered participating
securities as discussed in Note 22.
In January 2017 and 2016, the Firm’s Board of Directors
approved the grant of performance share units (“PSUs”) to
members of the Firm’s Operating Committee under thevariable compensation program for performance years
2016 and 2015. PSUs are subject to the Firm’s achievementof specified performance criteria over a three-year period.
The number of awards that vest can range from zero to
150% of the grant amount. The awards vest and areconverted into shares of common stock in the quarter after
the end of the performance period, which is generally three
years. In addition, dividends are notionally reinvested in the
Firm’s common stock and will be delivered only in respect ofany earned shares.

The Firm separately recognizes compensation expense foreach 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 dateuntil 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 theestimated 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 eachtranche granted to employees who will become full-career
eligible during the vesting period, compensation expense isrecognized 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 share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2017, 2016 and 2015, the Firm settled all of its employee
share-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman andChief Executive Officer up to 2 million SARs. The terms ofthis award are distinct from, and more restrictive than,other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation & Management Development
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 had an expiration date of January 2018, were
exercised by Mr. Dimon in October 2017 at the exercise
price of $39.83 per share (the price of JPMorgan Chasecommon stock on the date of grant).

Once the PSUs have vested, the shares of common stockthat are delivered, after applicable tax withholding, must be
held for an additional two-year period, typically for a total
combined vesting and holding period of five years from the
grant date.
Under the LTI Plans, stock options and stock appreciationrights (“SARs”) have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase’scommon stock on the grant date. The Firm periodicallygrants employee stock options to individual employees.
There were no material grants of stock options or SARs
in 2017, 2016 and 2015. SARs generally expire ten years
after the grant date.

JPMorgan Chase & Co./2017 Annual Report201

Notes to consolidated financial statements
RSUs, PSUs, employee stock options and SARs activity
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 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, PSUs, employee stock options and SARs activity for 2017.
RSUs/PSUs

Options/SARs

30,267Weightedaverage
exercise
price
$
40.65

84.30

109

90.94

57.80

(12,816)40.50(2,030)

63.34

(54)

55.82

NA

NA

(13)

405.47

Outstanding, December 31

72,733 $66.36

17,493

Exercisable, December 31NANA15,828Year ended December 31, 2017
(in thousands, except weighted-average data, andwhere otherwise stated)
Outstanding, January 1

Weightedaverage grant
date fair value

Number ofunits

81,707 $57.15

Granted26,017

Exercised or vested(32,961)

Forfeited
Canceled

Number ofawards$

Weighted-averageremaining
contractual life
(in years)

Aggregate
intrinsic
value

40.76

3.4 $ 1,169,470

40.00

3.3

1,070,212

The total fair value of RSUs that vested during the years ended December 31, 2017, 2016 and 2015, was $2.9 billion, $2.2
billion and $2.8 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2017,2016 and 2015, was $651 million, $338 million and $335 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.
Year ended December 31, (in millions)

2017

2016

2015

Cost of prior grants of RSUs, PSUs andSARs that are amortized over theirapplicable vesting periods$ 1,125$ 1,046$ 1,109

Accrual of estimated costs of sharebased awards to be granted in future
periods including those to full-career
eligible employees

945

894

878

Total noncash compensation expense
related to employee share-based
incentive plans$ 2,070$ 1,940$ 1,987

At December 31, 2017, approximately $704 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 aweighted-average period of 1 year. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.

202

Cash flows and tax benefits
Effective January 1, 2016, the Firm adopted new
accounting guidance related to employee share-based
payments. As a result of the adoption of this new guidance,
all excess tax benefits (including tax benefits from dividends
or dividend equivalents) on share-based payment awards
are recognized within income tax expense in theConsolidated statements of income. In prior years these tax
benefits were recorded as increases to additional paid-in
capital. Income tax benefits related to share-based
incentive arrangements recognized in the Firm’s
Consolidated statements of income for the years ended
December 31, 2017, 2016 and 2015, were $1.0 billion,$916 million and $746 million, respectively.
The following table sets forth the cash received from theexercise of stock options under all share-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit

2017
$

18
190

2016
$

26
70

2015
$

20
64

JPMorgan Chase & Co./2017 Annual ReportNote 10 – Securities
Securities are classified as trading, AFS or HTM. Securities
classified as trading assets are discussed in Note 2.
Predominantly all of the Firm’s AFS and HTM securities areheld by Treasury and CIO in connection with its assetliability management activities. At December 31, 2017, theinvestment securities portfolio consisted of debt securities
with an average credit rating of AA+ (based upon externalratings 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 carriedat 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
AOCI. The specific identification method is used todetermine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on theConsolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidatedbalance 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.

The amortized cost and estimated fair value of the investment securities portfolio were as follows for the dates indicated.
2017
December 31, (in millions)

Amortized
cost

Gross
unrealized
gains

2016

Gross
unrealized
lossesFair
value

Amortized
cost

Gross
unrealized
gains

Gross
unrealized
lossesFair
value

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies(a)$ 69,879 $

736 $

335

$ 70,280

U.S(b)

8,193

185

14

Non-U.S.

2,882

122

Commercial

4,932

98

Total mortgage-backed securities

85,886

U.S. Treasury and government agencies(a)Obligations of U.S. states and municipalities$

63,367 $1,112 $

474$

64,005

8,364

8,171

100

28

8,243

1

3,003

6,049

158

7

6,200

5

5,025

9,002

122

20

9,104

1,141

355

86,67286,5891,492

529

87,552

22,510266

3122,74544,82275

796

44,10130,4901,881

33

32,33830,284

1,492

184

31,592

59

—

—

59

106

—

—

106

Non-U.S. government debt securities

26,900426

32

27,29434,497836

4535,288

Corporate debt securities

2,657

101

1

2,757

4,916

64

22

4,958

Collateralized loan obligations

20,92869

1

20,99627,35275

26

27,401

Other

8,764

77

24

8,817

6,950

62

45

6,967

198,194

3,961

477

201,678

235,516

4,096

1,647

237,965

Residential:

Certificates of deposit

Asset-backed securities:

Total available-for-sale debt securities
Available-for-sale equity securities

547

—

—

547

914

12

—

926

Total available-for-sale securities

198,741

3,961

477

202,225

236,430

4,108

1,647

238,891

U.S. government agencies(c)27,577558

40

28,09529,910638

37

30,511

Commercial

5,783

1

74

5,710

5,783

—

129

5,654

Total mortgage-backed securities

33,360559

114

33,80535,693638

166

36,165

Obligations of U.S. states and municipalities

14,373554

80

14,847

14,475374

125

14,72447,733

1,113

194

48,65250,1681,012

291

50,889$ 246,474 $5,074 $

671

$ 250,877

5,120 $ 1,938$ 289,780

Held-to-maturity debt securities
Mortgage-backed securities

Total held-to-maturity debt securities
Total securities$ 286,598 $(a) Includes total U.S. government-sponsored enterprise obligations with a fair value of $45.8 billion for the years ended December 31, 2017 and 2016, which werepredominantly mortgage-related.
(b) Prior period amounts have been revised to conform with the current period presentation.
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $22.0 billion and $25.6 billion at December 31, 2017 and 2016,
respectively, which were mortgage-related.

JPMorgan Chase & Co./2017 Annual Report203Notes to consolidated financial statements
Securities impairment
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2017 and 2016.
Securities with gross unrealized losses
Less than 12 months
December 31, 2017 (in millions)

12 months or more

Gross unrealized
lossesFair value

Gross unrealized
lossesFair value

Total fairvalue

Total grossunrealized losses

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies$

36,037 $

139

1,112

Non-U.S.
Commercial
Total mortgage-backed securities
U.S. Treasury and government agencies$

7,711 $

196 $

43,748 $

335

5

596

9

1,708

14

—

—

266

1

266

1

528

4

335

1

863

5

37,677

148

8,908

207

46,585

355

1,834

11

373

20

2,207

31

949

7

1,652

26

2,601

33

—

—

—

—

—

—

6,500

15

811

17

7,311

32

—

—

52

1

52

1

Residential:
U.S

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

—

—

276

1

276

1

3,521

20

720

4

4,241

24

50,481201

12,792276

63,273

477

—

—

—

—

—

—

U.S. government securities

4,070

38

205

2

4,275

40

Commercial

3,706

41

1,882

33

5,588

74

7,776

79

2,087

35

9,863

114

Other
Total available-for-sale debt securities
Available-for-sale equity securities
Held-to-maturity securities
Mortgage-backed securities

Total mortgage-backed securities
Obligations of U.S. states and municipalities
Total held-to-maturity securities
Total securities with gross unrealized losses

204

$

584

9

2,131

71

2,715

80

8,360

88

4,218

106

12,578

194

58,841 $289

17,010 $382 $75,851 $671$

JPMorgan Chase & Co./2017 Annual ReportSecurities with gross unrealized losses
Less than 12 months
December 31, 2016 (in millions)

12 months or more

Gross unrealized
lossesFair value

Gross unrealized
lossesFair value

Total fairvalue

Total grossunrealized losses

Available-for-sale debt securities
Mortgage-backed securities:
U.S. government agencies$

29,856 $

463

$

506 $

11 $

30,362 $474
28

Residential:
U.S.(a)

1,373

6

1,073

22

2,446

Non-U.S.

—

—

886

7

886

7

Commercial

2,328

17

1,078

3

3,406

20

Total mortgage-backed securities

33,557

486

3,543

43

37,100529

U.S. Treasury and government agencies

23,543796——

23,543796

Obligations of U.S. states and municipalities

7,215

181

55

3

7,270

184

—

—

—

—

—

—

4,436

36

421

9

4,857

45

797

2

829

20

1,626

22

766

2

5,263

24

6,029

26

Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale debt securities
Available-for-sale equity securities

739

6

1,992

39

2,731

45

71,053

1,509

12,103

138

83,156

1,647

—

—

—

—

—

—

Held-to-maturity debt securities
Mortgage-backed securities
U.S. government agencies

3,129

37

—

—

3,129

37

Commercial

5,163

114

441

15

5,604

129

8,292

151

441

15

8,733

166

Obligations of U.S. states and municipalities

4,702

125

—

—

4,702

125

Total held-to-maturity securities

12,994

276

441

15

13,435291

84,047 $

1,785

12,544 $153 $96,591 $1,938

Total mortgage-backed securities

Total securities with gross unrealized losses$$(a) Prior period amounts have been revised to conform with the current period presentation.

Gross unrealized losses
The Firm has recognized unrealized losses on securities thatit intends to sell as OTTI. The Firm does not intend to sell
any of the remaining securities with an unrealized loss in
AOCI as of December 31, 2017, and it is not likely that the
Firm will be required to sell these securities before recoveryof their amortized cost basis. Except for the securities forwhich credit losses have been recognized in income, theFirm believes that the securities with an unrealized loss in
AOCI are not other-than-temporarily impaired as ofDecember 31, 2017.
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 OTTI. For most types of debt
securities, the Firm considers a decline in fair value to beother-than-temporary when the Firm does not expect torecover 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 impairment to be otherJPMorgan Chase & Co./2017 Annual Reportthan-temporary 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 asecurity; payment structure of the security; changes to therating of the security by a rating agency; the volatility of thefair value changes; and the Firm’s intent and ability to holdthe security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses inearnings 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 amortizedcost basis. In these circumstances the impairment loss isequal to the full difference between the amortized costbasis 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
205Notes to consolidated financial statementsfrom 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 inincome. Amounts relating to factors other than credit losses
are recorded in OCI.

Securities gains and losses
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.

The Firm’s cash flow evaluations take into account thefactors 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 estimatescash flows considering underlying loan-level data andstructural features of the securitization, such as
subordination, excess spread, overcollateralization or otherforms 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 stressscenarios.

Realized gains
Realized losses
OTTI losses(a)Net securities gains/(losses)

For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases theFirm considers the relevant factors noted above, as well as
the Firm’s intent and ability to retain its investment for aperiod 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 costbasis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair valueof the security.

206

Year ended December 31,(in millions)2017$ 1,013(1,072)
(7)
(66)

$

2016

2015

401
(232)
(28)
141

$

351
(127)
(22)
202

OTTI losses
Credit losses recognized in income

—

(1)

(1)

Securities the Firm intends to sell(a)

(7)

(27)

(21)

Total OTTI losses recognized inincome

$

(7)

$

(28)

$

(22)

(a) Excludes realized losses on securities sold of $6 million, $24 million and $5
million for the years ended December 31, 2017, 2016 and 2015,
respectively that had been previously reported as an OTTI loss due to theintention to sell the securities.

Changes in the credit loss component of credit-impaired
debt securities
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized inincome related to AFS debt securities was not material as ofand during the years ended December 31, 2017, 2016 and2015.

JPMorgan Chase & Co./2017 Annual ReportContractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2017, of JPMorgan Chase’s
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2017 (in millions)
Available-for-sale debt securities
Mortgage-backed securities(a)Amortized cost
Fair value
Average yield(b)U.S. Treasury and government agencies
Amortized cost
Fair value
Average yield(b)Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)Certificates of deposit
Amortized cost
Fair value
Average yield(b)Non-U.S. government debt securities
Amortized cost
Fair value
Average yield(b)Corporate debt securities
Amortized cost
Fair value
Average yield(b)Asset-backed securities
Amortized cost
Fair value
Average yield(b)Total available-for-sale debt securities
Amortized cost
Fair value
Average yield(b)Available-for-sale equity securities
Amortized cost
Fair value
Average yield(b)Total available-for-sale securities
Amortized cost
Fair value
Average yield(b)Held-to-maturity debt securities
Mortgage-backed securities(a)Amortized Cost
Fair value
Average yield(b)Obligations of U.S. states and municipalities
Amortized cost
Fair value
Average yield(b)Total held-to-maturity securities
Amortized cost
Fair value
Average yield(b)Due in one
year or lessDue after one year
through five years

Due after five years
through 10 years

Due after
10 years(c)

Total

$

3
3
4.76%

$

698
708
2.10%

$

6,134
6,294
3.10%

$

79,051
79,6673.35%$

85,886
86,672
3.32%

$

60
60
1.72%

$

—
—
—%

$

17,437
17,542
1.96%

$

5,013
5,143
1.76%

$

22,51022,745
1.91%

$

73
72
1.78%

$

750
765
3.28%

$

1,265
1,324
5.40%

$

28,40230,1775.50%$

30,49032,338
5.43%

$

59
59
0.50%

$

—
—
—%

$

—
—
—%

$

—
—
—%

$

59
59
0.50%

$

5,020
5,022
3.09%

$

13,665
13,845
1.55%

$

8,215
8,427
1.19%

$

—
—
—%

$

26,90027,294
1.73%

$

150
151
3.07%

$

1,159
1,197
3.60%

$

1,203
1,255
3.58%

$

145
154
3.22%

$

2,657
2,757
3.54%

$

—
—
—%

$

3,372
3,353
2.14%

$

13,046
13,0802.58%$

13,274
13,3802.36%$

29,69229,813
2.43%

$

5,365
5,367
3.03%

$

19,644
19,8681.86%$

47,30047,9222.28%$

125,885
128,521
3.66%$

198,194
201,678
3.14%

$

—
—
—%

$

—
—
—%

$

—
—
—%

$

547
547
0.71%

$

547
547
0.71%

$

5,365
5,367
3.03%

$

19,644
19,8681.86%$

47,30047,922
2.28%$

126,432
129,068
3.65%$

198,741
202,225
3.13%

$

—
—
—%

$

—
—
—%

$

49
49
2.88%

$

33,31133,756
3.27%$

33,36033,805
3.27%

$

—
—
—%

$

66
65
4.74%

$

2,019
2,067
4.30%

$

12,28812,715
4.72%$

14,373
14,847
4.66%

$

—
—
—%

$

66
65
4.75%

$

2,068
2,116
4.26%

$

45,59946,471
3.66%$

47,73348,652
3.69%(a) As of December 31, 2017, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase’s total stockholders’ equity; the amortized cost andfair value of such securities was $55.1 billion and $56.0 billion, respectively.
(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 yieldconsiders the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used

JPMorgan Chase & Co./2017 Annual Report207Notes to consolidated financial statements
where applicable and reflect the estimated impact of the enactment of the Tax Cuts and Jobs Act (“TCJA”). The effective yield excludes unscheduled principal prepayments; andaccordingly, 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 U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based oncontractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately six years for agency residential MBS, three years foragency residential collateralized mortgage obligations and three years for nonagency residential collateralized mortgage obligations.

Note 11 – Securities financing activities
JPMorgan Chase enters into resale agreements, repurchaseagreements, 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 othersecurities obligations.
Securities financing agreements are treated ascollateralized 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 andsecurities loaned transactions are generally carried at theamount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty arereported on a net basis. For further discussion of theoffsetting 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 theConsolidated 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 3. 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 theConsolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals arerecorded within interest income and interest expense, withchanges 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.

208

Securities financing transactions 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 agency MBS) that it hasreceived from or provided to its counterparties compared to
the value of cash proceeds and exchanged collateral, andeither requests additional collateral or returns securities orcollateral when appropriate. Margin levels are initiallyestablished based upon the counterparty, the type ofunderlying securities, and the permissible collateral, andare monitored on an ongoing basis.
In resale agreements and securities borrowed transactions,
the Firm is exposed to credit risk to the extent that thevalue of the securities received is less than initial cash
principal advanced and any collateral amounts exchanged.
In repurchase agreements and securities loaned
transactions, credit risk exposure arises to the extent thatthe value of underlying securities exceeds the value of theinitial cash principal advanced, 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 theunderlying securities and any collateral amounts exchangedin the event of a counterparty default. It is also the Firm’s
policy to take possession, where possible, of the securities
underlying resale agreements and securities borrowed
transactions. For further information regarding assets
pledged and collateral received in securities financing
agreements, see Note 28.
As a result of the Firm’s credit risk mitigation practices withrespect 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 ofDecember 31, 2017 and 2016.

JPMorgan Chase & Co./2017 Annual Report

The table below summarizes the gross and net amounts of the Firm’s securities financing agreements, as of December 31,
2017, and 2016. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement witha 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 counterparties; this collateral also reduces the economic exposure with thecounterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under
U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets,” and reduces the “Net amounts”
presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with thecounterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented
gross in the “Net amounts” below, and related collateral does not reduce the amounts presented.
2017

December 31, (in millions)

Gross amounts

Amounts nettedon theConsolidatedbalance sheets

Amountspresented on theConsolidatedbalance sheets(b)Amounts notnettable on theConsolidatedbalance sheets(c)Net amounts(d)AssetsSecurities purchased under resale agreements$

448,608 $(250,505) $198,103 $(188,502) $9,601

113,926(8,814)105,112(76,805)

28,307398,218 $(250,505) $147,713 $(129,178) $18,53527,228(8,814)

18,414(18,151)

263

Gross amounts

Amounts nettedon theConsolidatedbalance sheets

Amountspresented on theConsolidatedbalance sheets(b)Securities borrowed
Liabilities
Securities sold under repurchase agreements$

Securities loaned and other(a)2016

December 31, (in millions)

Amounts notnettable on theConsolidatedbalance sheets(c)Net amounts(d)AssetsSecurities purchased under resale agreements$

Securities borrowed

480,735 $
96,409(250,832) $—229,903 $(222,413) $7,490

96,409(66,822)

29,587

151,633 $(133,300) $18,33322,451(22,177)274

Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)$402,465 $
22,451(250,832) $—(a) Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fairvalue, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities in the Consolidated balance sheets.
(b) Includes securities financing agreements accounted for at fair value. At December 31, 2017 and 2016, included securities purchased under resaleagreements of $14.7 billion and $21.5 billion, respectively, and securities sold under agreements to repurchase of $697 million and $687 million,
respectively. There were $3.0 billion of securities borrowed at December 31, 2017 and there were no securities borrowed at December 31, 2016. There
were no securities loaned accounted for at fair value in either period.
(c) 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 asset or liability with that counterparty.
(d) 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, 2017 and 2016, included $7.5 billion and $4.8 billion, respectively, of securities
purchased under resale agreements; $25.5 billion and $27.1 billion, respectively, of securities borrowed; $16.5 billion and $15.9 billion, respectively, of
securities sold under agreements to repurchase; and $29 million and $90 million, respectively, of securities loaned and other.

JPMorgan Chase & Co./2017 Annual Report209Notes to consolidated financial statements
The tables below present as of December 31, 2017 and 2016 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
Gross liability balance
2017
Securities soldunder repurchaseagreements

December 31, (in millions)2016
Securities soldunder repurchaseagreements

Securities loaned
and other(b)Securities loaned
and other(b)Mortgage-backed securities:
U.S. government agencies(a)13,100 $—14,034 $—Residential - nonagency

$

2,972

—

6,224

—

Commercial - nonagency

1,594

—

4,173

—

177,58114

185,145

—

1,557

—

2,491

—

Non-U.S. government debt

170,196

2,485

149,008

1,279

Corporate debt securities

14,231287

18,140108

Asset-backed securities

3,508

—

7,721

—

Equity securities

13,47924,442

15,52921,064398,218 $

27,228402,465 $

22,451

U.S. Treasury and government agencies(a)Obligations of U.S. states and municipalities

Total

$

$

$

Remaining contractual maturity of the agreements
Overnight andcontinuous

2017 (in millions)
Total securities sold under repurchase agreements$

Total securities loaned and other(b)

Up to 30 days

30 – 90 days

Greater than
90 daysTotal

166,425 $

156,434 $

41,611 $

33,748 $398,218

22,876

375

2,328

1,649

27,228

Remaining contractual maturity of the agreements
Overnight andcontinuous

2016 (in millions)
Total securities sold under repurchase agreements
Total securities loaned and other(b)$

Up to 30 days

30 – 90 days

Greater than
90 daysTotal

140,318 $

157,860 $

55,621 $48,666 $402,465

13,586

1,371

2,877

4,617

22,451(a) Prior period amounts were revised to conform with the current period presentation.
(b) Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fairvalue, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities on the Consolidated balance sheets.

Transfers not qualifying for sale accounting
At December 31, 2017 and 2016, the Firm held $1.5 billion and $5.9 billion, respectively, of financial assets for which therights 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 Consolidatedbalance sheets.

210

JPMorgan Chase & Co./2017 Annual ReportNote 12 – Loans
Loan accounting framework
The accounting for a loan depends on management’s
strategy for the loan, and on whether the loan was creditimpaired at the date of acquisition. The Firm accounts forloans based on the following categories:• Originated or purchased loans held-for-investment (i.e.,“retained”), other than PCI loans• Loans held-for-sale• Loans at fair value• PCI loans held-for-investment
The following provides a detailed accounting discussion ofthese loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, otherthan PCI loans, are recorded at the principal amountoutstanding, 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 net of an allowance
for uncollectible amounts.
Interest income
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 pricediscounts or premiums, as well as net deferred loan fees orcosts, are amortized into interest income over thecontractual 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 considerednonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or whenprincipal and interest has been in default for a period of 90days 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 theborrower by the contractually specified due date or forcertain loans (e.g., residential real estate loans), when amonthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintainedon nonaccrual status.
On the date a loan is placed on nonaccrual status, allinterest accrued but not collected is reversed againstinterest 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 isdeemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loanbalance, all interest cash receipts are applied to reduce the
JPMorgan Chase & Co./2017 Annual Reportcarrying 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 isreasonably 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 infull. However, the Firm separately establishes an allowance,
which is offset against loans and charged to interest
income, for the estimated uncollectible portion of accrued
and billed 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 estimatedprobable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognizedon the balance sheet as a contra asset, which brings therecorded investment 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 ofincome. See Note 13 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 andauto loans, 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 tothe allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans andnon-modified credit card loans are generally charged off nolater than 180 days past due. Scored auto, student andmodified credit card loans are charged off no later than 120
days past due.
Certain consumer loans will be charged off or charged down
to their net realizable value earlier than the FFIEC chargeoff standards in certain circumstances as follows:• Loans modified in a TDR that are determined to becollateral-dependent.
• Loans to borrowers who have experienced an event thatsuggests 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
within 60 days of receiving notification of a bankruptcy
filing).
• Auto loans upon repossession of the automobile.

211

Notes to consolidated financial statements
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on governmentguaranteed loans.
Wholesale loans, risk-rated business banking loans and riskrated auto loans are charged off when it is highly certainthat a loss has been realized, including situations where aloan is determined to be both impaired and collateraldependent. The determination of whether to recognize acharge-off includes many factors, including theprioritization of the Firm’s claim in bankruptcy, expectationsof 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 estimated net realizablevalue, the determination of the fair value of the collateraldepends on the type of collateral (e.g., securities, realestate). 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.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likelythat a borrower is either unable or unwilling to pay, theFirm obtains a broker’s price opinion of the home based on
an exterior-only valuation (“exterior opinions”), which isthen updated at least every six months thereafter. As soon
as practicable after the Firm receives the property insatisfaction of a debt (e.g., by taking legal title or physicalpossession), the Firm generally obtains an appraisal basedon 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 theestimated 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 externalvaluation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, inaccordance with the Firm’s policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker priceopinions at more frequent intervals.

212

Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fairvalue, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed ona portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Interest income on loans held-for-sale is accrued andrecognized 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 anddiscounts or premiums are an adjustment to the basis of theloan 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.
Held-for-sale loans are subject to the nonaccrual policies
described above.
Because held-for-sale loans are recognized at the lower ofcost or fair value, the Firm’s allowance for loan losses andcharge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed ona fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Interest income on these loans is accrued and recognizedbased on the contractual rate of interest. Changes in fairvalue are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in theassociated expense category as incurred.
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.
See Note 3 for further information on the Firm’s elections offair value accounting under the fair value option. See Note 2
and Note 3 for further information on loans carried at fairvalue and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fairvalue. PCI loans have evidence of credit deterioration since
the loan’s origination date and therefore it is probable, atacquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fairvalue, which includes an estimate of future credit losses, noallowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 223 of this Note for
information on accounting for PCI loans subsequent to theiracquisition.

JPMorgan Chase & Co./2017 Annual Report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 forloan losses; non-credit related losses such as those due tochanges 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 theheld-for-investment portfolio at the lower of cost or fairvalue on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm’s allowancemethodology. For a further discussion of the methodologies
used in establishing the Firm’s allowance for loan losses,
see Note 13.
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 aborrower who is experiencing financial difficulty in order tominimize 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 borrowerspecific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets inlieu of payments.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or isotherwise 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 thatthe loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal andinterest cash flows, the loan is disclosed as impaired and asa TDR only during the year of the modification; insubsequent 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.

JPMorgan Chase & Co./2017 Annual Report

Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in manycases such loans were already on nonaccrual status prior tomodification. 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 themodified 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 basedon, for example, the borrower’s debt capacity and level offuture earnings, collateral values, LTV ratios, and othercurrent market considerations. In certain limited and welldefined circumstances in which the loan is current at themodification 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 allowancemethodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowancemethodology throughout its remaining life, regardless ofwhether the loan is performing and has been returned to
accrual status and/or the loan has been removed from theimpaired loans disclosures (i.e., loans restructured atmarket rates). For further discussion of the methodology
used to estimate the Firm’s asset-specific allowance, seeNote 13.
Foreclosed property
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential realestate, 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 orphysical 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 offoreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidatedbalance sheets and initially recognized at fair value lesscosts to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lowerof cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, arecharged to other expense.

213

Notes to consolidated financial statements
Loan portfolio
The Firm’s loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card(a)Residential real estate – excluding PCI• Residential mortgage(b)• Home equity(c)Other consumer loans• Auto(d)• Consumer & Business Banking(d)(e)• Student
Residential real estate – PCI• Home equity• Prime mortgage• Subprime mortgage• Option ARMs

Credit card

Wholesale(f)• Credit card loans• Commercial and industrial• Real estate• Financial institutions• Government agencies• Other(g)(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b) Predominantly includes prime (including option ARMs) and subprime loans.
(c) Includes senior and junior lien home equity loans.
(d) 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.
(e) Predominantly includes Business Banking loans.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals; SPEs; and private education and civic organizations. For more information on SPEs, see Note 14.

The following tables summarize the Firm’s loan balances by portfolio segment.
December 31, 2017
(in millions)
Retained

Consumer, excluding
credit card$

372,553

Credit card(a)Wholesale$149,387$ 402,898

Held-for-sale

128

124

3,099

At fair value

—

—

2,508

149,511$ 408,505

Total
December 31, 2016
(in millions)
Retained$

Consumer, excluding
credit card$

Held-for-sale364,406$

Credit card(a)Wholesale$

141,711$ 383,790

105

2,285

238

At fair value
Total

372,681—$364,644

$

—

2,230

141,816$ 388,305

Total$

924,838
3,351
2,508

$

930,697

Total$

889,907
2,628
2,230

$

894,765(a) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b) Loans (other than PCI loans and 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, 2017 and 2016.

214

(b)

JPMorgan Chase & Co./2017 Annual Report(b)The following table provides information about the carrying value of retained loans purchased, sold and reclassified to heldfor-sale during the periods indicated. This table excludes 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.
2017Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases

$

3,461

Sales

3,405

Retained loans reclassified to held-for-sale

6,340

Credit card$(a)(b)

Wholesale
—

(c)

$

Total

1,799

$

5,260

—

11,063

14,468

—

1,229

7,569

2016
Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases$

Sales
Retained loans reclassified to held-for-sale

4,116

Credit card$(a)(b)

Wholesale
—

$

Total

1,448

$

5,564

6,368

—

8,739

15,107

321

—

2,381

2,702

2015
Year ended December 31,(in millions)

Consumer, excluding
credit card

Purchases

$

5,279

Credit card$(a)(b)

Wholesale
—

$

Total

2,154

$

7,433

Sales

5,099

—

9,188

14,287Retained loans reclassified to held-for-sale

1,514

79

642

2,235

(a) Purchases predominantly represent the Firm’s voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association (“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, FHA, RHS, and/or VA.
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm’s standards.
Such purchases were $23.5 billion, $30.4 billion and $50.3 billion for the years ended December 31, 2017, 2016 and 2015, respectively.
(c) Includes the Firm’s student loan portfolio which was sold in 2017.

The following table provides information about gains and losses on loan sales, including lower of cost or fair value adjustments,
on loan sales by portfolio segment.
Year ended December 31, (in millions)

2017

2016

2015

Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)Consumer, excluding credit card(b)

$

(126)

$

231

$

305

Credit card

(8)

(12)

1

Wholesale

41

26

34

Total net gains/(losses) on sales of loans (including lower of cost or fair value
adjustments)

$

(93)

$

245

$

340

(a) Excludes sales related to loans accounted for at fair value.
(b) Includes amounts related to the Firm’s student loan portfolio which was sold in 2017.

JPMorgan Chase & Co./2017 Annual Report215

Notes to consolidated financial statements
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans andlines of credit, auto loans, consumer and business banking
loans and student loans, with a focus on serving the prime
consumer credit market. The portfolio also includes homeequity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain paymentoption loans that may result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class. In 2017,
the Firm sold its student loan portfolio.
December 31, (in millions)

2017

2016

Residential real estate – excluding PCI
Residential mortgage(a)Home equity$ 216,496 $ 192,486
33,45039,063

Auto

66,24265,814

Consumer & Business Banking(a)25,78924,307—

7,057

Home equity

10,79912,902

Prime mortgage

6,479

7,602

Subprime mortgage

2,609

2,941

Option ARMs

10,68912,234

Other consumer loans

Student(a)Residential real estate – PCI

Total retained loans$ 372,553 $ 364,406(a) Certain loan portfolios have been reclassified. The prior period amounts havebeen revised to conform with the current period presentation.

216

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 beunable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower islikely either unable or unwilling to pay. In the case ofresidential real estate loans, late-stage delinquencies(greater than 150 days past due) are a strong indicator ofloans 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:• 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, isan indicator of the potential loss severity in the event ofdefault. Additionally, LTV or combined LTV ratios canprovide 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 suchas natural disasters, will affect credit quality. The
borrower’s current or “refreshed” FICO score is asecondary 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 toa borrower that has both a high LTV ratio and a high
FICO score.
• For scored auto and scored business banking loans,geographic distribution is an indicator of the credit
performance of the portfolio. Similar to residential realestate loans, geographic distribution provides insights
into the portfolio performance based on regional
economic activity and events.
• 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 aregular 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 loancredit quality indicators, see page 228 of this Note.

JPMorgan Chase & Co./2017 Annual ReportResidential real estate — excluding PCI loans
The following table provides information by class for residential real estate — excluding retained PCI loans.
Residential real estate – excluding PCI loans
December 31,(in millions, except ratios)

Residential mortgage(g)Total residential realestate – excluding PCIHome equity

2017

2016

2017

2016

2017

2016

Loan delinquency(a)Current$ 208,713$ 184,133$ 32,391$ 37,941$ 241,104$ 222,074

30–149 days past due

4,234

3,828

671

646

4,905

4,474

150 or more days past due

3,549

4,525

388

476

3,937

5,001

$ 216,496$ 192,486$ 33,450$ 39,063$ 249,946$ 231,549

Total retained loans% of 30+ days past due to total retained loans(b)90 or more days past due and government guaranteed(c)

0.77%
$

Nonaccrual loans

4,172

0.75%
$

2,175

3.17%

2.87%

4,858

—

—

2,256

1,610

1,845

1.09%
$

4,172

1.11%
$

3,785

4,858
4,101

Current estimated LTV ratios(d)(e)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
Less than 660

$

37

$

30

$

10

$

70

$

47

$

100

19

48

3

15

22

63

Equal to or greater than 660

36

135

296

668

332

803

Less than 660

88

177

95

221

183

398

4,369

4,026

1,676

2,961

6,045

6,987

483

718

569

945

1,052

1,663

194,758

169,579

25,262

27,317220,020

196,896

6,952

6,759

3,850

4,380

10,802

11,139No FICO/LTV available

1,259

1,650

1,689

2,486

2,948

4,136

U.S. government-guaranteed

8,495

9,364

—

—

8,495

9,364

$ 216,496$ 192,486$ 33,450$ 39,063$ 249,946$ 231,549

California$ 68,855$ 59,802

$

$

7,644

$ 75,437$ 67,446

New York

27,47324,916

6,866

7,978

34,33932,894

Illinois

14,501

13,126

2,521

2,947

17,022

16,073

Texas

12,508

10,772

2,021

2,225

14,52912,997

Florida

9,598

8,395

1,847

2,133

11,445

10,528New Jersey

7,142

6,374

1,957

2,253

9,099

8,627

Washington

6,962

5,451

1,026

1,229

7,988

6,680

Colorado

7,335

6,306

632

677

7,967

6,983

Massachusetts

6,323

5,834

295

371

6,618

6,205

Arizona

4,109

3,595

1,439

1,772

5,548

5,367

All other(f)51,69047,915

8,264

9,834

59,95457,749$ 216,496$ 192,486$ 33,450$ 39,063$ 249,946$ 231,549

101% to 125% and refreshed FICO scores:

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

Total retained loans
Geographic region

Total retained loans

6,582(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.4 billion and $2.5 billion; 30–149 days pastdue included $3.2 billion and $3.1 billion; and 150 or more days past due included $2.9 billion and $3.8 billion at December 31, 2017 and 2016, respectively.
(b) At December 31, 2017 and 2016, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $6.1 billion and $6.9 billion, respectively, thatare 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principalbalance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2017 and2016, these balances included $1.5 billion and $2.2 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For theremaining 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, 2017 and 2016.
(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 andshould 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 theproperty.
(e) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) At December 31, 2017 and 2016, included mortgage loans insured by U.S. government agencies of $8.5 billion and $9.4 billion, respectively.
(g) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report217

Notes to consolidated financial statements
The following table represents the Firm’s delinquency statistics for junior lien home equity loans and lines as of December 31,
2017 and 2016.
Total loans
December 31, (in millions except ratios)

2017

Total 30+ day delinquency rate
2016

2017

2016

HELOCs:(a)Within the revolving period(b)$Beyond the revolving period
HELOANs
Total$

6,363 $

10,304

0.50%

1.27%

13,532

13,272

3.56

3.05

1,371

1,861

3.50

2.85

21,266 $25,437

2.64%

2.32%

(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 thatallow 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.

HELOCs beyond the revolving period and HELOANs have higher delinquency rates than HELOCs within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than theminimum payment options available for HELOCs within the revolving period. The higher delinquency rates associated withamortizing HELOCs and HELOANs are factored into the Firm’s allowance for loan losses.
Impaired loans
The table below sets forth information about the Firm’s residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specificallowance as described in Note 13.
Residential mortgage

December 31,(in millions)2017

Total residential real estate– excluding PCIHome equity

2016

2017

2016

2017

2016

Impaired loans
With an allowance$

Without an allowance(a)4,407 $

4,689

1,213

1,343

$

1,236 $

1,266

882

998

$

5,643 $

5,955

2,095

2,341
8,296

Total impaired loans(b)(c)$5,620 $

6,032$

2,118 $

2,264$

7,738 $

Allowance for loan losses related to impaired loans

$

62 $

68

$

111 $

121

$

173 $

189

Unpaid principal balance of impaired loans(d)

7,741

8,285

3,701

3,847

11,442

12,132

Impaired loans on nonaccrual status(e)

1,743

1,755

1,032

1,116

2,775

2,871

(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less costs to sell. The Firm reports, in accordance withregulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower (“Chapter 7 loans”) as collateraldependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2017, Chapter 7 residential real estate loans included approximately 12% of home equity and
15% of residential mortgages that were 30 days or more past due.
(b) At December 31, 2017 and 2016, $3.8 billion and $3.4 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of theappropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae
guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2017 and 2016. 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.
(e) As of December 31, 2017 and 2016, nonaccrual loans included $2.2 billion and $2.3 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 211–213 of this Note.

218

JPMorgan Chase & Co./2017 Annual Report

The following table presents average impaired loans and the related interest income reported by the Firm.

Residential mortgage

2017$Home equity
Total residential real estate – excluding PCI

$

2016

Interest income on impairedloans on a cash basis(a)Interest income on
impaired loans(a)Average impaired loans

Year ended December 31,(in millions)

2015

5,797 $

6,376 $

7,697

2,189

2,311

2,369

7,986 $

8,687 $ 10,066

2017
$
$

2016

2015

287 $

305 $

348

127

125

128

414 $

430 $

476

2017
$
$

2016

2015

75 $

77 $

80

80

87
85

155 $

157 $

172

(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,
unless the loan is deemed to be collateral-dependent.

Loan modifications
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend toborrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.

The following table presents new TDRs reported by the
Firm.
Year ended December 31,(in millions)
Residential mortgage

2017

2016

2015

373 $

254 $

267

321

385

401

694 $

639 $

668

$

Home equity
Total residential real estate – excluding
PCI$

Nature and extent of modifications
The U.S. Treasury’s Making Home Affordable programs, 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 theterms of the original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm’s loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where thesole concession granted is the discharge of debt.
Residential mortgage

Total residential real estate– excluding PCIHome equity

Year ended December 31,

2017

2016

2015

2017

2016

2015

2017

2016

2015

Number of loans approved for a trial
modification

1,283

1,945

2,711

2,321

3,760

3,933

3,604

5,705

6,644

Number of loans permanently modified

2,628

3,338

3,145

5,624

4,824

4,296

8,252

8,162

7,441

Concession granted:(a)Interest rate reduction

63%

76%

71%

59%

75%

66%

60%

76%

68%

Term or payment extension

72

90

81

69

83

89

70

86

86

Principal and/or interest deferred

15

16

27

10

19

23

12

18

24

Principal forgiveness

16

26

28

13

9

7

14

16

16

Other(b)

33

25

11

31

6

—

32

14

5

(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because
predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or
payment extensions.
(b) Predominantly represents variable interest rate to fixed interest rate modifications.

JPMorgan Chase & Co./2017 Annual Report219

Notes to consolidated financial statements
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications ofresidential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults ofcertain loans modified in TDRs for the periods presented. The following table presents only the final financial effects ofpermanent modifications and does 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.
Year ended
December 31,(in millions, except weighted-average data andnumber of loans)

Residential mortgage
2017

2016

Total residential real estate –excluding PCIHome equity

2015

2017

2016

2015

2017

2016

2015

Weighted-average interest rate of loans withinterest rate reductions – before TDR

5.15%

5.59%

5.67%

4.94%

4.99%

5.20%

5.06%

5.36%

5.51%

Weighted-average interest rate of loans withinterest rate reductions – after TDR

2.99

2.93

2.79

2.64

2.34

2.35

2.83

2.70

2.64

Weighted-average remaining contractual term(in years) of loans with term or payment
extensions – before TDR

24

24

25

21

18

18

23

22

22

Weighted-average remaining contractual term(in years) of loans with term or payment
extensions – after TDR

38

38

37

39

38

35

38

38

36

Charge-offs recognized upon permanentmodification

$

2

$

4

$

11

$

1

$

1

$

4

$

3

$

5

$

15

Principal deferred

12

30

58

10

23

27

22

53

85

Principal forgiven

20

44

66

13

7

6

33

51

72

Balance of loans that redefaulted within one
year of permanent modification(a)

$

124

$

98

$

133

$

56

$

40

$

21

$

180

$

138

$

154

(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 themodification. 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 theloan 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.

At December 31, 2017, the weighted-average estimatedremaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 14 years forresidential mortgage and 10 years for home equity. The
estimated remaining lives of these loans reflect estimatedprepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).

220

Active and suspended foreclosure
At December 31, 2017 and 2016, the Firm had non-PCIresidential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $787 million
and $932 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.

JPMorgan Chase & Co./2017 Annual ReportOther consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
This table excludes student loans that were sold in 2017.
Auto

December 31,(in millions, except ratios)

Consumer & Business Banking(c)

2017

2016

2017

2016

Loan delinquency
Current$

30–119 days past due
120 or more days past due
Total retained loans$

65,651$65,029$25,454

584

773

213

7

12

122

66,242$65,814$25,789$23,920247
140$

24,307% of 30+ days past due to total retained loans

0.89%

1.19%

1.30%

1.59%

Nonaccrual loans

141

214

283

287

(a)

Geographic region
California

$

8,445

$

7,975

$

5,032

$

4,426

Texas

7,013

7,041

2,916

2,954

New York

4,023

4,078

4,195

3,979

Illinois

3,916

3,984

2,017

1,758

Florida

3,350

3,374

1,424

1,195

Arizona

2,221

2,209

1,383

1,307

Ohio

2,105

2,194

1,380

1,402

Michigan

1,418

1,567

1,357

1,343

New Jersey

2,044

2,031

721

623

Louisiana

1,656

1,814

849

979

All other

30,051

29,547

4,515

4,341

Total retained loans$

66,242$65,814$25,789$24,307$

15,604$

13,899$17,938$16,858Loans by risk ratings(b)Noncriticized
Criticized performing

93

201

791

816

Criticized nonaccrual

9

94

213

217

(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2017, and December 31, 2016.
(b) 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.
(c) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report221Notes to consolidated financial statements
Other consumer impaired loans and loan modifications
The following table sets forth information about the Firm’s other consumer impaired loans, including risk-rated businessbanking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
December 31, (in millions)
2017
2016
Impaired loans
With an allowance$ 272 $ 614
Without an allowance(a)2630Total impaired loans(b)(c)$ 298 $ 644
Allowance for loan losses related to impaired loans $73 $ 119
Unpaid principal balance of impaired loans(d)402753Impaired loans on nonaccrual status
268508(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. Thistypically occurs when the impaired loans have been partially charged off and/or
there have been interest payments received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $427 million, $635 million and$566 million for the years ended December 31, 2017, 2016 and 2015,
respectively. The related interest income on impaired loans, including those on a
cash basis, was not material for the years ended December 31, 2017, 2016 and2015.
(d) Represents the contractual amount of principal owed at December 31, 2017 and2016. 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 unamortizeddiscounts or premiums on purchased loans.

222

Loan modifications
Certain other consumer loan modifications are considered
to be TDRs as they provide various concessions toborrowers who are experiencing financial difficulty. All ofthese TDRs are reported as impaired loans. The following
table provides information about the Firm’s otherconsumer loans modified in TDRs. New TDRs were notmaterial for the years ended December 31, 2017 and2016.
December 31, (in millions)
Loans modified in TDRs(a)(b)
TDRs on nonaccrual status

2017
$

2016
102 $

362

72

226

(a) The impact of these modifications was not material to the Firm for the years
ended December 31, 2017 and 2016.
(b) Additional commitments to lend to borrowers whose loans have been modified in
TDRs as of December 31, 2017 and 2016 were immaterial.

JPMorgan Chase & Co./2017 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 tothe Washington Mutual transaction, all of the consumer PCI
loans were aggregated into pools of loans with common risk
characteristics.
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, theamounts and timing of prepayments and other factors thatreflect 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 forgone interest cash flows, discounted at the pool’s
effective interest rate. Impairments are recognized throughthe provision for credit losses and an increase in theallowance 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 theunderlying loans. The impacts of (i) prepayments, (ii)changes in variable interest rates, and (iii) any otherchanges in the timing of expected cash flows are generally
recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impactof these modifications is incorporated into the Firm’squarterly 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 forgoneinterest 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.

If the timing and/or amounts of expected cash flows on PCI
loan pools were determined not to be reasonably estimable,
no interest would be accreted and the loan pools would bereported as nonaccrual loans; however, since the timing andamounts of expected cash flows for the Firm’s PCI consumer
loan pools are reasonably estimable, interest is being
accreted and the loan pools are being reported as
performing loans.
The liquidation of PCI loans, which may include sales ofloans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from theunderlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than theunpaid principal balance of the loan, the difference is first
applied against the PCI pool’s nonaccretable difference forprincipal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at theacquisition date). When the nonaccretable difference for aparticular 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 forloan losses. Write-offs of PCI loans also include otheradjustments, primarily related to interest forgivenessmodifications. 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 ofdelinquency (i.e., unlike non-PCI consumer loans, theseloans are not charged off based on FFIEC standards).
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 fromthe liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutualtransaction were funded based on the interest ratecharacteristics of the loans. For example, variable-rateloans were funded with variable-rate liabilities and fixedrate loans were funded with fixed-rate liabilities with asimilar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as ofDecember 31, 2017, to have a remaining weighted-average
life of 9 years.

The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as theaccretable 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.

JPMorgan Chase & Co./2017 Annual Report223

Notes to consolidated financial statements
Residential real estate – PCI loans
The table below sets forth information about the Firm’s consumer, excluding credit card, PCI loans.
Home equity

December 31,(in millions, except ratios)
Carrying value(a)Prime mortgage

Subprime mortgage

Option ARMs

Total PCI

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

$10,799$12,902$ 6,479$ 7,602$ 2,609$ 2,941$10,689$12,234$30,576$35,679

1,133

1,433

863

829

150

—

79

49

2,225

2,311

Related allowance for loan losses(b)Loan delinquency (based on unpaid principal balance)
Current$10,272$12,423$ 5,839$ 6,840$ 2,640$ 3,005$ 9,662$11,074$28,413$33,342

30–149 days past due

356

291

336

336

381

361

547

555

1,620

1,543

150 or more days past due

392

478

327

451

176

240

689

917

1,584

2,086

$11,020$13,192$ 6,502$ 7,627$ 3,197$ 3,606$10,898$12,546$31,617$36,971

Total loans% of 30+ days past due to total loans

6.79%

5.83%

10.20%

10.32%

17.42%

16.67%

11.34%

11.73%

10.13%

9.82%

Current estimated LTV ratios (based on unpaid principal balance)(c)(d)Greater than 125% and refreshed FICO scores:
Equal to or greater than 660$

33

Less than 660

$

69

$

4

$

6

$

2

21

39

16

17

20

Equal to or greater than 660

274

555

16

52

Less than 660

132

256

42

84

1,195

1,860

221

559

804

230

Equal to or greater than 660

6,134

6,676

3,551

3,967

Less than 660

2,095

2,183

2,103

2,287

577

750

319

391

$11,020$13,192$ 6,502

$

7

$

6

31

9

20

39

75

135

442

119

381

309

$

12

$

45

$

94

18

66

105

43

83

353

729

71

144

320

619

214

316

558

1,851

3,074

439

371

609

1,469

2,233

895

919

6,113

6,754

16,69318,316

1,608

1,645

3,499

3,783

9,305

9,898

149

177

470

585

1,515

1,903

$ 7,627$ 3,197$ 3,606$10,898$12,546$31,617$36,971$$

101% to 125% and refreshed FICO scores:

80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Less than 660
Lower than 80% and refreshed FICO scores:

No FICO/LTV available
Total unpaid principal balance

Geographic region (based on unpaid principal balance)

California$ 6,555$ 7,899$ 3,716$ 4,396899$ 6,225$ 7,128$17,293$20,322

Florida

1,137

1,306

428

501

296

332

878

1,026

2,739

3,165

New York

607

697

457

515

330

363

628

711

2,022

2,286

Washington

532

673

135

167

61

68

238

290

966

1,198

Illinois

273

314

200

226

161

178

249

282

883

1,000

New Jersey

242

280

178

210

110

125

336

401

866

1,016

Massachusetts

79

94

149

173

98

110

307

346

633

723

Maryland

57

64

129

144

132

145

232

267

550

620

Arizona

203

241

106

124

60

68

156

181

525

614

Virginia

66

77

123

142

51

56

280

314

520

589

All other

1,269

1,547

881

1,029

1,101

1,262

1,369

1,600

4,620

5,438

$11,020$13,192$ 6,502$ 7,627$ 3,197$ 3,606$10,898$12,546$31,617$36,971

Total unpaid principal balance

797(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 expectedcash 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 onhome valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is notavailable. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as
estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(d) Refreshed FICO scores represent each borrower’s most recent credit score, which is obtained by the Firm on at least a quarterly basis.

224

JPMorgan Chase & Co./2017 Annual ReportApproximately 25% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANs or
HELOCs. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2017 and 2016.
Total loans
December 31,

2017

Total 30+ day delinquency rate
2016

2017

2016

(in millions, except ratios)
HELOCs:(a)Within the revolving period(b)$Beyond the revolving period(c)

2,126

1.96%

3.67%

7,875

51 $

7,452

4.63

4.03

360

465

5.28

5.38

8,286 $

10,043

4.65%

4.01%

HELOANs
Total$(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.
(b) Substantially all undrawn HELOCs within the revolving period have been closed.
(c) Includes loans modified into fixed rate amortizing loans.

The table below sets forth the accretable yield activity for the Firm’s PCI consumer loans for the years ended December 31,
2017, 2016 and 2015, and represents the Firm’s estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
Total PCI

Year ended December 31,(in millions, except ratios)

2017

Beginning balance$

Accretion into interest income

2016

11,768$2015

13,491$

14,592(1,396)(1,555)(1,700)Changes in interest rates on variable-rate loans

503

260

279

Other changes in expected cash flows(a)

284

(428)

230

Reclassification from nonaccretable difference—(b)Balance at December 31
Accretable yield percentage$

11,1594.53%—$

11,7684.35%

90$

13,491
4.20%(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected to becollected due to the impact of modifications and changes in prepayment assumptions.
(b) Reclassifications from the nonaccretable difference in the year ended December 31, 2015 were driven by continued improvement in home prices and delinquencies,
as well as increased granularity in the impairment estimates.

Active and suspended foreclosure
At December 31, 2017 and 2016, the Firm had PCI residential real estate loans with an unpaid principal balance of $1.3
billion and $1.7 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.

JPMorgan Chase & Co./2017 Annual Report225Notes to consolidated financial statements
Credit card loan portfolio
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 theportfolio based on the regional economy.
While the borrower’s credit score is another generalindicator of credit quality, the Firm does not view creditscores as a primary indicator of credit quality because theborrower’s credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the scoredoes not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for astatistically significant random sample of the credit card
portfolio is indicated in the following table. FICO isconsidered 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 theperformance of the cardholder and changes in credit score
calculation.

The table below sets forth information about the Firm’s
credit card loans.
As of or for the year ended December 31,(in millions, except ratios)
Net charge-offs

2017$% of net charge-offs to retained loans

4,123

2016
$

2.95%

3,442
2.63%

Loan delinquency
Current and less than 30 days past due
and still accruing$ 146,704$ 139,434

30–89 days past due and still accruing

1,305

1,134

1,378
$ 149,387

1,143$ 141,711

90 or more days past due and still accruing
Total retained credit card loans
Loan delinquency ratios% of 30+ days past due to total retained loans

1.80%

1.61%

% of 90+ days past due to total retained loans

0.92

0.81

Credit card loans by geographic region
California
Texas
New York
FloridaIllinois
New Jersey
Ohio
Pennsylvania
Colorado
Michigan
All other$

22,245
14,20013,021
9,138
8,585
6,506
4,997
4,883
4,006
3,826
57,980Total retained credit card loans$ 149,387$

20,571
13,22012,249
8,585
8,189
6,271
4,906
4,787
3,699
3,741
55,493$ 141,711

Percentage of portfolio based on carrying
value with estimated refreshed FICO scores

226

Equal to or greater than 660
Less than 660

84.0%
14.6

84.4%
14.2

No FICO available

1.4

1.4

JPMorgan Chase & Co./2017 Annual Report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.
December 31, (in millions)2017

Impaired credit card loans with anallowance(a)(b)Credit card loans with modified payment
terms(c)Modified credit card loans that havereverted to pre-modification payment
terms(d)Total impaired credit card loans(e)$Allowance for loan losses related to
impaired credit card loans

2016

1,135 $

1,098

80

142

$

1,215 $

1,240

$

383 $

358

(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
(b) There were no impaired loans without an allowance.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit
card modification program as of the date presented.
(d) Represents credit card loans that were modified in TDRs but that havesubsequently reverted back to the loans’ pre-modification payment terms.
At December 31, 2017 and 2016, $43 million and $94 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 $37 million and $48 million at December 31, 2017and 2016, respectively, of these loans are to borrowers who havesuccessfully completed a short-term modification program. The Firm
continues to report these loans as TDRs since the borrowers’ credit lines
remain closed.
(e) Predominantly all impaired credit card loans are in the U.S.

The following table presents average balances of impaired
credit card loans and interest income recognized on thoseloans.
Year ended December 31,(in millions)Average impaired credit card loans

2017

2016

2015

$ 1,214 $ 1,325 $ 1,710

Interest income on
impaired credit card loans

59

63

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.
New enrollments in these loan modification programs forthe years ended December 31, 2017, 2016 and 2015, were$756 million, $636 million and $638 million, respectively.
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.
Year ended December 31,(in millions, except
weighted-average data)

2017

2016

2015

Weighted-average interest rateof loans – before TDR

16.58%

15.56%

15.08%

Weighted-average interest rateof loans – after TDR

4.88

4.76

4.40

Loans that redefaulted within
one year of modification(a)

$

75

$

79

$

85

(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balanceof such loans as of the end of the quarter in which they defaulted.

For credit card loans modified in TDRs, a substantial portionof these loans are expected to be charged-off in accordancewith the Firm’s standard charge-off policy. Based on
historical experience, the estimated weighted-average
default rate for modified credit card loans was expected tobe 31.54%, 28.87% and 25.61% as of December 31,
2017, 2016 and 2015, respectively.

82

Loan modifications
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who areexperiencing financial difficulty. Most of the credit cardloans have been modified under long-term programs forborrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing thecustomer 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- andlong-term programs typically include reducing the interest
rate on the credit card. Substantially all modifications are
considered to be TDRs.

JPMorgan Chase & Co./2017 Annual Report227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 tohigh-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the 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 thatwould be realized upon the default of the borrower andtakes into consideration collateral and structural support
for each credit facility.

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 theindustry in which the obligor conducts its operations. As
part of the overall credit risk management framework, theFirm 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 4 for further detail on industry concentrations.

Management considers several factors to determine anappropriate risk rating, including the obligor’s debt capacityand financial flexibility, the level of the obligor’s earnings,
the amount and sources for repayment, the level and natureof 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 definedby 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”) andcriticized (“CCC+”/“Caa1 and below”), and the criticized
portion is further subdivided into performing andnonaccrual loans, representing management’s assessmentof the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticizedloans.

228

JPMorgan Chase & Co./2017 Annual Report

The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
In 2017 the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage
concentrations. This largely resulted in the re-assignment of holding companies from Other to the industry of risk category
based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions
below, the prior period amounts have been revised to conform with the current period presentation.
Below are summaries of the Firm’s exposures as of December 31, 2017 and 2016. For additional information on industry
concentrations, see Note 4.
As of or for theyear ended
December 31,(in millions,
except ratios)
Loans by risk
ratings
Investmentgrade

Commercial
and industrial

Financial
institutions

Real estate

Government agencies

Total
retained loans

Other(d)

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

2017

2016

$ 68,071$ 65,687$ 98,467$ 88,649$ 26,791$24,294$ 15,140$ 15,935$103,212$ 95,358$ 311,681$ 289,923

46,55847,531

14,335

16,155

13,071

11,075

369

439

9,988

9,360

84,321

84,560Noninvestmentgrade:
Noncriticized
Criticized
performing

3,983

6,186

710

798

210

200

—

6

259

163

5,162

7,353

Criticizednonaccrual

1,357

1,491

136

200

2

9

—

—

239

254

1,734

1,954

Total
noninvestmentgrade

51,89855,20815,181

17,153

13,283

11,284369

445

10,486

9,777

91,217

93,867

Total retained
loans$119,969$120,895$ 113,648$105,802$ 40,074$35,578$ 15,509$ 16,380$113,698$105,135$ 402,898$ 383,790% of total
criticized tototal retained
loans% of nonaccrualloans to total
retained loans

4.45%

6.35%

0.74%

0.94%

0.53%

0.59%

—%

0.04%

0.44%

0.40%

1.71%

2.43%

1.13

1.23

0.12

0.19

—

0.03

—

—

0.21

0.24

0.43

0.51

$ 28,470
91,499$ 30,563
90,332$

3,302
102,500$ 16,790
23,284$15,147
20,431$ 2,906
12,603$ 3,726
12,654$ 44,112
69,586$ 38,776
66,359$ 95,379
307,519$ 91,514
292,276$119,969$120,895$ 113,648$105,802$ 40,074$35,578$ 15,509$ 16,380$113,698$105,135$ 402,898$ 383,790

$

$

$

$

$

$

$

$

$

$

Loans bygeographic
distribution(a)Total non-U.S.
Total U.S.
Total retainedloans
Net charge-offs/(recoveries)% of net
charge-offs/(recoveries) to
end-of-period
retained loans

117

0.10%

345

3,101
110,547

0.28%

$

(4) $

(7)

—%

(0.01)%

6

0.01%

(1)

(0.01)%

5

0.03%

(1)

(0.01)%

(5) $

5

—%

0.01%

119

0.03%

341

0.09%

Loan
delinquency(b)Current and lessthan 30 days
past due andstill accruing
30–89 days past
due and still
accruing
90 or more days
past due andstill accruing(c)Criticizednonaccrual
Total retained
loans$118,288$119,050$ 113,258$105,396$ 40,042$35,523$ 15,493$ 16,269$112,559$104,280$ 399,640$ 380,518

216

268

242

204

15

25

12

107

898

582

1,383

1,186

108

86

12

2

15

21

4

4

2

19

141

132

1,357

1,491

136

200

2

9

—

—

239

254

1,734

1,954

$119,969$120,895$ 113,648$105,802$ 40,074$35,578$ 15,509$ 16,380$113,698$105,135$ 402,898$ 383,790(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.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(d) Other includes individuals, SPEs, holding companies, and private education and civic organizations. For more information on exposures to SPEs, see Note 14.

JPMorgan Chase & Co./2017 Annual Report229

Notes to consolidated financial statements
The following table presents additional information on the real estate class of loans within the Wholesale portfolio for theperiods indicated. Exposure consists primarily of secured commercial loans, of which multifamily is the largest segment.
Multifamily lending finances acquisition, leasing and construction of apartment buildings, and includes exposure to realestate investment trusts (“REITs”). Other commercial lending largely includes financing for acquisition, leasing andconstruction, largely for office, retail and industrial real estate, and includes exposure to REITs. Included in real estate loans is$10.8 billion and $9.2 billion as of December 31, 2017 and 2016, respectively, of construction and development exposure
consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans
for land subdivision and pre-development.
Multifamily

December 31,(in millions, except ratios)

2017

Real estate retained loans$

Other Commercial

2016

77,597$

2017

72,143$

Total real estate loans

2016

36,051$

33,65920172016$ 113,648$ 105,802

Criticized

491

539

355

459

846

998

% of criticized to total real estate retained loans

0.63%

0.75%

0.98%

1.36%

0.74%

0.94%

Criticized nonaccrual$% of criticized nonaccrual to total real estate retained loans

44

$

57

0.06%

$

92

0.08%

$

143

0.26%

$

136

0.42%

$

200

0.12%

0.19%

Wholesale impaired loans and loan modifications
Wholesale impaired loans consist 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 13.
The table below sets forth information about the Firm’s wholesale impaired loans.
Commercial
and industrial

December 31,(in millions)2017

Financial
institutions

Real estate

2016

2017

2016

2017

Government
agencies

2016

2017

Total
retained loans

Other

2016

2017

2016

2017

2016
$ 1,440

Impaired loans
With an allowance$ 1,170 $ 1,127

Without an allowance(a)

228

$

414

78 $

124

60

87

$

93 $

9

—

—

$

— $

—

—

—

$

168 $

180

$ 1,509

70

76

358

Total impaired loans$ 1,398 $ 1,541

$

138 $

211

$

93 $

9

$

— $

—

$

238 $

256

$ 1,867

Allowance for loan losses related
to impaired loans

$

$

11 $

18

$

4 $

3

$

— $

—

$

42 $

63

$

201

295

94

12

—

—

255

284

Unpaid principal balance ofimpaired loans(b)

404 $

258

1,604

1,754

461
2,154

577
(c)

$ 2,017
$

342
2,345

(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 typicallyoccurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
(b) Represents the contractual amount of principal owed at December 31, 2017 and 2016. 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 onpurchased loans.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.

The following table presents the Firm’s average impairedloans for the years ended 2017, 2016 and 2015.
Year ended December 31, (in millions)
Commercial and industrial

2017
$

2016

2015

1,145 $

1,480 $

453

Real estate

164

217

250

Financial institutions

20

13

13

Government agencies

—

—

—

231

213

129

1,560 $

1,923 $

845

Other
Total(a)$Certain loan modifications are considered to be TDRs as
they provide various concessions to borrowers who areexperiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $614 million
and $733 million as of December 31, 2017 and 2016.

(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,
2017, 2016 and 2015.

230

JPMorgan Chase & Co./2017 Annual Report(c)Note 13 – Allowance for credit losses
JPMorgan Chase’s allowance for loan losses represents
management’s estimate of probable credit losses inherent
in the Firm’s retained loan portfolio, which consists of thetwo consumer portfolio segments (primarily scored) andthe wholesale portfolio segment (risk-rated). The allowance
for loan losses includes a formula-based component, anasset-specific component, and a component related to PCI
loans, as described below. Management also estimates anallowance for wholesale and certain consumer lendingrelated commitments using methodologies similar to thoseused to estimate the allowance on the underlying loans.
During the second quarter of 2017, the Firm refined its
credit loss estimates relating to the wholesale portfolio byincorporating the use of internal historical data versus
external credit rating agency default statistics to estimate
PD. In addition, an adjustment to the statistical calculation
for wholesale lending-related commitments wasincorporated similar to the adjustment applied forwholesale loans. The impacts of these refinements were notmaterial to the allowance for credit losses.
The Firm’s policies used to determine its allowance for
credit losses are described in the following paragraphs.
Determining the appropriateness of the allowance iscomplex and requires judgment by management about theeffect of matters that are inherently uncertain. Subsequentevaluations of the loan portfolio, in light of the factors thenprevailing, may result in significant changes in theallowances for loan losses and lending-related
commitments in future periods. At least quarterly, theallowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm and discussed with the DRPC
and the Audit Committee. As of December 31, 2017,
JPMorgan Chase deemed the allowance for credit losses tobe appropriate (i.e., sufficient to absorb probable credit
losses inherent in the portfolio).
Formula-based component
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the assetspecific component, while PCI loans have an allowanceassessed as part of the PCI component. See Note 12 formore information on TDRs, Impaired loans and PCI loans.
Formula-based component - Consumer loans and certain
lending-related commitments
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loanequivalent amounts of pools of loan exposures with similarrisk characteristics over a loss emergence period to arriveat an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may change
JPMorgan Chase & Co./2017 Annual Reportover time; management applies judgment in estimating loss
emergence periods, using available credit information andtrends. In addition, management applies judgment to thestatistical loss estimates for each loan portfolio category,using delinquency trends and other risk characteristics toestimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods andconsiders actual portfolio performance, including actual
losses recognized on defaulted loans and collateralvaluation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact ofpotential modifications of residential real estate loans is notincluded in the statistical calculation because of theuncertainty regarding the type and results of suchmodifications.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors andcurrent economic events that have occurred but that are notyet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part byanalyzing 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 ofunderwriting standards, borrower behavior, and otherrelevant internal and external factors affecting the credit
quality of the portfolio. In certain instances, theinterrelationships between these factors create further
uncertainties. The application of different inputs into thestatistical calculation, and the assumptions used bymanagement to adjust the statistical calculation, are subject
to management judgment, and emphasizing one input orassumption over another, or considering other inputs orassumptions, could affect the estimate of the allowance for
credit losses for the consumer credit portfolio.
Overall, the allowance for credit losses for consumer
portfolios is sensitive to changes in the economic
environment (e.g., unemployment rates), delinquency rates,
the realizable value of collateral (e.g., housing prices), FICO
scores, borrower behavior and other risk factors. While allof these factors are important determinants of overall
allowance levels, changes in the various factors may notoccur 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 another. In addition,changes in these factors would not necessarily be consistentacross 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 severityof losses or both.

231

Notes to consolidated financial statements
Formula-based component - Wholesale loans and lendingrelated commitments
The Firm’s methodology for determining the allowance forloan losses and the allowance for lending-related
commitments involves the early identification of credits thatare deteriorating. The formula-based component of theallowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent over a loss emergence period toarrive at an estimate of incurred credit losses in theportfolio. Estimated loss emergence periods may vary byfunded versus unfunded status of the instrument and maychange over time.
The Firm assesses the credit quality of its borrower orcounterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,adjusted for changes in credit quality over the life of the
exposure. 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, thelevel of the obligor’s earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography inwhich the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
A PD estimate is determined based on the Firm’s history ofdefaults over more than one credit cycle.
LGD estimate is a judgment-based estimate assigned toeach 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 theseniority of the Firm’s lending exposure in the obligor’s
capital structure affect LGD.
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent used in calculating
the allowance for credit losses. Estimates of PD, LGD, loss
emergence period and loan-equivalent used are subject toperiodic refinement based on any changes to underlying
external or Firm-specific historical data. Changes to thetime period used for PD and LGD estimates could also affectthe allowance for credit losses. The use of different inputs,
estimates or methodologies could change the amount of theallowance for credit losses determined appropriate by theFirm.
In addition to the statistical credit loss estimates applied to
the wholesale portfolio, management applies its judgment
to adjust the statistical estimates for wholesale loans andlending-related commitments, 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
232

considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are basedon management’s view of uncertainties that relate tocurrent macroeconomic conditions, quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the current portfolio.
Asset-specific component
The asset-specific component of the allowance relates toloans considered to be impaired, which includes loans thathave been modified in TDRs as well as risk-rated loans thathave been placed on nonaccrual status. To determine theasset-specific component of the allowance, larger risk-rated
loans (primarily loans in the wholesale portfolio segment)
are evaluated individually, while smaller loans (both riskrated and scored) are evaluated as pools using historicalloss experience for the respective class of assets.
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 becollected, discounted at the loan’s original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the allowance for loan losses. In certain
cases, the asset-specific allowance is determined using anobservable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan’s fair value. Collateral-dependent loans arecharged down to the fair value of collateral less costs tosell. For any of these impaired loans, the amount of theasset-specific allowance required to be recorded, if any, isdependent upon the recorded investment in the loan(including prior charge-offs), and either the expected cash
flows or fair value of collateral. See Note 12 for more
information about charge-offs and collateral-dependent
loans.
The asset-specific component of the allowance for impairedloans that have been modified in TDRs (including forgoneinterest, principal forgiveness, as well as other concessions)
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 ofdefault, the Firm considers the relationship between thecredit quality characteristics of the underlying loans andcertain 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 ofmodification program. For wholesale loans modified in
TDRs, expected losses incorporate management’s
expectation of the borrower’s ability to repay under themodified terms.
JPMorgan Chase & Co./2017 Annual ReportEstimating the timing and amounts of future cash flows ishighly judgmental as these cash flow projections rely uponestimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), theamounts and timing of interest or principal payments(including any expected prepayments) or other factors thatare 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, theexpected outcome of insolvency proceedings as well as, incertain circumstances, other economic factors, including
the level of future home prices. All of these estimates andassumptions require significant management judgment andcertain assumptions are highly subjective.

JPMorgan Chase & Co./2017 Annual Report

PCI loans
In connection with the acquisition of certain PCI loans,which are accounted for as described in Note 12, theallowance for loan losses for the PCI portfolio is based onquarterly estimates of the amount of principal and interest
cash flows expected to be collected over the estimatedremaining 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 futurehome prices, and the duration of current overall economic
conditions, among other factors. These estimates andassumptions require significant management judgment andcertain assumptions are highly subjective.

233

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-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
2017
Consumer,
excludingcredit card

Year ended December 31,(in millions)Credit card

Wholesale

Total

Allowance for loan losses
Beginning balance at January 1,$

Gross charge-offs

5,198

$

1,779

4,034

$

4,521

4,544

$

13,776212

6,512

Gross recoveries

(634)

(398)

(93)

(1,125)

Net charge-offs

1,145

4,123

119

5,387

Write-offs of PCI loans(a)

86

—

—

86

Provision for loan losses

613

4,973

(286)

5,300

Other
Ending balance at December 31,

(1)
$

—

4,579

$

246

$

2

4,884

$

1

4,141

$

461

$

13,604

Allowance for loan losses by impairment methodology
Asset-specific(b)

$

383

(c)

$

1,090

Formula-based

2,108

4,501

3,680

10,289

PCI

2,225

—

—

2,225

Total allowance for loan losses

$

4,579

$

8,036

$

4,884

$

1,215

$

4,141

$

1,867

$

13,604Loans by impairment methodology
Asset-specific$

Formula-based

333,941

PCI
Total retained loans

148,172

30,576401,028—

11,118883,141

3

30,579$372,553$

149,387$

402,898$

924,838

$

64

$

—

$

31

$

95

Impaired collateral-dependent loans
Net charge-offs
Loans measured at fair value of collateral less cost to sell

2,133

—

233

2,366

Allowance for lending-related commitments
Beginning balance at January 1,

$

26

$

—

$

1,052

Provision for lending-related commitments

7

—

(17)

Other

—

—

—

Ending balance at December 31,

$

1,078
(10)
—

$

33

$

—

$

1,035

$

1,068

$

—

$

—

$

187

$

187

—

$

1,035

$

1,068

—

$

731

$

Allowance for lending-related commitments by impairment methodology
Asset-specific
Formula-based
Total allowance for lending-related commitments

33
$

—

33

$

—

$

848

881

Lending-related commitments by impairment methodology
Asset-specific$

Formula-based
Total lending-related commitments

48,553$48,553572,831$572,831369,367$

370,098731
990,751$

991,482(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.
(b) Includes risk-rated loans that have been placed on nonaccrual status and all 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 contractualinterest rates and does not consider any incremental penalty rates.
(d) The prior period amounts have been revised to conform with the current period presentation.

234

JPMorgan Chase & Co./2017 Annual Report

(table continued from previous page)
2016
Consumer,
excludingcredit card$$$

Credit card

5,806

$

$

$

$

$

$
$

4,315

$

13,555

$

7,050

$

Wholesale

3,439

$

Total

3,696

$

14,185

398

5,697

1,658

3,488

95

5,241

(357)

(57)

(1,005)

(704)

(366)

(85)

(1,155)

909

3,442

341

4,692

954

3,122

10

4,086

156

—

—

156

208

—

—

208

467

4,042

571

5,080

(82)

3,122

623

3,663

(10)

—

(1)

(11)

—

(5)

6

5,198

$

308

$

4,034

358

$

(c)

$

3,676
$

8,940

$

4,544

$

342

$

4,202

—

5,198

$

1,240

$

$

1,008

$

10,457—

4,034

13,776

$

2,017

$

$

364

$

2,700

2,311

4,544

5,806

$

12,197

$

460

$

(c)

$

2,974

2,742

13,776

3,434

$

9,606

$

$

13,555

274

$

1,098

4,041

—

5,806

1

4,315

9,715

—

3,434

$

1,465

$

2,742

4,315

$

1,024

$

13,555

12,095

319,787

140,471

381,770842,028

293,751

129,922

356,022779,695

35,679—3

35,68240,998—441,002364,406$

141,711

$

98

$

—

$

—

14

$

—

383,790

$

7

$

300

$

772

889,907

$

105

$

2,691

$

344,355$

131,387

$

104

$

—

$

2,566

786

$

—

13

$

—

357,050

$

16

$

283

$

609

832,792

120
2,849

$

622

—

—

281

281

1

—

163

164

12

—

(1)

11

—

—

—

—

26

$

—

$

1,052

$

1,078

$

—

$

—

$

169

$

169

$

26
$

$

Credit card

3,799

2,391

$

3,434

Total

(591)

2,311

$

Wholesale

1,500

2,579
$

2015
Consumer,
excludingcredit card

—

26

$

—

$

53,247(d)53,247

(d)

883

—

$

—

$

553,891$

553,891

909

1,052

$

506

$

367,508$

JPMorgan Chase & Co./2017 Annual Report

368,014

$

14

$

—

$

—

$

—

$

14

1,078

$

506

$

974,646(d)

975,152

(d)

$

—

14

$

—

$

56,865(d)56,865

(d)

—

$

—

$

515,518

$

73

$

699

515,518
$

772

772

$

193

$

366,39973713

366,206
$

786

$

786

193
938,589(d)

938,782(d)

235

Notes to consolidated financial statements
Note 14 – 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 primary beneficiary of the structure; (2) the VIE isused 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

Activity

Credit card securitization trusts

Securitization of originated credit card receivables

236-237

Mortgage securitization trusts

Servicing and securitization of both originated andpurchased residential mortgages

237-239

Mortgage and other securitization trusts

Securitization of both originated and purchased
residential and commercial mortgages and otherconsumer loans

237-239

Multi-seller conduits

Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions tomeet investor needs
Financing of municipal bond investments

CCB

CIB

Annual Report
page references

Transaction Type

Municipal bond vehicles

239
239-240

The Firm’s other business segments are also involved with VIEs (both third-party and Firm-sponsored), but to a lesser extent,
as follows:• Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIEs. As asset manager of thefunds, 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 variableinterests 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 anddoes 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 thirdparty 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. See 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. See pages
241-242 of this Note for more information on the VIEs sponsored by third parties.
Significant Firm-sponsored variable interest entities
Credit card securitizations
CCB’s Card business securitizes 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 is considered to be the primary beneficiary ofthese Firm-sponsored credit card securitization trusts basedon 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 aretransferred into those trusts and as to any related
modifications and workouts. Additionally, the nature andextent of the Firm’s other continuing involvement with thetrusts, as indicated above, obligates the Firm to absorb
236

losses and gives the Firm the right to receive certain
benefits from these VIEs that could potentially besignificant.
The underlying securitized credit card receivables and otherassets 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’sother 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 interestin the credit card trusts (generally 5%). As of December 31,
2017 and 2016, the Firm held undivided interests in Firmsponsored credit card securitization trusts of $15.8 billion
and $8.9 billion, respectively. The Firm maintained anaverage undivided interest in principal receivables ownedby those trusts of approximately 26% and 16% for theyears ended December 31, 2017 and 2016. As of both
JPMorgan Chase & Co./2017 Annual ReportDecember 31, 2017 and 2016, the Firm did not retain any
senior securities and retained $4.5 billion and $5.3 billionof subordinated securities in certain of its credit card
securitization trusts as of December 31, 2017 and 2016,
respectively. The Firm’s undivided interests in the credit
card trusts and securities retained are eliminated inconsolidation.

The Firm securitizes (or has securitized) originated andpurchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as wellas the respective business involved, the Firm may act as theservicer of the loans and/or retain certain beneficial
interests in the securitization trusts.

Firm-sponsored mortgage and other 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 beheld pursuant to credit risk retention rules), 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 242 of this Note forfurther information regarding the Firm’s cash flows with and interests retained in nonconsolidated VIEs, and page 243 of thisNote for information on the Firm’s loan sales to U.S. government agencies.
JPMorgan Chase interest in securitized assets innonconsolidated VIEs(c)(d)(e)Principal amount outstanding

December 31, 2017 (in millions)

Assets held in
Assetsnonconsolidated
Total assets
held insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsSecurities

Total
interests
held by
JPMorgan
Chase

Other
financialassetsSecuritization-related(a)Residential mortgage:
Prime/Alt-A and option ARMs$

Subprime
Commercial and other

(b)

Total

$

68,874 $3,615 $

52,28018,984

7

17,612

94,90563

63,411

182,763 $3,685 $

133,303

$

$

943 $

— $

1,353

93

—

—

93

745

1,133

157

2,035

1,248 $

2,076 $

157 $

3,481

JPMorgan Chase interest in securitized assets innonconsolidated VIEs(c)(d)(e)Principal amount outstanding

December 31, 2016(in millions)

410 $Assets held in
Assetsnonconsolidated
Total assets
held insecuritization
held byconsolidated
VIEs withsecuritization securitization
continuing
VIEs
VIEs
involvement

Trading
assetsSecurities

Total
interests
held by
JPMorgan
Chase

Other
financialassetsSecuritization-related(a)Residential mortgage:
Prime/Alt-A and option ARMs$

Subprime
Commercial and other(b)
Total

$

76,789 $4,209 $

57,543226 $

1,334 $

— $21,542—

19,903

$

76

—

—

76

101,265

107

71,464

509

2,064

—

2,573

199,596 $4,316 $

148,910811 $

3,398 $

— $

4,209

$

1,560

(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. See page 243 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.
(c) Excludes the following: retained servicing (see Note 15 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 5 for further
information on derivatives); senior and subordinated securities of $88 million and $48 million, respectively, at December 31, 2017, and $180 million and$49 million, respectively, at December 31, 2016, 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, 2017 and 2016, 61% and 61%, respectively, of the Firm’s retained securitization interests, which are predominantly carried at fairvalue 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 $1.5 billion of investment-grade and $48 million and $77 million ofnoninvestment-grade retained interests at December 31, 2017 and 2016, respectively. The retained interests in commercial and other securitizations
trusts consisted of $1.6 billion and $2.4 billion of investment-grade and $412 million and $210 million of noninvestment-grade retained interests at
December 31, 2017 and 2016, respectively.

JPMorgan Chase & Co./2017 Annual Report237

Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originatedby CCB, as well as residential mortgage loans purchasedfrom 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.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsoredsecuritization 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 thesecondary 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, theFirm is deemed to be the primary beneficiary of certain
securitization trusts. See the table on page 241 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 thepower 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. See the table on page241 of this Note for more information on the consolidated
residential mortgage securitizations, and the table on theprevious page of this Note for further information oninterests 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 (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 notservice commercial loan securitizations. For commercial
mortgage securitizations the power to direct the significant
activities of the VIE generally is held by the servicer orinvestors in a specified class of securities (“controllingclass”). The Firm generally does not retain an interest in thecontrolling class in its sponsored commercial mortgage
securitization transactions. See the table on page 241 of
this Note for more information on the consolidated
commercial mortgage securitizations, and the table on theprevious page of this Note for further information oninterests held in nonconsolidated securitizations.
238

Re-securitizations
The Firm engages in certain re-securitization transactions inwhich debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur inconnection with both agency (Federal National Mortgage
Association (“Fannie Mae”), Federal Home Loan Mortgage
Corporation (“Freddie Mac”) and Government National
Mortgage Association (“Ginnie Mae”)) and nonagency(private-label) sponsored VIEs, which may be backed byeither residential or commercial mortgages. The Firm’s
consolidation analysis is largely dependent on the Firm’srole 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)

2017

2016

2015

Transfers of securities to
VIEs
Firm-sponsored private-label

$

—

$

647

$

777

Agency$ 12,617$

11,241$

21,908

Most re-securitizations with which the Firm is involved areclient-driven transactions in which a specific client or groupof clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that thedecision-making power of the entity is shared between the
Firm and its clients, considering the joint effort anddecisions 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 anonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, theFirm is deemed to have the unilateral ability to direct themost significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates there-securitization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests ofthird-party re-securitizations and generally purchases theseinterests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct themost significant activities of the re-securitization trust,either because it was not involved in the initial design of thetrust, or the Firm is involved with an independent thirdparty sponsor and demonstrates shared power over thecreation of the trust; therefore, the Firm does notconsolidate the re-securitization VIE.

JPMorgan Chase & Co./2017 Annual Report

The following table presents information on
nonconsolidated re-securitization VIEs.

enhancement facilities provided to the conduits. See page241 of this Note for further information on consolidated VIE
assets and liabilities.

Year ended December 31,(in millions)Firm-sponsored private-label

2017

2016

Assets held in VIEs with continuing involvement(a)

783

875

Interest in VIEs

29

43

2,250

1,986

AgencyInterest in VIEs(a) Represents the principal amount and includes the notional amount ofinterest-only securities.

As of December 31, 2017 and 2016, the Firm did notconsolidate any agency re-securitizations or any Firmsponsored private-label re-securitizations.
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 theirfinancing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of thecommercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with dealspecific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Dealspecific credit enhancements are generally structured tocover a multiple of historical losses expected on the pool ofassets, 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, andto provide the conduits with funding to provide financing tocustomers in the event that the conduits do not obtainfunding in the commercial paper market, each asset poolfinanced by the conduits has a minimum 100% dealspecific 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 isbased 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 thesignificant activities of the conduits and a potentiallysignificant economic interest in the conduits. As
administrative agent and in its role in structuringtransactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm’s intereststhat could potentially be significant to the VIEs include thefees received as administrative agent and liquidity andprogram-wide credit enhancement provider, as well as thepotential exposure created by the liquidity and credit
JPMorgan Chase & Co./2017 Annual Report

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
$20.4 billion and $21.2 billion of the commercial paperissued by the Firm-administered multi-seller conduits at
December 31, 2017 and 2016, respectively, which havebeen eliminated in consolidation. The Firm’s investments
reflect the Firm’s funding needs and capacity and were notdriven 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 purchasethe commercial paper issued by the Firm-administeredmulti-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity andcredit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firmadministered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administeredmulti-seller conduits. The unfunded commitments were
$8.8 billion and $7.4 billion at December 31, 2017 and2016, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on offbalance sheet lending-related commitments, see Note 27.
Municipal bond vehicles
Municipal bond vehicles or tender option bond (“TOB”)
trusts allow institutions to finance their municipal bondinvestments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipalbond(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 typicallypurchased 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 aresponsored by a third party; see page 242 on this Note forfurther information. The Firm serves as sponsor for all NonCustomer 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 andremarketing tendered Floaters. The remarketing agent may,
but is not obligated to, make markets in Floaters. The Firm
held an insignificant amount of Floaters during 2017 and
2016.

239

Notes to consolidated financial statements
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(“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 orthe 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, theliquidity 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 makedecisions that significantly impact the economic
performance of the municipal bond vehicle, and it has theright to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle. See
page 241 of this Note for further information on
consolidated municipal bond vehicles.

240

JPMorgan Chase & Co./2017 Annual ReportConsolidated VIE assets and liabilities
The following table presents information on assets and liabilities related to VIEs consolidated by the Firm as of December 31,
2017 and 2016.
AssetsTrading
assets

December 31, 2017 (in millions)
VIE program type(a)Firm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Student loan securitization entities(c)
Other
Total

$

$

— $
—
1,278
66
—
105
1,449 $

Loans

Liabilities

Other(d)41,923 $23,411—
3,661——
68,995 $

652 $
48
3
55
—
1,916
2,674 $

Total
assets(e)42,57523,459
1,281
3,782
—
2,021
73,118Beneficial
interests in
VIE assets(f)$$21,278 $
3,045
1,265
359
—
134
26,081 $AssetsTrading
assets

December 31, 2016 (in millions)
VIE program type(a)Firm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities(b)Student loan securitization entities (c)
Other
Total

$

$

— $
—
2,897
143
—
145
3,185 $

Loans

16 $
28
2
199
—
104
349 $

Total
liabilities
21,294
3,073
1,267
558
—
238
26,430Liabilities

Other(d)45,919 $23,760
—
4,246
1,689
—
75,614 $Other(g)

790 $
43
8
103
59
2,318
3,321 $

Total
assets(e)46,70923,803
2,905
4,492
1,748
2,463
82,120Beneficial
interests in
VIE assets(f)$$31,181 $
2,719
2,969
468
1,527
183
39,047 $Other(g)
18 $
33
2
313
4
120
490 $

Total
liabilities
31,199
2,752
2,971
781
1,531
303
39,537(a) Excludes intercompany transactions, which are eliminated in consolidation.
(b) Includes residential and commercial mortgage securitizations.
(c) The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these
entities as a result of the sale of the student loan portfolio.
(d) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(e) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The difference between total
assets and total liabilities recognized for consolidated VIEs represents the Firm’s interest in the consolidated VIEs for each program type.
(f) The interest-bearing beneficial interest liabilities issued by consolidated VIEs are classified in the line item on the Consolidated balance sheets titled,“Beneficial interests issued by consolidated variable interest entities.” The holders of these beneficial interests do not have recourse to the general creditof JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $21.8 billion and $33.4 billion at December 31,
2017 and 2016, respectively. For additional information on interest bearing long-term beneficial interest, see Note 19.
(g) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.

VIEs sponsored by third parties
The Firm enters into transactions with VIEs structured byother 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’slength, and individual credit decisions are based on theanalysis of the specific VIE, taking into consideration thequality of the underlying assets. Where the Firm does nothave the power to direct the activities of the VIE that mostsignificantly impact the VIE’s economic performance, or avariable interest that could potentially be significant, theFirm 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.

JPMorgan Chase & Co./2017 Annual Report

Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that construct, own and operate affordable housing, wind,solar and other alternative energy projects. These entities
are primarily considered VIEs. A third party is typically thegeneral partner or managing member and has control overthe significant activities of the tax credit vehicles, andaccordingly the Firm does not consolidate tax credit
vehicles. The Firm generally invests in these partnerships asa limited partner and earns a return primarily through thereceipt of tax credits allocated to the projects. The
maximum loss exposure, represented by equity investments
and funding commitments, was $13.4 billion and $14.8
billion, of which $3.2 billion and $3.8 billion was unfundedat December 31, 2017 and 2016 respectively. In order toreduce the risk of loss, the Firm assesses each project andwithholds varying amounts of its capital investment until
qualification of the project for tax credits. See Note 24 for241

Notes to consolidated financial statements
further information on affordable housing tax credits. For
more information on off-balance sheet lending-related
commitments, see Note 27.

Loan securitizations
The Firm has securitized and sold a variety of loans,including residential mortgage, credit card, student andcommercial (primarily related to real estate) loans, as well
as debt securities. The purposes of these securitizationtransactions were to satisfy investor demand and to
generate liquidity for the Firm.

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, theFirm, as liquidity provider, has entered into areimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, theFirm has recourse to the third party Residual holders forany shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of theunderlying municipal bonds. The Firm does not consolidate
Customer TOB trusts, since the Firm does not have thepower to make decisions that significantly impact theeconomic performance of the municipal bond vehicle. The
Firm’s maximum exposure as a liquidity provider toCustomer TOB trusts at December 31, 2017 and 2016, was$5.3 billion and $5.0 billion, respectively. The fair value of
assets held by such VIEs at December 31, 2017 and 2016
was $9.2 billion and $8.9 billion, respectively. For more
information on off-balance sheet lending-related
commitments, see Note 27.

For loan securitizations in which the Firm is not required toconsolidate the trust, the Firm records the transfer of theloan receivable to the trust as a sale when all of thefollowing accounting criteria for a sale are met: (1) thetransferred 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 andit 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.

Securitization activity
The following table provides information related to the Firm’s securitization activities for the years ended December 31, 2017,2016 and 2015, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, andwhere sale accounting was achieved at the time of the securitization.
2017

2016

Year ended December 31,(in millions, except rates)

Residential
mortgage(d)Principal securitized
All cash flows during the period:(a)$5,532 $

10,252$

1,817 $

8,964$

3,008 $

11,933$

5,661 $

10,340$1,831 $

9,094$

3,022 $

12,011

Proceeds received from loan sales as financial
instruments(b)Servicing fees collected
Purchases of previously transferred financial assets (orthe underlying collateral)(c)Cash flows received on interests

Commercial
and other(e)Residential
mortgage(d)2015Commercial
and other(e)Residential
mortgage(d)Commercial
and other(e)

525

3

477

3

528

3

1

—

37

—

3

—

463

918

482

1,441

407

597

(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
(c) Includes cash paid by the Firm to reacquire assets from off–balance sheet, nonconsolidated entities – for example, loan repurchases due to representation andwarranties and servicer “clean-up” calls.
(d) Includes prime/Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(e) Includes commercial mortgage and other consumer loans.

Key assumptions used to value retained interests originatedduring the year are shown in the table below.
Year ended December 31,
Residential mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate
Commercial mortgage retained interest:
Weighted-average life (in years)
Weighted-average discount rate
242

2017

2016

2015

4.8
2.9%

4.5
4.2%

4.2
2.9%

7.1
4.4%

6.2
5.8%

6.2
4.1%
JPMorgan Chase & Co./2017 Annual ReportLoans and excess MSRs sold to U.S. governmentsponsored enterprises, loans in securitizationtransactions pursuant to Ginnie Mae guidelines, and otherthird-party-sponsored securitization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course ofbusiness, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to U.S. government sponsored enterprises(“U.S. GSEs”). These loans and excess MSRs are soldprimarily 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 guaranteedby another U.S. government agency. The Firm does notconsolidate the securitization vehicles underlying thesetransactions as it is not the primary beneficiary. For alimited number of loan sales, the Firm is obligated to sharea portion of the credit risk associated with the sold loans
with the purchaser. See Note 27 for additional information
about the Firm’s loan sales- and securitization-related
indemnifications.
See Note 15 for additional information about the impact of
the Firm’s sale of certain excess MSRs.
The following table summarizes the activities related toloans sold to the U.S. GSEs, loans in securitizationtransactions pursuant to Ginnie Mae guidelines, and otherthird-party-sponsored securitization entities.
Year ended December 31,(in millions)

2017

2016

2015

Carrying value of loans sold$

64,542 $52,869 $42,161

Proceeds received from loan
sales as cash

$

117 $

592 $

313

Proceeds from loans sales as
securities(a)Total proceeds received fromloan sales(b)Gains on loan sales(c)(d)

63,54251,852

41,615$63,659 $52,444 $41,928

$

163 $

222 $

299

(b) Excludes the value of MSRs retained upon the sale of loans.
(c) Gains on loan sales include the value of MSRs.
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.

Options to repurchase delinquent loans
In addition to the Firm’s obligation to repurchase certain
loans due to material breaches of representations andwarranties as discussed in Note 27, the Firm also has theoption 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 typicallyelects to repurchase delinquent loans from Ginnie Mae loanpools as it continues to service them and/or manage theforeclosure process in accordance with the applicablerequirements, and such loans continue to be insured or
guaranteed. When the Firm’s repurchase option becomes
exercisable, such loans must be reported on theConsolidated balance sheets as a loan with a corresponding
liability.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, andforeclosed government-guaranteed residential mortgage
loans recognized on the Firm’s Consolidated balance sheets
as of December 31, 2017 and 2016. Substantially all ofthese loans and real estate are insured or guaranteed by
U.S. government agencies. For additional information, refer
to Note 12.
December 31,(in millions)
Loans repurchased or option to repurchase

$

2017

2016

8,629 $

9,556

Real estate owned

95

142

Foreclosed government-guaranteed residential
mortgage loans(b)

527

1,007

(a)

(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.

(a) Predominantly includes securities from U.S. GSEs and Ginnie Mae thatare generally sold shortly after receipt.

Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsoredprivate-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2017and 2016.
As of or for the year ended December 31, (in millions)
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMs
Subprime
Commercial and otherTotal loans securitized

JPMorgan Chase & Co./2017 Annual Report

Securitized assets
2017
2016

$ 52,280 $ 57,543
17,612

19,90363,411

71,464$ 133,303 $ 148,910

90 days past due
2017
2016

$

$

4,870 $

6,169

3,276

4,186

957

1,755

9,103 $ 12,110

Liquidation losses
2017
2016

$

$

790 $

1,160

719

1,087

114

643

1,623 $

2,890

243

Notes to consolidated financial statements
Note 15 – Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a businesscombination as the difference between the purchase priceand the fair value of the net assets acquired. Subsequent toinitial 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.
The goodwill associated with each business combination isallocated to the related reporting units, which are
determined based on how the Firm’s businesses aremanaged and how they are reviewed by the Firm’s
Operating Committee. The following table presents goodwill
attributed to the business segments.
December 31, (in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Total goodwill

2017

2016

2015

$ 31,013 $ 30,797 $ 30,769
6,776
6,772
6,772
2,860
2,861
2,861
6,858
6,858
6,923
$ 47,507 $ 47,288 $ 47,325

The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (inmillions)

2017

2016

2015

Balance at beginning of period$ 47,288$ 47,325$ 47,647

Changes during the period from:
Business combinations(a)

199

—

28

Dispositions(b)

—

(72)

(160)

Other(c)

20

35

(190)

$ 47,507$ 47,288$ 47,325

Balance at December 31,(a) For 2017, represents CCB goodwill in connection with an acquisition.
(b) For 2016, represents AWM goodwill, which was disposed of as part ofan AWM sales transaction. For 2015 includes $101 million of Private
Equity goodwill, which was disposed of as part of the Private Equity
sale.
(c) Includes foreign currency translation adjustments and other taxrelated adjustments.

244

Impairment testing
The Firm’s goodwill was not impaired at December 31,
2017, 2016, and 2015.
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit iscompared with its carrying value, including goodwill andother intangible assets. If the fair value is in excess of thecarrying value, then the reporting unit’s goodwill is
considered to be not impaired. If the fair value is less thanthe carrying value, then a second step is performed. In thesecond step, the implied current fair value of the reporting
unit’s goodwill is determined by comparing the fair value ofthe reporting unit (as determined in step one) to the fairvalue of the net assets of the reporting unit, as if thereporting unit were being acquired in a businesscombination. The resulting implied current fair value of
goodwill is then compared with the carrying value of thereporting 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 thecarrying value of goodwill is less than its implied current
fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units’ allocated capital plus
goodwill and other intangible assets capital as a proxy forthe carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity isdetermined on a similar basis as the allocation of capital to
the Firm’s lines of business, which takes into consideration
the capital the business segment would require if it wereoperating independently, incorporating sufficient capital toaddress regulatory capital requirements (including Basel
III) and capital levels for similarly rated peers. Proposedline of business equity levels are incorporated into theFirm’s annual budget process, which is reviewed by the
Firm’s Board of Directors. Allocated capital is further
reviewed on a periodic basis and updated as needed.

JPMorgan Chase & Co./2017 Annual Report

The primary method the Firm uses to estimate the fairvalue of its reporting units is the income approach. Thisapproach projects cash flows for the forecast period anduses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are thendiscounted using an appropriate discount rate. Projectionsof 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 thatreporting 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 thereasonableness of the discount rates used for eachreporting 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 thevarious reporting units) is compared with the Firms’ overall
estimated cost of equity to ensure reasonableness.
The valuations derived from the discounted cash flow
analysis are then compared with market-based trading andtransaction multiples for relevant competitors. Trading andtransaction comparables are used as general indicators toassess the general reasonableness of the estimated fairvalues, 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 amarket transaction, (ii) factors related to the level ofexecution 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.

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, andgenerally declines over time as net servicing cash flows arereceived, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs areeither purchased from third parties or recognized upon saleor securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to accountfor its MSRs at fair value. The Firm treats its MSRs as asingle class of servicing assets based on the availability ofmarket inputs used to measure the fair value of its MSR
asset and its treatment of MSRs as one aggregate pool forrisk management purposes. The Firm estimates the fairvalue 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, latecharges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates andassumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.

Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deteriorationin economic or market conditions, estimates of adverse
regulatory or legislative changes or increases in theestimated market cost of equity, could cause the estimatedfair values of the Firm’s reporting units or their associatedgoodwill to decline in the future, which could result in amaterial impairment charge to earnings in a future period
related to some portion of the associated goodwill.

JPMorgan Chase & Co./2017 Annual Report245Notes to consolidated financial statements
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 andsecurities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate relatedchanges in the fair value of MSRs with changes in the fairvalue of the related risk management instruments.

The following table summarizes MSR activity for the years ended December 31, 2017, 2016 and 2015.
As of or for the year ended December 31, (in millions, except where otherwise noted)
Fair value at beginning of period

2017
$

6,096

2016
$

6,608

2015
$

7,436

MSR activity:
Originations of MSRs

1,103

679

—

—

435

Disposition of MSRs(a)

(140)

(109)

(486)

Net additions

963

570

499

(797)

(919)

(922)

(202)

(72)

(160)

Projected cash flows (e.g., cost to service)

(102)

(35)

(112)

Discount rates

(19)

7

(10)

Prepayment model changes and other(c)

91

(63)

(123)

(30)

(91)

(245)

(232)

(163)

Purchase of MSRs

Changes due to collection/realization of expected cash flows

550

Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)Changes in valuation due to other inputs and assumptions:

Total changes in valuation due to other inputs and assumptions
Total changes in valuation due to inputs and assumptions(405)

Fair value at December 31,

$

6,030

$

6,096

$

Change in unrealized gains/(losses) included in income related to MSRs held at December 31,

$

(232)

$

(163)

$

6,608

(405)

Contractual service fees, late fees and other ancillary fees included in income

1,886

2,124

2,533

Third-party mortgage loans serviced at December 31, (in billions)

555.0

593.3

677.0

4.0

4.7

6.5

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”). 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 shortperiod 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 isminimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment toinvestors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made inaccordance with applicable rules and agreements.

246

JPMorgan Chase & Co./2017 Annual Report

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,
2017, 2016 and 2015.
Year ended December 31,(in millions)

2017

2016

2015

CCB mortgage fees and related
incomeNet production revenue

$ 636

$

853

$ 769

2017

Weighted-average prepayment speed
assumption (“CPR”)

Loan servicing revenue

2,014

2,336

2,776

Changes in MSR asset fair value
due to collection/realization of
expected cash flows

(795)

(916)

(917)

Total operating revenue

1,219

1,420

1,859

Weighted-average option adjusted spread
Impact on fair value of 100 basis points
adverse change
Impact on fair value of 200 basis points
adverse change

2016

9.35%
$

Impact on fair value of 20% adverse change

Operating revenue:

$

(221)

9.41%
$

(231)

(427)

(445)

9.04%

8.55%

(250)
(481)

$

(248)
(477)

CPR: Constant prepayment rate.

Risk management:
Changes in MSR asset fair value
due to market interest rates
and other(a)Other changes in MSR asset fairvalue due to other inputs andassumptions in model(b)Change in derivative fair value
and other

(202)

(72)

(160)

(30)

(91)

(245)

(10)

380

288

Total risk management

(242)

217

(117)

Total net mortgage servicing
revenue

977

1,637

1,742

1,613

2,490

2,511

All otherMortgage fees and related income

December 31,(in millions, except rates)

Impact on fair value of 10% adverse change

Net mortgage servicing revenue:

Total CCB mortgage fees andrelated income

The table below outlines the key economic assumptions
used to determine the fair value of the Firm’s MSRs at
December 31, 2017 and 2016, and outlines thesensitivities of those fair values to immediate adversechanges in those assumptions, as defined below.

3

1

2

$1,616$ 2,491$2,513

Changes in fair value based on variation in assumptions
generally cannot be easily extrapolated, because therelationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not belinear. In this table, the effect that a change in a particularassumption may have on the fair value is calculated withoutchanging 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 futureprepayments due to changes in market interest rates, and thedifference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs andassumptions 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).

JPMorgan Chase & Co./2017 Annual Report247

Notes to consolidated financial statements
Note 16 – Premises and equipment

Note 18 – Accounts payable and other liabilities

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 theestimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of theleased facility or the estimated useful life of the leased
asset.

Accounts payable and other liabilities consist of brokeragepayables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; accrued expenses, including
income tax payables and credit card rewards liability; andall other liabilities, including obligations to return securities
received as collateral and litigation reserves.

JPMorgan Chase capitalizes certain costs associated withthe 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 17 – Deposits

The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
Other payables and liabilities(a)Total accounts payable and otherliabilities

2017$ 102,727
86,6562016$ 109,842
80,701$ 189,383$ 190,543(a) Includes credit card rewards liability of $4.9 billion and $3.8 billion at
December 31, 2017 and 2016, respectively.

At December 31, 2017 and 2016, noninterest-bearing andinterest-bearing deposits were as follows.
December 31, (in millions)
U.S. offices
Noninterest-bearing
Interest-bearing (included $14,947, and$12,245 at fair value)(a)

2017

2016

393,645$ 400,831

793,618

737,949

1,187,263

1,138,780

15,576

14,764

241,143

221,635

256,719$ 1,443,982

236,399$1,375,179$

Total deposits in U.S. offices
Non-U.S. offices
Noninterest-bearing
Interest-bearing (included $6,374 and$1,667 at fair value)(a)Total deposits in non-U.S. offices
Total deposits(a) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, see Note 3.

At December 31, 2017 and 2016, time deposits indenominations of $250,000 or more were as follows.
December 31, (in millions)

2017

U.S. offices$ 30,671

Non-U.S. offices(a)2016$

29,049Total(a)$ 59,720

26,18029,652$

55,832(a) The prior period amounts have been revised to conform with thecurrent period presentation.

At December 31, 2017, the maturities of interest-bearing
time deposits were as follows.
December 31, 2017
(in millions)
2018
2019
2020
2021
2022
After 5 years
Total

248

U.S.
$ 37,645
3,487
2,332
4,275
2,297
3,391
$ 53,427

Non-U.S.
$ 27,621
349
22
26
443
1,697
$ 30,158

$

$

Total
65,266
3,836
2,354
4,301
2,740
5,088
83,585

JPMorgan Chase & Co./2017 Annual ReportNote 19 – Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed andvariable 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 theConsolidated 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,
2017.
2017

By remaining maturity at
December 31,(in millions, except rates)

Under 1 year

1-5 years

2016
After 5 years

Total

Total

Parent company
Senior debt:

Fixed rate

Subordinated debt:$

15,084$53,939$72,528$ 141,551$ 128,967

Variable rate

5,547

12,802

8,112

26,461

34,766

Interest rates(a)0.38-7.25%

0.16-6.30%

0.45-6.40%

0.16-7.25%

0.09-7.25%

Fixed rate$

Variable rate
Interest rates(a)Subtotal

—

$

—
—%
$

149

$

—
$

4

$

$

9
3.38-8.00%

8.53%

20,631

14,497

66,890$34$

95,146

14,646$9
3.38-8.53%

16,811

1,245
0.82-8.53%$ 182,667$ 181,789$$

Subsidiaries
Federal Home Loan Banks
advances:

Fixed rate$

Variable rate

12,450Interest rates(a)Senior debt:

Fixed rate

Subordinated debt:

1,122

1.46-2.00%
$

3,970

1.18-1.47%
$

6,898

167
60,4501.18-2.00%$

179
79,3400.41-1.21%

11,990

$

8,329

8,967

13,287

3,964

26,21819,379Interest rates(a)0.22-7.50%

1.65-7.50%

1.00-7.50%

0.22-7.50%

0.00-7.50%

$

—

$

—

Variable rate——

Interest rates(a)—%—%Subtotal
Junior subordinated debt :1.58-1.75%$

129
11,000

Variable rate
Fixed rate(b)

37,000

Fixed rate$

54,291

$

$

—

$

—

$

Interest rates(a)Total long-term debt(c)(d)(e)Long-term beneficial interests: Fixed rate

22,304$690$$ 121,181$ 119,725$ 284,080

$

5,927

$

$

$

Interest rates

1.10-2.50%
$

9,326

12,124$321

1.27-6.54%$—
0.00-3.75%

$

321

$

1.39-8.75%

2,275

13,579706
1,639

1.88-8.75%

43,1744,472$ 111,111

690

$

7,652

2,275

—

1,585

1.88-8.75%
$

3,884

6.00-8.25%

99,138

—

3,399

—

$

8.25%

1,585

—%
$

313

$

Variable rate
Total long-term beneficial
interests(f)

—

—%

$

8.25%

22,543
—

313

—

$

Variable rate
Subtotal$$(g)(h)

2,345$ 295,245$

18,678

8,192

14,6810.00-6.54%

0.39-7.87%$$

21,77133,359(a) The interest rates shown are the range of contractual rates in effect at December 31, 2017 and 2016, 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, 2017, for total long-term debt was (0.19)% to 8.88%, versus the contractual range of 0.16% to 8.75% presented in the table above. The interest rate ranges
shown exclude structured notes accounted for at fair value.
(b) As of December 31, 2017, includes $0.7 billion of fixed rate junior subordinated debentures issued to an issuer trust and $1.6 billion of variable rate junior subordinateddebentures distributed pro rata to the holders of the $1.6 billion of trust preferred securities which were cancelled on December 18, 2017.
(c) Included long-term debt of $63.5 billion and $82.2 billion secured by assets totaling $208.4 billion and $205.6 billion at December 31, 2017 and 2016, respectively. The
amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(d) Included $47.5 billion and $37.7 billion of long-term debt accounted for at fair value at December 31, 2017 and 2016, respectively.
(e) Included $10.3 billion and $7.5 billion of outstanding zero-coupon notes at December 31, 2017 and 2016, respectively. The aggregate principal amount of these notes at theirrespective maturities is $33.5 billion and $25.1 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.
(f) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $45 million and $120 million accounted for at fair value at
December 31, 2017 and 2016, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $4.3 billion and $5.7 billion at December 31,
2017 and 2016, respectively.
(g) At December 31, 2017, long-term debt in the aggregate of $111.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on theterms specified in the respective instruments.
(h) The aggregate carrying values of debt that matures in each of the five years subsequent to 2017 is $43.2 billion in 2018, $34.7 billion in 2019, $39.3 billion in 2020, $33.8
billion in 2021 and $13.4 billion in 2022.

JPMorgan Chase & Co./2017 Annual Report249

Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for atfair value were 2.87% and 2.49% as of December 31,
2017 and 2016, 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, inconjunction with some of its debt issuances. The use of
these instruments modifies the Firm’s interest expense on
the associated debt. The modified weighted-averageinterest rates for total long-term debt, including the effects
of related derivative instruments, were 2.56% and 2.01%
as of December 31, 2017 and 2016, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt andstructured notes. These guarantees rank on parity with the
Firm’s other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt andstructured notes was $7.9 billion and $3.9 billion at
December 31, 2017 and 2016, respectively.
The Firm’s unsecured debt does not contain requirementsthat 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.

250

Junior subordinated deferrable interest debentures
At December 31, 2016, the Firm had outstanding eight
wholly-owned Delaware statutory business trusts (“issuer
trusts”) that had issued trust preferred securities. On
December 18, 2017, seven of the eight issuer trusts wereliquidated, $1.6 billion of trust preferred and $56 million ofcommon securities originally issued by those trusts werecancelled, and the junior subordinated debentures
previously held by each trust issuer were distributed pro
rata to the holders of the corresponding series of trust
preferred and common securities.
Beginning in 2014, the junior subordinated 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 and they
were fully phased out as of December 31, 2016. As of
December 31, 2017 and 2016, $300 million and $1.4
billion, respectively, qualified as Tier 2 capital.
The Firm redeemed $1.6 billion of trust preferred securities
in the year ended December 31, 2016.

JPMorgan Chase & Co./2017 Annual ReportNote 20 – Preferred stock
At December 31, 2017 and 2016, JPMorgan Chase wasauthorized 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 tothe 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, 2017 and 2016.
Carrying value(in millions)at December 31,

Fixed-rate:
Series O
Series P
Series T
Series W
Series Y
Series AA
Series BB
Fixed-to-floating-rate:
Series I
Series Q
Series R
Series S
Series U
Series V
Series X
Series Z
Series CC
Total preferred stock

2017

2016

—
90,00092,50088,000143,000
142,500
115,000

125,750
90,00092,50088,000143,000
142,500
115,000

600,000
150,000
150,000
200,000
100,000
250,000
160,000
200,000
125,750
2,606,750

600,000
150,000
150,000
200,000
100,000
250,000
160,000
200,000—
2,606,750

Earliest
redemption
date

Date atwhich
dividend
rate
becomesfloating

Floating
annualrate ofthree-month
LIBOR plus:

N/A
5.450%
6.700
6.300
6.125
6.100
6.150

9/1/2017
3/1/2018
3/1/2019
9/1/2019
3/1/2020
9/1/2020
9/1/2020

NA
NA
NA
NA
NA
NA
NA

NA
NA
NA
NA
NA
NA
NA

7.900%
5.150
6.000
6.750
6.125
5.000
6.100
5.300
4.625

4/30/2018
5/1/2023
8/1/2023
2/1/2024
4/30/2024
7/1/2019
10/1/2024
5/1/2020
11/1/2022

4/30/2018
5/1/2023
8/1/2023
2/1/2024
4/30/2024
7/1/2019
10/1/2024
5/1/2020
11/1/2022

LIBOR + 3.47%
LIBOR + 3.25
LIBOR + 3.30
LIBOR + 3.78
LIBOR + 3.33
LIBOR + 3.32
LIBOR + 3.33
LIBOR + 3.80
LIBOR + 2.58

Issue date

Contractualrate
in effect at
December 31,
2017— $ 1,258
900
900
925
925
880
880
1,430
1,430
1,425
1,425
1,150
1,150

8/27/2012
2/5/2013
1/30/2014
6/23/2014
2/12/2015
6/4/2015
7/29/2015

6,000
6,000
1,500
1,500
1,500
1,500
2,000
2,000
1,000
1,000
2,500
2,500
1,600
1,600
2,000
2,000
1,258
—
$26,068 $26,068

4/23/2008
4/23/2013
7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
4/21/2015
10/20/2017

Shares at December 31,(a)

2017
$

2016

(a) Represented by depositary shares.

Each series of preferred stock has a liquidation value andredemption price per share of $10,000, plus accrued but
unpaid dividends.
Dividends on fixed-rate preferred stock are payable
quarterly. Dividends on fixed-to-floating-rate preferredstock are payable semiannually while at a fixed rate, andbecome payable quarterly after converting to a floatingrate.
On October 20, 2017, the Firm issued $1.3 billion of fixed
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, The Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.

JPMorgan Chase & Co./2017 Annual Report

Redemption rights
Each series of the Firm’s preferred stock may be redeemedon any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferredstock series except Series I may also be redeemed following
a “capital treatment event,” as described in the terms ofeach series. Any redemption of the Firm’s preferred stock issubject to non-objection from the Board of Governors of theFederal Reserve System (the “Federal Reserve”).

251Notes to consolidated financial statements
Note 21 – Common stock
At December 31, 2017 and 2016, JPMorgan Chase wasauthorized to issue 9.0 billion shares of common stock witha par value of $1 per share.
Common shares issued (newly issued or reissuance fromtreasury) by JPMorgan Chase during the years ended
December 31, 2017, 2016 and 2015 were as follows.
Year ended December 31,(in millions)

2017

2016

2015

Total issued – balance atJanuary 1

4,104.9

4,104.9

4,104.9

Treasury – balance at January 1
Repurchase
Reissuance:
Employee benefits andcompensation plans
Warrant exercise(543.7)(166.6)(441.4)(140.4)(390.1)(89.8)

24.5

26.0

32.8

5.4

11.1

4.7

Employee stock purchase plans
Total reissuanceTotal treasury – balance at
December 31
Outstanding at December 31

0.8
30.7

1.0
38.1

1.0
38.5

(679.6)(543.7)(441.4)

3,425.3

3,561.2

3,663.5

At December 31, 2017, 2016, and 2015, respectively, theFirm had 15.0 million, 24.9 million and 47.4 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, inwhole 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 theexercise of each warrant and the warrant exercise price issubject to adjustment upon the occurrence of certain
events, including, but not limited to, the extent to which
regular quarterly cash dividends exceed $0.38 per share.
As of December 31, 2017 the exercise price was $41.834
and the Warrant share number was 1.01.

The following table sets forth the Firm’s repurchases ofcommon equity for the years ended December 31, 2017,2016 and 2015. There were no warrants repurchased
during the years ended December 31, 2017, 2016 and2015.
Year ended December 31, (in millions)

2017

2016

2015

Total number of shares of common stock
repurchased

166.6

140.4

89.8

Aggregate purchase price of common
stock repurchases$15,410$ 9,082$ 5,616

The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of1934 to facilitate repurchases in accordance with thecommon 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 establishedwhen 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 page 28.
As of December 31, 2017, approximately 120 million
shares of common stock were reserved for issuance undervarious employee incentive, compensation, option and stock
purchase plans, director compensation plans, and theWarrants.

On June 28, 2017, in conjunction with the Federal Reserve’s
release of its 2017 CCAR results, the Firm’s Board of
Directors authorized a $19.4 billion common equity (i.e.,common stock and warrants) repurchase program. As of
December 31, 2017, $9.8 billion of authorized repurchasecapacity remained under the program. This authorization
includes shares repurchased to offset issuances under the
Firm’s share-based compensation plans.

252

JPMorgan Chase & Co./2017 Annual ReportNote 22 – Earnings per share
Earnings per share (“EPS”) is calculated under the two-classmethod under which all earnings (distributed andundistributed) are allocated to each class of common stock
and participating securities based on their respective rights
to receive dividends. JPMorgan Chase grants RSUs tocertain employees under its share-based compensation
programs, which entitle recipients to receive nonforfeitabledividends during the vesting period on a basis equivalent to
the dividends paid to holders of common stock; theseunvested awards meet the definition of participating
securities.
The following table presents the calculation of basic anddiluted EPS for the years ended December 31, 2017, 2016
and 2015.
Year ended December 31,(in millions,
except per share amounts)

2017

2016

2015

Basic earnings per share
Net income$ 24,441 $ 24,733 $ 24,442

Less: Preferred stock dividends

1,663

1,647

1,515

Net income applicable to common
equity22,77823,08622,927

Less: Dividends and undistributed
earnings allocated to participating
securities(a)Net income applicable to common
stockholders(a)

211

252

276

$ 22,567 $ 22,834 $ 22,651

Total weighted-average basic
shares outstanding(a)Net income per share

3,551.6$

6.35 $

3,658.8
6.24 $

3,741.2
6.05

Diluted earnings per share
Net income applicable to common
stockholders(a)$ 22,567 $ 22,834 $ 22,651

Total weighted-average basic shares
outstanding(a)3,551.6

3,658.8

3,741.2

Add: Employee stock options, SARs,
warrants and PSUs(a)

25.2

31.2

32.4

3,576.8

3,690.0

3,773.6

Total weighted-average diluted
shares outstanding(a)(b)
Net income per share$

6.31 $

6.19 $

6.00(a) The prior period amounts have been revised to conform with thecurrent period presentation. The revision had no impact on the Firm’sreported earnings per share.
(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.

JPMorgan Chase & Co./2017 Annual Report253Notes to consolidated financial statements
Note 23 – 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)

Unrealized
gains/(losses)
on investment
securities(b)Balance at December 31, 2014
Net change
Balance at December 31, 2015

$ 4,773(2,144)$ 2,629

Translation
adjustments,
net of hedges$

Cash flow
hedges

(147)
(15)
(162)

$

$

Defined benefit pension
and OPEB plans

(95)
51
(44)

$

$
$

DVA on fair value
option electedliabilities(2,342)111(2,231)

$

—
—
—

$

Accumulated
othercomprehensive
income/(loss)$

2,189(1,997)
192$

Cumulative effect of change inaccounting principle(a)

—

—

—

—

154

154

Net change
Balance at December 31, 2016
Net change
Balance at December 31, 2017

(1,105)$ 1,524640$ 2,164

(2)
(164)
(306)
(470)

(56)
(100)
176
76

(28)
(2,259)738(1,521)

(330)
(176)
(192)
(368)

(1,521)(1,175)
1,056
(119)

$
$

$
$

$
$

$

$
$

(a) Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fair value option has been
elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm’s own credit risk (DVA) to be presented separately in OCI; previously
these amounts were recognized in net income.
(b) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS, including net unamortized unrealized gains and losses related
to AFS securities transferred to HTM.

The following table presents the pre-tax and after-tax changes in the components of OCI.

Year ended December 31, (in millions)Pre-tax

2017

2016

Tax
effectTaxeffectAfter-tax

Pre-tax

2015
After-tax

Tax
effectPre-tax

After-tax

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)Net change

944$(346) $598

$ (1,628) $611$ (1,017) $ (3,315) $ 1,297$ (2,018)

66

(24)

42

(141)

53

(88)

(202)

76

(126)

1,010

(370)

640

(1,769)664(1,105)(3,517)

1,373(2,144)

Translation

1,313

(801)

512

(261)

99

(162)

(1,876)682(1,194)Hedges(1,294)

476

(818)

262

(102)

160

1,885

(706)

1,179

19

(325)

(306)

1

(3)

(2)

9

(24)

(15)

Net unrealized gains/(losses) arising during the period

147

(55)

92

(450)

168

(282)

(97)

35

(62)

Reclassification adjustment for realized (gains)/losses
included in net income(c)(d)

134

(50)

84

360

(134)

226

180

(67)

113

281

(105)

176

(90)

34

(56)

83

(32)

51

802

(160)

642

(366)

145

(221)

29

(47)

(18)

Amortization of net loss

250

(90)

160

257

(97)

160

282

(106)

176

Prior service costs/(credits)

(36)

13

(23)

(36)

14

(22)

(36)

14

(22)

Settlement loss/(gain)

2

(1)

1

4

(1)

3

—

—

—

Foreign exchange and other

(54)

12

(42)

77

(25)

52

33

(58)

(25)

964

(226)

(28)

308

(303) $

111(330) $—

Translation adjustments(b):Net change
Cash flow hedges:

Net change
Defined benefit pension and OPEB plans:
Net gains/(losses) arising during the period
Reclassification adjustments included in net income :(e)Net change
DVA on fair value option elected liabilities, net change: $Total other comprehensive income/(loss)$ 1,971

$

$

738

(64)

36

(192) $

(529) $

199$

$ (2,451) $930$ (1,521) $ (3,117) $ 1,120(915) $ 1,056

(197)
$

—

111
$

—

$ (1,997)(a) The pre-tax amount is reported in 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 ofincome. The amounts were not material for the periods presented.
(c) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of income.
(d) In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest
payment cash flows would not occur. For additional information, see Note 5.
(e) The pre-tax amount is reported in compensation expense in the Consolidated statements of income.

254

JPMorgan Chase & Co./2017 Annual ReportNote 24 – Income taxes
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 ofassets 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 ofincome and expense are realized. JPMorgan Chase’s
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance isestablished to reduce deferred tax assets to the amount the
Firm expects to realize.
Due to the inherent complexities arising from the nature of
the Firm’s businesses, and from conducting business andbeing taxed in a substantial number of jurisdictions,significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chaseand the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, theFirm’s final tax-related assets and liabilities may ultimately
be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. federal
income tax rate to the effective tax rate for each of theyears ended December 31, 2017, 2016 and 2015, ispresented in the following table.
Effective tax rate
Year ended December 31,

2017

2016

2015

Statutory U.S. federal tax rate

35.0%

35.0%

35.0%

Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit

2.2

2.4

1.5

Tax-exempt income

(3.3)

(3.1)

(3.3)

Non-U.S. subsidiary earnings(a)

(3.1)

(1.7)

(3.9)

Business tax credits

(4.2)

(3.9)

(3.7)

Nondeductible legal expense

—

0.3

0.8

Tax audit resolutions

—

—

(5.7)

Impact of the TCJA

5.4

—

—

Other, net

(0.1)

(0.6)

(0.3)

Effective tax rate

31.9%

28.4%

20.4%

Impact of the TCJAOn December 22, 2017, the TCJA was signed into law. The
Firm’s effective tax rate increased in 2017 driven by a $1.9
billion income tax expense representing the estimatedimpact of the enactment of the TCJA. The $1.9 billion tax
expense was predominantly driven by a deemed
repatriation of the Firm’s unremitted non-U.S. earnings andadjustments to the value of certain tax-oriented
investments partially offset by a benefit from therevaluation of the Firm’s net deferred tax liability.
The deemed repatriation of the Firm’s unremitted non-U.S.
earnings is based on the post-1986 earnings and profits ofeach controlled foreign corporation. The calculation
resulted in an estimated income tax expense of $3.7 billion.
Furthermore, accounting for income taxes requires theremeasurement of certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in
the future. The Firm remeasured its deferred tax asset andliability balances in the fourth quarter of 2017 to the new
statutory U.S. federal income tax rate of 21% as well as any
federal benefit associated with state and local deferredincome taxes. The remeasurement resulted in an estimatedincome tax benefit of $2.1 billion.
The deemed repatriation and remeasurement of deferredtaxes were calculated based on all available informationand published legislative guidance. These amounts are
considered to be estimates under SEC Staff Accounting
Bulletin No. 118 as the Firm anticipates refinements to both
calculations. Anticipated refinements will result from theissuance of future legislative and accounting guidance aswell as those in the normal course of business, includingtrue-ups to the tax liability on the tax return as filed and theresolution of tax audits.
Adjustments were also recorded to income tax expense forcertain tax-oriented investments. These adjustments were
driven by changes to affordable housing proportionalamortization resulting from the reduction of the federal
income tax rate under the TCJA. SEC Staff Accounting
Bulletin No. 118 does not apply to these adjustments.

(a) Predominantly includes earnings of U.K. subsidiaries that were deemed
to be reinvested indefinitely through December 31, 2017.

JPMorgan Chase & Co./2017 Annual Report

255

The components of income tax expense/(benefit) includedin the Consolidated statements of income were as follows
for each of the years ended December 31, 2017, 2016, and2015.
Income tax expense/(benefit)
Year ended December 31,(in millions)

2017

2016

2015

U.S. federal$ 5,718$ 2,488$ 3,160

Non-U.S.

2,400

1,760

1,220

U.S. state and local

1,029

904

547

Total current income tax expense/(benefit)

9,147

5,152

4,927

U.S. federal

2,174

4,364

1,213

Non-U.S.

(144)

(73)

(95)

U.S. state and local

282

360

215

Current income tax expense/(benefit)

Deferred income tax expense/(benefit)

Total deferred income tax
expense/(benefit)

2,312

4,651

1,333

Total income tax expense$ 11,459$ 9,803$ 6,260

Total income tax expense includes $252 million, $55
million and $2.4 billion of tax benefits recorded in 2017,2016, and 2015, respectively, as a result of tax audit
resolutions.
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 instockholders’ equity. The tax effect of all items recorded
directly to stockholders’ equity resulted in a decrease of$915 million in 2017, an increase of $925 million in 2016,
and an increase of $1.5 billion in 2015. Effective January 1,
2016, the Firm adopted new accounting guidance related to
employee share-based payments. As a result of the
adoption of this new guidance, all excess tax benefits(including tax benefits from dividends or dividend
equivalents) on share-based payment awards arerecognized within income tax expense in the Consolidated
statements of income. In prior years these tax benefits wererecorded as increases to additional paid-in capital.

Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm will no longer maintain the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with theundistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.
JPMC will treat any tax it may incur on global intangible low
tax income as a period cost to tax expense when the tax isincurred.
Affordable housing tax credits
The Firm recognized $1.7 billion, $1.7 billion and $1.6
billion of tax credits and other tax benefits associated withinvestments in affordable housing projects within income
tax expense for the years 2017, 2016 and 2015,
respectively. The amount of amortization of suchinvestments reported in income tax expense under thecurrent period presentation during these years was $1.7
billion, $1.2 billion and $1.1 billion, respectively. The
carrying value of these investments, which are reported inother assets on the Firm’s Consolidated balance sheets, was$7.8 billion and $8.8 billion at December 31, 2017 and2016, respectively. The amount of commitments related tothese investments, which are reported in accounts payable
and other liabilities on the Firm’s Consolidated balance
sheets, was $2.4 billion and $2.8 billion at December 31,
2017 and 2016, respectively. The results are inclusive of
any impacts from the TCJA.

Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense for theyears ended December 31, 2017, 2016 and 2015.
Year ended December 31,(in millions)U.S.
Non-U.S.(a)Income before income tax expense

2017

2016

2015

$ 27,103$ 26,651$ 23,191

8,797

7,885

7,511

$ 35,900$ 34,536$ 30,702(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.

256

JPMorgan Chase & Co./2017 Annual ReportDeferred taxes
Deferred income tax expense/(benefit) results fromdifferences between assets and liabilities measured forfinancial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, inmanagement’s judgment, their realizability is determined tobe more likely than not. If a deferred tax asset isdetermined to be unrealizable, a valuation allowance isestablished. The significant components of deferred tax
assets and liabilities are reflected in the following table asof December 31, 2017 and 2016.
December 31, (in millions)

2017

2016

Deferred tax assets
Allowance for loan losses$

Employee benefits
Accrued expenses and other

3,395

$

5,534

688

2,911

3,528

6,831

Non-U.S. operations

327

5,368

Tax attribute carryforwards

219

2,155

Gross deferred tax assets

8,157

22,799

(46)

(785)

Valuation allowance
Deferred tax assets, net of valuation
allowance

$

8,111

$

22,014

$

2,299

$

3,294

Deferred tax liabilities
Depreciation and amortization
Mortgage servicing rights, net ofhedges
Leasing transactions
Non-U.S. operations

2,757

4,807

3,483

4,053

200

4,572

Other, net

3,502

5,493

Gross deferred tax liabilities

12,241

22,219Net deferred tax (liabilities)/assets$(4,130) $(205)

JPMorgan Chase has recorded deferred tax assets of $219
million at December 31, 2017, in connection with U.S.
federal and non-U.S. net operating loss (“NOL”)
carryforwards and state and local capital loss
carryforwards. At December 31, 2017, total U.S. federal
NOL carryforwards were approximately $769 million, nonU.S. NOL carryforwards were approximately $142 million
and state and local capital loss carryforwards were $660
million. If not utilized, the U.S. federal NOL carryforwards
will expire between 2025 and 2036 and the state and local
capital loss carryforwards will expire between 2020 and
2021. Certain non-U.S. NOL carryforwards will expire
between 2028 and 2034 whereas others have an unlimited
carryforward period.
The valuation allowance at December 31, 2017, was due tothe state and local capital loss carryforwards and certain
non-U.S. NOL carryforwards.

JPMorgan Chase & Co./2017 Annual Report

Unrecognized tax benefits
At December 31, 2017, 2016 and 2015, JPMorgan Chase’s
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.7 billion, $3.5 billion and$3.5 billion, respectively, of which $3.5 billion, $2.6 billion
and $2.1 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would notaffect the effective tax rate if they were recognized in theConsolidated statements of income. These unrecognizeditems include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by thebenefit 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 assummarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number oftaxing 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 $1.3 billion. Upon settlement of anaudit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2017, 2016 and 2015.
Year ended December 31,(in millions)

2017

2016

2015

$ 3,450$ 3,497$ 4,911

Increases based on tax positions
related to the current period

1,355

262

408

Increases based on tax positions
related to prior periods

626

583

1,028

Decreases based on tax positions
related to prior periods

(350)

(785)

(2,646)

Decreases related to cash
settlements with taxing authorities

(334)

(56)

(204)

Balance at January 1,

Decreases related to a lapse of
applicable statute of limitations
Balance at December 31,

—

(51)

—

$ 4,747$ 3,450$ 3,497

After-tax interest expense/(benefit) and penalties related toincome tax liabilities recognized in income tax expense were$102 million, $86 million and $(156) million in 2017,2016 and 2015, respectively.
At December 31, 2017 and 2016, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $639
million and $687 million, respectively, for income taxrelated interest and penalties.

257

Tax examination status
JPMorgan Chase is continually under examination by theInternal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes thestatus of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2017.
December 31, 2017

Periods under
examination

Status

JPMorgan Chase – U.S.

2003 – 2005

At Appellate level

JPMorgan Chase – U.S.

2006 – 2010

Field examination ofamended returns;
certain matters at
Appellate level

JPMorgan Chase – U.S.

2011 – 2013

Field Examination

JPMorgan Chase –California

2011 – 2012

Field Examination

JPMorgan Chase – U.K.

2006 – 2015

Field examination ofcertain select entities

Note 25 – Restrictions on cash andintercompany funds transfers
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, subject to applicable limits.
The Federal Reserve requires depository institutions tomaintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances deposited by
the Firm’s bank subsidiaries with various Federal Reserve
Banks was approximately $24.9 billion and $19.3 billion in2017 and 2016, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. (“Parent Company”) and certain of its affiliatesfrom 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 othertransactions with such affiliate (collectively referred to as“covered transactions”), are generally limited to 10% of thebanking subsidiary’s total capital, as determined by the riskbased 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
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 andintercompany indebtedness owing 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 subordinateddebt 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 andregulations, the Federal Reserve, the OCC and the FDIC haveauthority under the Financial Institutions Supervisory Act toprohibit or to limit the payment of dividends by the banking
organizations they supervise, including JPMorgan Chase andits 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 JPMorgan Chase’s management or Board of
Directors.
At January 1, 2018, JPMorgan Chase’s banking subsidiaries
could pay, in the aggregate, approximately $17 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2018 will be
supplemented by the banking subsidiaries’ earnings during
the year.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2017 and2016, cash in the amount of $16.8 billion and $13.4
billion, respectively, were segregated in special bankaccounts for the benefit of securities and futures brokeragecustomers. Also, as of December 31, 2017 and 2016, theFirm had:• Receivables and securities of $18.0 billion and $18.2
billion, respectively, consisting of cash and securities
pledged with clearing organizations for the benefit ofcustomers.
• Securities with a fair value of $3.5 billion and $19.3
billion, respectively, were also restricted in relation tocustomer activity.
In addition, as of December 31, 2017 and 2016, the Firm
had other restricted cash of $3.3 billion and $3.6 billion,
respectively, primarily representing cash reserves held at
non-U.S. central banks and held for other general purposes.

258

JPMorgan Chase & Co./2017 Annual ReportNote 26 – 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, including JPMorgan Chase Bank, N.A. andChase Bank USA, N.A.
Capital rules under Basel III establish minimum capitalratios and overall capital adequacy standards for large andinternationally active U.S. bank holding companies andbanks, including the Firm and its IDI subsidiaries. Basel III
set forth two comprehensive approaches for calculating
RWA: a standardized approach (“Basel III Standardized”)
and an advanced approach (“Basel III Advanced”). Certainof the requirements of Basel III are subject to phase-in
periods that began on January 1, 2014 and continue
through the end of 2018 (“transitional period”).
The three categories of risk-based capital and theirpredominant components under the Basel III Transitionalrules are illustrated below:

The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant IDI subsidiaries under both Basel III Standardized
Transitional and Basel III Advanced Transitional at
December 31, 2017 and 2016.
JPMorgan Chase & Co.
Basel III Standardized
Transitional(in millions,
except ratios)Basel III Advanced
Transitional

Dec 31,2017

Dec 31,
2016

Dec 31,2017

Dec 31,
2016

Regulatory
capital
CET1 capital$ 183,300$ 182,967$ 183,300$ 182,967

Tier 1 capital(a)208,644

208,112208,644

208,112

Total capital

238,395

239,553

227,933

228,592

Risk-weighted

1,499,506

1,483,132

1,435,825

1,476,915

Adjusted
average(b)2,514,270

2,484,631

2,514,270

2,484,631

Assets(e)

Capital ratios(c)CET1Common stockholder’s equity
including capital for AOCI related to:• AFS debt and equity securities• Deﬁned beneﬁt pension and OPEB
plans

12.2%

12.3% (e)

12.8%

12.4%

13.9

14.0

(e)

14.5

14.1

Total

15.9

16.2

(e)

15.9

15.5

Tier 1 leverage(d)

8.3

8.4

8.3

8.4

Tier 1CET1capitalLess certain deductions for:• Goodwill• MSRs• Deferred tax assets that arise from
NOL and tax credit carryforwards(a)JPMorgan Chase Bank, N.A.

Tier 1
capitalTotal
capitalBasel III Standardized
Transitional(in millions,
except ratios)• Perpetual preferred stock• Long-term debt qualifying asTier 2• Qualifying allowance for
credit losses

Add'lTier 1
capitalBasel III Advanced
Transitional

Dec 31,2017

Dec 31,
2016

Dec 31,2017

Dec 31,
2016

CET1 capital$ 184,375$ 179,319$ 184,375$ 179,319

Tier 1 capital(a)184,375

179,341

184,375

179,341

Total capital

195,839

191,662

189,419

184,637

Risk-weighted

1,335,809

1,311,240

1,226,534

1,262,613

Adjusted
average(b)2,116,031

2,088,851

2,116,031

2,088,851

Regulatory
capitalAssetsTier 2
capital(e)(c)

Capital ratios

JPMorgan Chase & Co./2017 Annual Report

CET1

13.8%

13.7% (e)

15.0%

14.2%

Tier 1(a)

13.8

13.7

(e)

15.0

14.2

Total

14.7

14.6

(e)

15.4

14.6

Tier 1 leverage(d)

8.7

8.6

8.7

8.6

259

Notes to consolidated financial statements
The following table presents the minimum ratios to which
the Firm and its IDI subsidiaries are subject as ofDecember 31, 2017.

Chase Bank USA, N.A.
Basel III Standardized
Transitional(in millions,
except ratios)

Dec 31,2017

Basel III Advanced
Transitional

Dec 31,
2016

Dec 31,2017

Dec 31,
2016

Regulatory
capital
CET1 capital$

21,600$16,784$

21,600$16,784Tier 1 capital

21,60016,784

21,60016,784

Total capital

27,691

22,862

26,25021,434

AssetsRisk-weighted

113,108

112,297

190,523

186,378

Adjusted
average(b)126,517

120,304

126,517

120,304

Capital ratios(c)
CET1

19.1%

14.9%

11.3%

Tier 1

19.1

14.9

11.3

9.0

Total

24.5

20.4

13.8

11.5

Tier 1 leverage(d)

17.1

14.0

17.1

14.0

(a)
(b)

(c)

(d)
(e)

9.0%

Includes the deduction associated with the permissible holdings ofcovered funds (as defined by the Volcker Rule). The deduction was notmaterial as of December 31, 2017 and 2016.
Adjusted average assets, for purposes of calculating the Tier 1 leverage
ratio, includes total quarterly average assets adjusted for unrealized
gains/(losses) on AFS securities, less deductions for goodwill and otherintangible assets, defined benefit pension plan assets, and deferred tax
assets related to tax attributes, including NOLs.
For each of the risk-based capital ratios, the capital adequacy of the Firm
and its IDI subsidiaries is evaluated against the lower of the two ratios ascalculated under Basel III approaches (Standardized or Advanced) as
required by the Collins Amendment of the Dodd-Frank Act (the “Collins
Floor”)The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio
is calculated by dividing Tier 1 capital by adjusted average assets.
The prior period amounts have been revised to conform with the current
period presentation.

Minimum capital ratios

Well-capitalized ratios

BHC(a)(e)BHC(c)

IDI(b)(e)IDI(d)

Capital ratios
CET1

7.50%

5.75%

—%

6.50%

Tier 1

9.00

7.25

6.00

8.00

Total

11.00

9.25

10.00

10.00

Tier 1 leverage

4.00

4.00

—

5.00

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 Transitional minimum capital ratios applicable to the Firm
under Basel III at December 31, 2017. At December 31, 2017, the CET1
minimum capital ratio includes 1.25% resulting from the phase-in of the
Firm’s 2.5% capital conservation buffer, and 1.75% resulting from thephase-in of the Firm’s 3.5% GSIB surcharge.
(b) Represents requirements for JPMorgan Chase’s IDI subsidiaries. The CET1
minimum capital ratio includes 1.25% resulting from the phase-in of the
2.5% capital conservation buffer that is applicable to the IDI subsidiaries.
The IDI subsidiaries are not subject to the GSIB surcharge.
(c) Represents requirements for bank holding companies pursuant toregulations issued by the Federal Reserve.
(d) Represents requirements for IDI subsidiaries pursuant to regulations issued
under the FDIC Improvement Act.
(e) For the period ended December 31, 2016 the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm were 6.25%,
7.75%, 9.75% and 4.0% and the CET1, Tier 1, Total and Tier 1 leverageminimum capital ratios applicable to the Firm’s IDI subsidiaries were
5.125%, 6.625%, 8.625% and 4.0% respectively.

As of December 31, 2017 and 2016, JPMorgan Chase andall of its IDI subsidiaries were well-capitalized and met all
capital requirements to which each was subject.

Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of CET1, Tier 1 and Total capital to RWA, as well as aminimum leverage ratio (which is defined as Tier 1 capital
divided by adjusted quarterly average assets). Failure tomeet these minimum requirements could cause the Federal
Reserve to take action. IDI subsidiaries also are subject tothese capital requirements by their respective primary
regulators.

260

JPMorgan Chase & Co./2017 Annual ReportNote 27 – Off–balance sheet lending-related
financial instruments, guarantees, andother commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meetthe financing needs of its clients or customers. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firmshould the counterparty draw upon the commitment or the
Firm be required to fulfill its obligation under theguarantee, and should the counterparty subsequently fail toperform according to the terms of the contract. Most ofthese commitments and guarantees are refinanced,
extended, cancelled, or expire without being drawn or adefault occurring. As a result, the total contractual amountof these instruments is not, in the Firm’s view,
representative of its expected future credit exposure or
funding requirements.

JPMorgan Chase & Co./2017 Annual Report

To provide for probable credit losses inherent in wholesaleand certain consumer lending-commitments, an allowancefor credit losses on lending-related commitments ismaintained. See Note 13 for further information regarding
the allowance for credit losses on lending-related
commitments. The following table summarizes thecontractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees andother commitments at December 31, 2017 and 2016. 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 forthese 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.

261

Notes to consolidated financial statements
Off–balance sheet lending-related financial instruments, guarantees and other commitments

By remaining maturity at December 31,(in millions)Lending-related
Consumer, excluding credit card:
Home equity
Residential mortgage(a)(b)AutoConsumer & Business Banking(b)Total consumer, excluding credit card
Credit card
Total consumer(c)Wholesale:
Other unfunded commitments to extend credit(d)Standby letters of credit and other financial
guarantees(d)Other letters of credit(d)Total wholesale(e)Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements andguarantees(f)Expires in
1 year or
less$

2,165 $
5,723
8,007
11,642
27,537
572,831600,368

Contractual amount
2017
Expires
after
Expires
3 years
after 5throughyears
5 years

Expiresafter
1 yearthrough
3 years

1,370 $
—
872
926
3,168
—
3,168

Carrying value(i)
2017
2016

2016

Total

1,379 $ 15,446 $ 20,360
—
13
5,736
292
84
9,255
112
522
13,202
1,783
16,06548,553——572,831
1,783
16,065
621,384

Total$ 21,714
10,332
8,468
12,73353,247553,891
607,138

$

(h)

(h)

12 $
—
2
19
33
—
33

12
—
2
12
26
—
26

61,536

118,907138,289

12,428331,160

328,497840

905

15,278

9,905

7,963

2,080

636

586

35,22635,947

3,459
114
139
—
3,712
80,273
128,926
146,391
14,508370,098$ 680,641 $ 132,094 $ 148,174 $ 30,573 $ 991,482

3,570
368,014$ 975,152$ 179,490 $$ 137,209

— $

— $

— $ 179,490

(h)

3
2
1,479
1,493
$ 1,512 $ 1,519

$

— $

—

Derivatives qualifying as guarantees
Unsettled reverse repurchase and securities
borrowing agreements

4,529

101

12,47940,06557,17451,966304

80

76,859———76,85950,722——

Unsettled repurchase and securities lending
agreements

44,205———44,20526,948——

Loan sale and securitization-related indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Other guarantees and commitments(g)

NA
NA
7,668

NA
NA
1,084

NA
NA
434

NA
NA
2,681

NA
1,169
11,867

NA
2,730
5,715

111
38
(76)

133
64
(118)

(a) Includes certain commitments to purchase loans from correspondents.
(b) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
(c) Predominantly all consumer lending-related commitments are in the U.S.
(d) At December 31, 2017 and 2016, reflected the contractual amount net of risk participations totaling $334 million and $328 million, respectively, for other unfunded
commitments to extend credit; $10.4 billion and $11.1 billion, respectively, for standby letters of credit and other financial guarantees; and $405 million and $265
million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(e) At December 31, 2017 and 2016, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 77% and 79%, respectively.
(f) At December 31, 2017 and 2016, collateral held by the Firm in support of securities lending indemnification agreements was $188.7 billion and $143.2 billion,
respectively. Securities lending collateral consist of primarily cash and securities issued by governments that are members of G7 and U.S. government agencies.
(g) At December 31, 2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, unfunded commitments related to
institutional lending and commitments associated with the Firm’s membership in certain clearing houses. Additionally, includes unfunded commitments predominantly
related to certain tax-oriented equity investments.
(h) The prior period amounts have been revised to conform with the current period presentation.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, thecarrying value represents the fair value.

262

JPMorgan Chase & Co./2017 Annual Report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 eventthat those obligations cannot be remarketed to newinvestors, as well as committed liquidity facilities to clearingorganizations. The Firm also issues commitments undermultipurpose facilities which could be drawn upon inseveral forms, including the issuance of a standby letter ofcredit.
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role assettlement and custody bank, the Firm is exposed to theintra-day credit risk of its cash borrower clients, usuallybroker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extends to its
clients (i.e. cash borrowers); these facilities contractuallylimit the Firm’s intra-day credit risk to the facility amountand must be repaid by the end of the day. As of
December 31, 2017 and 2016, the secured clearance
advance facility maximum outstanding commitment amount
was $1.5 billion and $2.4 billion, respectively.
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 theguarantee. 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) athird 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 other financial
guarantees, securities lending indemnifications, certain
indemnification agreements included within third-party
contractual arrangements and certain derivative contracts.
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 amountin other liabilities with an offsetting entry recorded in cash(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in otherassets is reduced as cash is received under the contract, andthe fair value of the liability recorded at inception isamortized 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 saleproceeds is allocated to the guarantee, which adjusts thegain or loss that would otherwise result from thetransaction. For these indemnifications, the initial liability isamortized to income as the Firm’s risk is reduced (i.e., overtime or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee orindemnification is recognized when it becomes probableand reasonably estimable. The contingent portion of theliability is not recognized if the estimated amount is lessthan the carrying amount of the liability recognized atinception (adjusted for any amortization). The recorded
amounts of the liabilities related to guarantees andindemnifications at December 31, 2017 and 2016,
excluding the allowance for credit losses on lending-related
commitments, are discussed below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees areconditional lending commitments issued by the Firm toguarantee the performance of a client or customer to athird party under certain arrangements, such ascommercial paper facilities, bond financings, acquisition
financings, trade and similar transactions. The carrying
values of standby and other letters of credit were $639
million and $588 million at December 31, 2017 and 2016,
respectively, which were classified in accounts payable andother liabilities on the Consolidated balance sheets; thesecarrying values included $195 million and $147 million,
respectively, for the allowance for lending-related
commitments, and $444 million and $441 million,
respectively, for the guarantee liability and corresponding
asset.

The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm’s clients, as of December 31, 2017 and 2016.
Standby letters of credit, other financial guarantees and other letters of credit
2017
December 31,(in millions)
Investment-grade(a)Standby letters of credit andother financial guarantees$

Noninvestment-grade(a)28,492

2016
Other lettersof credit
$

6,734

2,646

Standby letters of credit andother financial guarantees
$

1,066

28,245

Other lettersof credit
$

2,781

7,702

789

Total contractual amount$35,226

$

3,712

$

35,947$

3,570

Allowance for lending-related commitments

$

192

$

3

$

145

$

2

Guarantee liability

444

—

441

—

Total carrying value

$

636

$

3

$

586

$

2

Commitments with collateral$

17,421$

878$

19,346$940(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.

JPMorgan Chase & Co./2017 Annual Report263

Notes to consolidated financial statements
Securities lending indemnifications
Through the Firm’s securities lending program,counterparties’ securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of thisprogram, the Firm provides an indemnification in thelending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnificationagreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the valueof the securities on loan from the borrower. Collateral ismarked to market daily to help assure that collateralizationis adequate. Additional collateral is called from theborrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If aborrower defaults, the Firm would use the collateral held topurchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
Derivatives qualifying as guarantees
The Firm transacts certain derivative contracts that havethe 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 meetclient 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 stablevalue contracts, commonly referred to as “stable value
products”, that require the Firm to make a payment of thedifference between the market value and the book value ofa counterparty’s reference portfolio of assets in the eventthat market value is less than book value and certain otherconditions have been met. Stable value products aretransacted 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 nostated maturity, but allow the Firm to elect to terminate thecontract under certain conditions.
The notional value of derivatives guarantees generally
represents the Firm’s maximum exposure. However,exposure to certain stable value products is contractuallylimited to a substantially lower percentage of the notionalamount.

The following table summarizes the derivatives qualifying as
guarantees as of December 31, 2017, and 2016.
December 31,
2017

December 31,
2016

Derivative guarantees

57,17451,966

Stable value contracts with
contractually limited exposure

29,104

28,665

3,053

3,012

Derivative payables

304

96

Derivative receivables—

16(in millions)Notional amounts

Maximum exposure of stablevalue contracts with
contractually limited exposure
Fair value

In addition to derivative contracts that meet thecharacteristics of a guarantee, the Firm is both a purchaserand seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, seeNote 5.
Unsettled reverse repurchase and securities borrowing
agreements, and unsettled repurchase and securities
lending agreements
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements, which are secured financing agreements. Suchagreements settle at a future date. At settlement, thesecommitments result in the Firm advancing cash to andreceiving securities collateral from the counterparty. The
Firm also enters into repurchase agreements and securities
lending agreements. At settlement, these commitments
result in the Firm receiving cash from and providing
securities collateral to the counterparty. These agreements
generally do not meet the definition of a derivative, andtherefore, are not recorded on the Consolidated balance
sheets until settlement date. These agreements
predominantly consist of agreements with regular-way
settlement periods. For a further discussion of securities
purchased under resale agreements and securities
borrowed, and securities sold under repurchase agreements
and securities loaned, see Note 11.

The fair value of derivative guarantees reflects theprobability, 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 themarket risk related to the derivative guarantees.

264

JPMorgan Chase & Co./2017 Annual ReportLoan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm’s mortgage loan sale andsecuritization activities with GSEs, as described in Note 14,
the Firm has made representations and warranties that theloans sold meet certain requirements that may require theFirm to repurchase mortgage loans and/or indemnify theloan purchaser. Further, although the Firm’s securitizations
are predominantly nonrecourse, the Firm does provide
recourse servicing in certain limited cases where it agrees
to share credit risk with the owner of the mortgage 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 toseek 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 theunpaid principal balance of such loans that are deemed tohave defects that were sold to purchasers (including
securitization-related SPEs) plus, in certain circumstances,accrued interest on such loans and certain expenses.
Private label securitizations
The liability related to repurchase demands associated withprivate label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
For additional information regarding litigation, see Note 29.
Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse andnonrecourse 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 Maeor Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying adefaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and thecost 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, 2017 and 2016, theunpaid principal balance of loans sold with recourse totaled$1.2 billion and $2.7 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 itwill have to perform under its recourse obligations, was$38 million and $64 million at December 31, 2017 and2016, respectively.
Other off-balance sheet arrangements
Indemnification agreements – general
In connection with issuing securities to investors outside theU.S., the Firm may agree to pay additional amounts to theholders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
JPMorgan Chase & Co./2017 Annual Reporton payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities ifsuch additional amounts are payable. The enactment of the
TCJA will not cause the Firm to become obligated to pay any
such additional amounts. The Firm may also enter into
indemnification clauses in connection with the licensing ofsoftware to clients (“software licensees”) or when it sells abusiness 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 takenby the Firm prior to the sale of the business or assets. It isdifficult to estimate the Firm’s maximum exposure underthese indemnification arrangements, since this would
require an assessment of future changes in tax law andfuture 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.
Card 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 card sales transactionthat is the subject of a dispute between a cardmember anda merchant. If a dispute is resolved in the cardmember’sfavor, Merchant Services will (through the cardmember’s
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to themerchant. If Merchant Services is unable to collect theamount from the merchant, Merchant Services will bear theloss for the amount credited or refunded to the
cardmember. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in theunlikely event that: (1) a merchant ceases operations and isunable to deliver products, services or a refund; (2)Merchant Services does not have sufficient collateral fromthe merchant to provide cardmember refunds; and (3)Merchant Services does not have sufficient financial
resources to provide cardmember refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
Merchant Services incurred aggregate losses of $28 million,$85 million, and $12 million on $1,191.7 billion, $1,063.4
billion, and $949.3 billion of aggregate volume processed
for the years ended December 31, 2017, 2016 and 2015,
respectively. Incurred losses from merchant charge-backs
are charged to other expense, with the offset recorded in avaluation allowance against accrued interest and accounts
receivable on the Consolidated balance sheets. The carrying
value of the valuation allowance was $7 million and $45
million at December 31, 2017 and 2016, respectively,
which the Firm believes, based on historical experience andthe collateral held by Merchant Services of $141 million
and $125 million at December 31, 2017 and 2016,
respectively, is representative of the payment or
performance risk to the Firm related to charge-backs.

265

Notes to consolidated financial statements
Clearing Services – Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivativetransactions with CCPs, including ETDs such as futures andoptions, as well as OTC-cleared derivative contracts. As aclearing member, the Firm stands behind the performanceof 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 orpart. There are two types of margin: variation margin isposted on a daily basis based on the value of clients’derivative contracts and initial margin is posted at inceptionof a derivative contract, generally on the basis of thepotential changes in the variation margin requirement forthe contract.

of the residual losses after applying the guarantee fund.
Additionally, certain clearing houses require the Firm as amember to pay a pro rata share of losses that may result
from the clearing house’s investment of guarantee fundcontributions and initial margin, unrelated to andindependent of the default of another member. Generally apayment would only be required should such losses exceed
the resources of the clearing house or exchange that arecontractually 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.

As a clearing member, the Firm is exposed to the risk ofnonperformance by its clients, but is not liable to clients forthe performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collectionof appropriate amounts of margin at inception andthroughout the life of the transactions. The Firm can alsocease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the eventof nonperformance by a client, the Firm would close out theclient’s positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, withany remaining shortfalls required to be paid by the Firm asa clearing member.

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 acontract-by-contract basis, as negotiated with the Firm’s
counterparties. The obligations of the subsidiaries areincluded on the Firm’s Consolidated balance sheets or arereflected as off-balance sheet commitments; therefore, theParent Company has not recognized a separate liability forthese guarantees. The Firm believes that the occurrence ofany event that would trigger payments by the Parent
Company under these guarantees is remote.

The Firm reflects its exposure to nonperformance risk of theclient through the recognition of margin receivables fromclients 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 thiswould require an assessment of transactions that clients
may execute in the future. However, based upon historicalexperience, and the credit risk mitigants available to theFirm, management believes it is unlikely that the Firm will
have to make any material payments under thesearrangements and the risk of loss is expected to be 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
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm’s
unsecured and unsubordinated indebtedness, are notincluded in the table on page 262 of this Note. For
additional information, see Note 19.

For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, see Note 5.
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and othercountries, and it provides clearing services. Membership insome of these organizations requires the Firm to pay a pro
rata share of the losses incurred by the organization as aresult of the default of another member. Such obligations
vary with different organizations. These obligations may belimited 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 tocover any losses in the event of a member default.
Alternatively, these obligations may include a pro rata share
266

JPMorgan Chase & Co./2017 Annual ReportNote 28 – Commitments, pledged assets andcollateral
Lease commitments
At December 31, 2017, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipmentused primarily for banking purposes. Certain leases containrenewal options or escalation clauses providing forincreased 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.

Pledged assets
The Firm may pledge financial assets that it owns tomaintain potential borrowing capacity with central banks
and for other purposes, including to secure borrowings andpublic deposits, collateralize repurchase and othersecurities financing agreements, and cover customer shortsales. Certain of these pledged assets may be sold or
repledged or otherwise used by the secured parties and are
identified as financial instruments owned (pledged tovarious parties) on the Consolidated balance sheets.
The following table presents the Firm’s pledged assets.

The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2017.

December 31, (in billions)Year ended December 31, (in millions)

Assets that may be sold or repledged orotherwise used by secured parties

2018

1,526

2019

1,450

Total assets pledged

2020

1,300

2021

1,029
815

After 2022

3,757

Total minimum payments required

9,877

Less: Sublease rentals under noncancelable subleases(1,034)

Net minimum payment required

$

8,843

Total rental expense was as follows.

2016$ 129.6$ 133.6

67.9

53.5

Assets that may not be sold or repledged orotherwise used by secured parties
Assets pledged at Federal Reserve banks and
FHLBs

2022

2017

493.7

441.9

$ 691.2$ 629.0

Total assets pledged do not include assets of consolidated
VIEs; these assets are used to settle the liabilities of thoseentities. See Note 14 for additional information on assets
and liabilities of consolidated VIEs. For additional
information on the Firm’s securities financing activities, seeNote 11. For additional information on the Firm’s long-term
debt, see Note 19. The significant components of the Firm’s
pledged assets were as follows.
December 31, (in billions)Year ended December 31,(in millions)
Gross rental expense

2017$

Sublease rental income
Net rental expense

1,853

2016
$

(251)
$

1,602

1,860

2015
$

(241)
$

1,619

2,015
(411)

$

1,604

Securities

2017

2016

86.2

$ 101.1

Loans

437.7

374.9

Trading assets and other

167.3

153.0

$ 691.2$ 629.0

Total assets pledged$

Collateral
The Firm accepts financial assets as collateral that it ispermitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale agreements,
securities borrowing agreements, customer margin loans
and derivative agreements. Collateral is generally used
under repurchase agreements, securities lending
agreements or to cover customer short sales and tocollateralize deposits and derivative agreements.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
Collateral permitted to be sold or repledged,
delivered, or otherwise used
Collateral sold, repledged, delivered orotherwise used

JPMorgan Chase & Co./2017 Annual Report

2017

2016

$ 968.8$ 914.1

775.3

746.6

267

Notes to consolidated financial statements
Note 29 – Litigation
Contingencies
As of December 31, 2017, the Firm and its subsidiaries andaffiliates are defendants or putative defendants innumerous 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 ofclass members. Investigations involve both formal andinformal proceedings, by both governmental agencies andself-regulatory organizations. These legal proceedings areat varying stages of adjudication, arbitration or
investigation, and involve each of the Firm’s lines ofbusiness and geographies and a wide variety of claims(including common law tort and contract claims andstatutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range ofreasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 toapproximately $1.7 billion at December 31, 2017. Thisestimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate ofreasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can bemade, 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 ofthe proceedings (including the fact that many are in
preliminary stages), the existence in many suchproceedings of multiple defendants (including the Firm)
whose share of liability has yet to be determined, thenumerous yet-unresolved issues in many of the proceedings(including issues regarding class certification and the scopeof many of the claims) and the attendant uncertainty of thevarious 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. 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 ofthat outcome to be remote. Accordingly, the Firm’s estimateof the aggregate range of reasonably possible losses willchange from time to time, and actual losses may varysignificantly.
Set forth below are descriptions of the Firm’s material legal
proceedings.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange (“FX”) sales andtrading activities and controls related to those activities. FXrelated investigations and inquiries by government
authorities, including competition authorities, are ongoing,268

and the Firm is cooperating with and working to resolve
those matters. In May 2015, the Firm pleaded guilty to asingle violation of federal antitrust law. In January 2017,
the Firm was sentenced, with judgment entered thereafter.
The Department of Labor has granted the Firm a five-year
exemption of disqualification, effective upon expiration of atemporary one-year exemption previously granted, thatallows the Firm and its affiliates to continue to rely on the
Qualified Professional Asset Manager exemption under the
Employee Retirement Income Security Act (“ERISA”). The
Firm will need to reapply in due course for a further
exemption to cover the remainder of the ten-year
disqualification period. Separately, in February 2017 theSouth Africa Competition Commission referred its FX
investigation of the Firm and other banks to the South
Africa Competition Tribunal, which is conducting civil
proceedings concerning that matter.
The Firm is also one of a number of foreign exchange
dealers defending a class action filed in the United States
District Court for the Southern District of New York by U.S.based plaintiffs, principally alleging violations of federal
antitrust laws based on an alleged conspiracy to manipulate
foreign exchange rates (the “U.S. class action”). In January
2015, the Firm entered into a settlement agreement in the
U.S. class action. Following this settlement, a number of
additional putative class actions were filed seeking damages
for persons who transacted FX futures and options on
futures (the “exchanged-based actions”), consumers whopurchased foreign currencies at allegedly inflated rates (the“consumer action”), participants or beneficiaries ofqualified ERISA plans (the “ERISA actions”), and purported
indirect purchasers of FX instruments (the “indirectpurchaser action”). Since then, the Firm has entered into arevised settlement agreement to resolve the consolidated
U.S. class action, including the exchange-based actions, andthat agreement has been preliminarily approved by the
Court. The District Court has dismissed one of the ERISA
actions, and the plaintiffs have filed an appeal. The
consumer action, a second ERISA action and the indirectpurchaser action remain pending in the District Court.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalfof 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 Creditorsof 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 based on the filing of a UCC-3 termination
statement relating to the Term Loan. In January 2015,
following several court proceedings, the United States Courtof Appeals for the Second Circuit reversed the Bankruptcy
Court’s dismissal of the Creditors Committee’s claim andJPMorgan Chase & Co./2017 Annual Reportremanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for theCreditors Committee as to the termination statement. The
proceedings in the Bankruptcy Court continue 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 that was unaffected by the filingof the termination statement at issue. In connection withthat additional collateral, a trial in the Bankruptcy Court
regarding the value of certain representative assets
concluded in May 2017, and a ruling was issued in
September 2017. The Bankruptcy Court found that 33 of
the 40 representative assets are fixtures and that these
fixtures generally should be valued on a “going concern”
basis. The Creditors Committee is seeking leave to appeal
the Bankruptcy Court’s ruling that the fixtures should bevalued on a “going concern” basis rather than on aliquidation basis. In addition, certain Term Loan lenders
filed cross-claims in the Bankruptcy Court against JPMorgan
Chase Bank, N.A. seeking indemnification and asserting
various claims. The parties are engaged in mediation
concerning, among other things, the characterization andvalue of the remaining additional collateral, in light of the
Bankruptcy Court’s ruling regarding the representative
assets, as well as other issues, including the cross-claims.
Hopper Estate Litigation. The Firm is a defendant in an
action in connection with its role as an independentadministrator of an estate. The plaintiffs sought in excess of$7 million in compensatory damages, primarily relating toattorneys’ fees incurred by the plaintiffs. After a trial inprobate court in Dallas, Texas that ended in September
2017, the jury returned a verdict against the Firm,awarding plaintiffs their full compensatory damages andmultiple billions in punitive damages. Notwithstanding thejury verdict, in light of legal limitations on the availability ofdamages, certain of the plaintiffs moved for entry of
judgment in the total amount of approximately $71 million,
including punitive damages, while another plaintiff has not
yet moved for judgment. The court has not yet entered a
judgment in this matter. The parties are engaged in posttrial briefing.
Interchange Litigation. A group of merchants and retailassociations 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 respective rules in violation of
antitrust laws. The parties settled 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 toten basis points of credit card interchange for a period of 8months to be measured from a date within 60 days of theend of the opt-out period. The settlement also provided formodifications to each credit card network’s rules, including
those that prohibit surcharging credit card transactions. In
December 2013, the District Court granted final approval of
the settlement.

JPMorgan Chase & Co./2017 Annual Report

A number of merchants appealed to the United States Courtof Appeals for the Second Circuit, which, in June 2016,vacated the District Court’s certification of the class action
and reversed the approval of the class settlement. In March
2017, the U.S. Supreme Court declined petitions seeking
review of the decision of the Court of Appeals. The case has
been remanded to the District Court for further proceedings
consistent with the appellate decision.
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 those actions
are proceeding.
LIBOR and Other Benchmark Rate Investigations andLitigation. JPMorgan Chase has received subpoenas andrequests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
U.S. Commodity Futures Trading Commission (“CFTC”) andvarious state attorneys general, as well as the European
Commission (“EC”), the Swiss Competition Commission(“ComCo”) and other regulatory authorities and banking
associations around the world relating primarily to theprocess by which interest rates were submitted to the
British Bankers Association (“BBA”) in connection with thesetting of the BBA’s London Interbank Offered Rate(“LIBOR”) for various currencies, principally in 2007 and2008. Some of the inquiries also relate to similar processes
by which information on rates was submitted to theEuropean Banking Federation (“EBF”) in connection withthe setting of the EBF’s Euro Interbank Offered Rates(“EURIBOR”) and to the Japanese Bankers’ Association forthe setting of Tokyo Interbank Offered Rates (“TIBOR”)
during similar time periods, as well as processes for thesetting of U.S. dollar ISDAFIX rates and other reference
rates in various parts of the world during similar time
periods, including through 2012. The Firm continues tocooperate with these ongoing investigations, and iscurrently engaged in discussions with the CFTC about
resolving its U.S. dollar ISDAFIX-related investigation withrespect to the Firm. There is no assurance that suchdiscussions will result in a settlement. As previously
reported, the Firm has resolved EC inquiries relating to Yen
LIBOR and Swiss Franc LIBOR. In December 2016, the Firm
resolved ComCo inquiries relating to these same rates.
ComCo’s investigation relating to EURIBOR, to which the
Firm and other banks are subject, continues. In December
2016, the EC issued a decision against the Firm and otherbanks finding an infringement of European antitrust rules
relating to EURIBOR. The Firm has filed an appeal with theEuropean General Court.
In addition, the Firm has been named as a defendant alongwith other banks in a series of individual and putative classactions filed in various United States District Courts. These
actions have been filed, or consolidated for pre-trial
purposes, in the United States District Court for theSouthern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in2000 or later, defendants either individually or collectively
269

Notes to consolidated financial statements
manipulated various benchmark rates by submitting rates
that were artificially low or high. Plaintiffs allege that theytransacted in loans, derivatives or other financial
instruments whose values are affected by changes in these
rates and assert a variety of claims including antitrust
claims seeking treble damages. These matters are in various
stages of litigation.
The Firm has agreed to settle a putative class action related
to Swiss franc LIBOR, and that settlement remains subject
to final court approval.
In an action related to EURIBOR, the District Court
dismissed all claims except a single antitrust claim and two
common law claims, and dismissed all defendants except
the Firm and Citibank.
In actions related to U.S. dollar LIBOR, the District Court
dismissed certain claims, including antitrust claims broughtby some plaintiffs whom the District Court found did nothave standing to assert such claims, and permitted antitrust
claims, claims under the Commodity Exchange Act andcommon law claims to proceed. The plaintiffs whose
antitrust claims were dismissed for lack of standing have
filed an appeal. In May 2017, plaintiffs in three putativeclass actions moved in the District Court for classcertification, and the Firm and other defendants have
opposed that motion. In January 2018, the District Court
heard oral arguments on the class certification motions andreserved decision.
In an action related to the Singapore Interbank Offered Rateand the Singapore Swap Offer Rate, the District Court
dismissed without prejudice all claims except a single
antitrust claim, and dismissed without prejudice all
defendants except the Firm, Bank of America and Citibank.
The plaintiffs filed an amended complaint in September
2017, which the Firm and other defendants have moved todismiss.
The Firm is one of the defendants in a number of putativeclass actions alleging that defendant banks and ICAP
conspired to manipulate the U.S. dollar ISDAFIX rates. In
April 2016, the Firm settled this litigation, along withcertain other banks. Those settlements have been
preliminarily approved by the Court.
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. The Firm 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 inofferings of MBS. The remaining civil cases include one
investor action and actions for repurchase of mortgage
loans. The Firm and certain of its current and former
officers and Board members have also been sued in ashareholder derivative action relating to the Firm’s MBS
activities, which remains pending.

270

Issuer Litigation – Individual Purchaser Actions. With the
exception of one remaining action, the Firm has resolved allof the 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).
Repurchase Litigation. The Firm is defending a few actions
brought by trustees and/or securities administrators ofvarious MBS trusts 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 thoseloans or equivalent monetary relief, as well as
indemnification of attorneys’ fees and costs and otherremedies. The trustees and/or securities administrators
have accepted settlement offers on these MBS transactions,and these settlements are subject to court approval.
In addition, the Firm and a group of 21institutional MBS
investors made a binding offer to the trustees of MBS issuedby 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 assertedwith respect to 330 MBS trusts created between 2005 and2008. The offer does not resolve claims relating toWashington Mutual MBS. The trustees (or separate andsuccessor trustees) for this group of 330 trusts haveaccepted the settlement for 319 trusts in whole or in partand excluded from the settlement 16 trusts in whole or inpart. The trustees’ acceptance received final approval fromthe court and the Firm paid the settlement in December
2017.
Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts sponsored by JPMC, Bear Stearns andWashington Mutual.
In actions against the Firm involving offerings of MBS issued
by the Firm, the Firm has contractual rights toindemnification from sellers of mortgage loans that weresecuritized in such offerings. However, certain of thoseindemnity rights may prove effectively unenforceable invarious situations, such as where the loan sellers are now
defunct.
The Firm has entered into agreements with a number of
MBS trustees or entities that purchased MBS that toll
applicable statute of limitations periods with respect totheir 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.
Derivative Action. A shareholder derivative action against
the Firm, as nominal defendant, and certain of its current
and former officers and members of its Board of Directors
relating to the Firm’s MBS activities was filed in California
federal court in 2013. In June 2017, the court granted
defendants’ motion to dismiss the cause of action that
alleged material misrepresentations and omissions in the
JPMorgan Chase & Co./2017 Annual ReportFirm’s proxy statement, found that the court did not havepersonal jurisdiction over the individual defendants withrespect to the remaining causes of action, and transferredthat remaining portion of the case to the United States
District Court for the Southern District of New York without
ruling on the merits. The motion by the defendants todismiss is pending.
Municipal Derivatives Litigation. Several civil actions werecommenced 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 forbeing chosen to underwrite more than $3.0 billion in
warrants issued by the County and to act as thecounterparty 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-describedactions against the Firm have been dismissed pursuant to
the terms of the Plan of Adjustment. The appeal of the
Bankruptcy Court’s order confirming the Plan of Adjustment
remains pending.
Petters Bankruptcy and Related Matters. JPMorgan Chaseand certain of its affiliates, including One Equity Partners(“OEP”), were named as defendants in several actions filedin 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 Chaseand its affiliates were brought by a court-appointed receiverfor Petters and the trustees in bankruptcy proceedings forthree Petters entities. These actions generally sought toavoid certain putative transfers in connection with (i) the2005 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 enteredinto with Polaroid; and (iii) a credit line and investment
accounts held by Petters. In January 2017, the Court
substantially denied the defendants’ motion to dismiss anamended complaint filed by the plaintiffs. In October 2017,
JPMorgan Chase and its affiliates reached an agreement inprinciple to settle the litigation brought by the Pettersbankruptcy trustees, or their successors, and the receiverfor Thomas J. Petters. The settlement is subject to final
documentation and Court approval.

JPMorgan Chase & Co./2017 Annual Report

Wendel. Since 2012, the French criminal authorities havebeen investigating a series of transactions entered into bysenior 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 anumber of managers of Wendel in 2007. JPMorgan Chasehas 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. No date fortrial has been set by the court. The Firm has beensuccessful in legal challenges made to the Court ofCassation, France’s highest court, with respect to thecriminal proceedings. In January 2018, the Paris Court ofAppeal issued a decision cancelling the mise en examen of
JPMorgan Chase Bank, N.A. The Firm is requesting
clarification from the Court of Cassation concerning the
Court of Appeal’s decision before seeking direction on next
steps in the criminal proceedings. In addition, a number ofthe managers have commenced civil proceedings against
JPMorgan Chase Bank, N.A. The claims are separate, involve
different allegations and are at various stages ofproceedings.
***

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.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance withthe provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probablethat 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 withcounsel. During the years ended December 31, 2017, 2016
and 2015, the Firm’s legal expense was a benefit of $(35)million, a benefit of $(317) million, and an expense of $3.0
billion, respectively. There is no assurance that the Firm’s
litigation reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcomeof legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matterspresent novel legal theories, involve a large number ofparties 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 or271

Notes to consolidated financial statements
consequences 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 theuncertainties 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 particularmatter may be material to JPMorgan Chase’s operating
results for a particular period, depending on, among otherfactors, the size of the loss or liability imposed and the levelof JPMorgan Chase’s income for that period.

272

JPMorgan Chase & Co./2017 Annual ReportNote 30 – International operations
The following table presents income statement- and balance
sheet-related information for JPMorgan Chase by majorinternational geographic area. The Firm definesinternational 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 of or for the year ended December 31,(in millions)

As the Firm’s operations are highly integrated, estimatesand 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 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.

Revenue(b)Expense(c)Income before
income tax
expenseNet income

Total assets

2017
Europe/Middle East/Africa$

14,426

$

8,653

$

5,773

$

4,007

$

407,145

Asia/Pacific

5,805

4,277

1,528

852

163,718

Latin America/Caribbean

1,994

1,523

471

299

44,569Total international

22,225

14,453

7,772

5,158

615,432

North America(a)77,39949,271

28,12819,283

1,918,168

Total

$

99,624$63,724$35,900$24,441$

2,533,600$

13,842

$

8,550

$

5,292

$

3,783

$

394,134(d)

2016
Europe/Middle East/Africa
Asia/Pacific

6,112

4,213

1,899

1,212

Latin America/Caribbean

1,959

1,632

327

208

42,971

Total international

21,913

14,395

7,518

5,203

594,051

North America(a)Total

73,75546,73727,018(d)

156,946

19,5301,896,921$

95,668$61,132$

34,536$

24,733$2,490,972$

14,206

$

8,871

$

5,335

$

4,158

$

347,647

2015
Europe/Middle East/Africa
Asia/Pacific

6,151

4,241

1,910

1,285

Latin America/Caribbean

1,923

1,508

415

253

48,185

Total international

22,28014,620

7,660

5,696

534,579

North America(a)71,26348,221

23,042

18,746

1,817,119

Total

$

93,543$62,841$30,702$

24,442

138,747$

2,351,698(a) Substantially reflects the U.S.
(b) Revenue is composed of net interest income and noninterest revenue.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(d) Total assets for the U.K. were approximately $310 billion, $310 billion, and $306 billion at December 31, 2017, 2016 and 2015, respectively.

JPMorgan Chase & Co./2017 Annual Report

273

(d)

Notes to consolidated financial statements
Note 31 – Business segments
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment. The businesssegments are determined based on the products andservices provided, or the type of customer served, and theyreflect the manner in which financial information iscurrently evaluated by management. Results of these linesof business are presented on a managed basis. For a further
discussion concerning JPMorgan Chase’s business segments,
see Segment results of this footnote.
The following is a description of each of the Firm’s businesssegments, and the products and services they provide totheir respective client bases.
Consumer & Community Banking
CCB offers services to consumers and businesses throughbank branches, ATMs, online, mobile and telephonebanking. CCB is organized into Consumer & BusinessBanking (including Consumer Banking/Chase WealthManagement and Business Banking), Home Lending(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card, MerchantServices & Auto. Consumer & Business Banking offers
deposit and investment products and services to
consumers, and lending, deposit, and cash management
and payment solutions to small businesses. Home Lending
includes mortgage origination and servicing activities, aswell as portfolios consisting of residential mortgages andhome equity loans. Card, Merchant Services & Auto issues
credit cards to consumers and small businesses, offers
payment processing services to merchants, and originatesand services auto loans and leases.
Corporate & Investment BankThe CIB, which consists of Banking and Markets & Investor
Services, offers a broad suite of investment banking,market-making, prime brokerage, and treasury andsecurities products and services to a global client base of
corporations, investors, financial institutions, government
and municipal entities. Banking offers a full range ofinvestment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, aswell as loan origination and syndication. Banking also
includes Treasury Services, which provides transaction
services, consisting of cash management and liquidity
solutions. Markets & Investor Services is a global market-

274

maker in cash securities and derivative instruments, andalso offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also
includes Securities Services, a leading global custodian
which provides custody, fund accounting andadministration, and securities lending products principally
for asset managers, insurance companies and public andprivate investment funds.
Commercial Banking
CB delivers extensive industry knowledge, local expertiseand 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. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm’s other businesses, CB provides
comprehensive financial solutions, including lending,treasury services, investment banking and asset
management to meet its clients’ domestic and international
financial needs.
Asset & Wealth Management
AWM, with client assets of $2.8 trillion, is a global leader ininvestment and wealth management. AWM clients include
institutions, high-net-worth individuals and retail investors
in many major markets throughout the world. AWM offers
investment management across most major asset classes
including equities, fixed income, alternatives and money
market funds. AWM also offers multi-asset investment
management, providing solutions for a broad range ofclients’ investment needs. For Wealth Management clients,
AWM also provides retirement products and services,brokerage and banking services including trusts andestates, loans, mortgages and deposits. The majority of
AWM’s client assets are in actively managed portfolios.
Corporate
The Corporate segment consists of Treasury and CIO andOther Corporate, which includes corporate staff units andexpense that is centrally managed. Treasury and CIO are
predominantly responsible for measuring, monitoring,
reporting and managing the Firm’s liquidity, funding andstructural 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.

JPMorgan Chase & Co./2017 Annual Report

Segment results
The following tables provide a summary of the Firm’s
segment results as of or for the years ended December 31,
2017, 2016 and 2015 on a managed basis. The Firm’s
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications topresent total net revenue (noninterest revenue and net
interest income) for each of the reportable businesssegments on a FTE basis. Accordingly, revenue frominvestments receiving 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 fromyear-to-year arising from both taxable and tax-exempt

sources. The corresponding income tax impact related totax-exempt items is recorded within income tax expense/(benefit).
Effective January 1, 2017, the Firm’s methodology used toallocate capital to the Firm’s business segments was
updated. The new methodology incorporates Basel III
Standardized Fully Phased-In RWA (as well as Basel III
Advanced Fully Phased-In RWA), leverage, the GSIB
surcharge, and a simulation of capital in a severe stressenvironment. The methodology will continue to be weighted
towards Basel III Advanced Fully Phased-In RWA because
the Firm believes it to be the best proxy for economic risk.

Segment results and reconciliation
As of or for the year ended
December 31,(in millions, except ratios)

Consumer & Community Banking

Corporate & Investment Bank

Commercial Banking
2017

2017

2016

2015

2017

2016

2015

Noninterest revenue$ 14,710$ 15,255$ 15,592$ 24,375$ 24,325$ 23,693

Net interest income

31,77529,66028,228

10,118

10,891

9,849

6,083

5,133

4,520

3,379

3,033

2,556

Total net revenue

46,48544,91543,82034,49335,21633,542

8,605

7,453

6,885

12,91812,045

12,119

$

2,522

2016

Asset & Wealth Management

$

2015

2,320

$

2017

2,365

$

2016

9,539

$

2015

9,012

$

9,563

Provision for credit losses

5,572

4,494

3,059

(45)

563

332

(276)

282

442

39

26

4

Noninterest expense

26,062

24,90524,90919,24318,992

21,361

3,327

2,934

2,881

9,301

8,478

8,886

Income/(loss) before income
tax expense/(benefit)

14,851

15,51615,852

15,295

15,661

11,849

5,554

4,237

3,562

3,578

3,541

3,229

Income tax expense/(benefit)

5,456

5,802

6,063

4,482

4,846

3,759

2,015

1,580

1,371

1,241

1,290

9,789

$ 10,813$ 10,815$

Net income/(loss)$

Average equity$ 51,000$ 51,000$ 51,000$ 70,000$ 64,000$ 62,000$ 20,000

Total assets

552,601535,310502,652

826,384

803,511748,691

221,228

9,395

$

9,714

$

8,090

$

3,539

$

2,657

$

1,294

2,191

$

2,337

$

2,251

$

1,935

$ 16,000$ 14,000

$

9,000

$

9,000

$

9,000

214,341

200,700

151,909138,384

131,451

Return on equity

17%

18%

18%

14%

16%

12%

17%

16%

15%

25%

24%

21%

Overhead ratio

56

55

57

56

54

64

39

39

42

72

70

73

(table continued from above)
Corporate

As of or for the year ended
December 31,(in millions, except ratios)
Noninterest revenue

2017
$

2016

1,085 $

Reconciling Items(a)2015$(2,265) $(1,980)(1,209)(1,110)50,09746,08343,510Total net revenue

1,140

(487)

267

(4,017)(3,474)(3,090)99,624

95,66893,543

—

(4)

(10)

—

—

—

5,290

5,361

3,827

977

—

—

—

58,43455,77159,014(4,017)(3,474)(3,090)35,90034,53630,702(4,017) (b)(3,474)(3,090)11,459

9,803

639

(945)

(700)

Income tax expense/(benefit)

2,282

(241)

(3,137)(1,643) $(704) $

2,437

$
$

Net income/(loss)$

Average equity

$

—

$

—

$

— $

—

$

49,52724,441$$

49,5852015(1,313)

462

$

2016

(533)

501

$

2017

(1,425)

Income/(loss) before income
tax expense/(benefit)(2,704)

2015

55

Noninterest expense

800

2016
(b)

Net interest income

Provision for credit losses

938 $

2017

Total

24,733$50,0336,260$

24,44280,350 $84,631 $79,690— $—$ 230,350$ 224,631$ 215,690

781,478

799,426

768,204

NA

NA

NA

2,533,600

2,490,972

2,351,698

Return on equity

NM

NM

NM

NM

NM

NM

10%

10%

11%

Overhead ratio

NM

NM

NM

NM

NM

NM

59

58

63

Total assets(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) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.

JPMorgan Chase & Co./2017 Annual Report275Note 32 – Parent Company

Statements of cash flows(a)The following tables present Parent Company-only financial
statements.

Year ended December 31,(in millions)

Statements of income and comprehensive income(a)Net income

Year ended December 31,(in millions)

2017

2016

2015

IncomeDividends from subsidiaries andaffiliates:
Bank and bank holding company
Non-bank(b)Interest income from subsidiaries
Other interest income
Other income from subsidiaries,
primarily fees:$ 13,000540
72
41$ 10,000
3,873
794
207

$ 10,653
8,172
443
234

Bank and bank holding company
Non-bank
Other income
Total income
ExpenseInterest expense to subsidiaries
and affiliates(b)

1,553
(88)
(623)
14,495

852
1,165
(846)
16,045

1,438(1,402)
1,773
21,311

400

105

98

Other interest expense
Noninterest expense
Total expense

5,202(1,897)
3,705

4,413
1,643
6,161

3,720
2,611
6,429

2017

2016

2015

$ 24,441$ 24,733$ 24,442

Less: Net income of subsidiaries
and affiliates(b)26,18527,846

26,745

Parent company net loss

(1,744)(3,113)(2,303)

Cash dividends from subsidiaries
and affiliates(b)13,54013,87317,023

Other operating adjustments

4,635(18,166)

2,483

Net cash provided by/(used in)operating activities

16,431(7,406)

17,203

144

60,34930,085

—

353

120
321

Operating activities

Investing activities
Net change in:
Deposits with banking
subsidiaries
Available-for-sale securities:
Proceeds from paydowns andmaturities
Other changes in loans, net

Income before income tax benefit
and undistributed net income ofsubsidiaries

10,7909,884

14,882

1,007

876

1,640

12,644

13,973

7,920

Income tax benefit
Equity in undistributed net incomeof subsidiaries
Net income
Other comprehensive income, net
Comprehensive income$ 24,441
1,056$ 25,497$ 24,733 $ 24,442(1,521)(1,997)$ 23,212 $ 22,445

Balance sheets(a)December 31, (in millions)

2017

2016

AssetsCash and due from banks

$

163

$

113

78

1,793

Advances to and investments in
subsidiaries and affiliates, net(280)(51,967)(81)

All other investing activities, net

17

114

153

Net cash provided by/(used in)investing activities(41)

10,64230,598Financing activities
Net change in:
Borrowings from subsidiaries
and affiliates(b)13,862

2,957(4,062)

Short-term borrowings

(481)

109

(47,483)

Proceeds from long-termborrowings

25,85541,49842,121

Payments of long-term borrowings(29,812)(29,298)(30,077)

Proceeds from issuance ofpreferred stock

1,258

—

5,893

Redemption of preferred stock(1,258)——Treasury stock repurchased(15,410)(9,082)(5,616)

Dividends paid

(8,993)(8,476)(7,873)All other financing activities, net(1,361)

(905)

(840)

Net cash used in financing
activities(16,340)(3,197)(47,937)

Deposits with banking subsidiaries

5,306

5,450

Trading assets

4,773

10,326

Available-for-sale securities

—

2,694

Loans

—

77

Net increase/(decrease) in cash
and due from banks

50

39

(137)

2,106

524

82

46

Cash and due from banks at the
beginning of the year

113

74

211

Advances to, and receivables from, subsidiaries:
Bank and bank holding company
Non-bank
Investments (at equity) in subsidiaries andaffiliates:
Bank and bank holding company
Non-bank(b)451,713422,028

422

13,103

Other assets

10,458

10,257

Total assets$ 475,023$ 464,618$ 23,426$ 13,584

Liabilities and stockholders’ equity
Borrowings from, and payables to, subsidiaries
and affiliates(b)Short-term borrowings

3,350

3,831

Other liabilities

8,302

11,224Long-term debt(c)(d)184,252

181,789

Total liabilities(d)219,330

210,428

Total stockholders’ equity

255,693

254,190$ 475,023$ 464,618

Total liabilities and stockholders’ equity

276

Cash and due from banks at theend of the year

$

163

$

113

$

74

Cash interest paid

$

5,426

$

4,550

$

3,873

Cash income taxes paid, net

1,775

1,053

8,251

(a) In 2016, in connection with the Firm’s 2016 Resolution Submission, the Parent
Company established the IHC, and contributed substantially all of its direct
subsidiaries (totaling $55.4 billion) other than JPMorgan Chase Bank, N.A., aswell as most of its other assets (totaling $160.5 billion) and intercompany
indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. In
2017, the Parent Company transferred $16.2 billion of noncash assets to the IHC
to complete the contributions to the IHC.
(b) Affiliates include trusts that issued guaranteed capital debt securities (“issuer
trusts”). For further discussion on these issuer trusts, see Note 19.
(c) At December 31, 2017, long-term debt that contractually matures in 2018
through 2022 totaled $20.6 billion, $13.3 billion, $22.4 billion, $20.6 billion
and $10.5 billion, respectively.
(d) For information regarding the Parent Company’s guarantees of its subsidiaries’
obligations, see Notes 19 and 27.

JPMorgan Chase & Co./2017 Annual ReportSupplementary information
Selected quarterly financial data (unaudited)
As of or for the period ended(in millions, except per share, ratio,
headcount data and where otherwise
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit

2017

2016

4th quarter3rd quarter2nd quarter

1st quarter

4th quarter3rd quarter2nd quarter

1st quarter

$

$

$

$

$

$

$

$

24,153
14,591
9,562

25,326
14,31811,00825,47014,506
10,964

24,67515,0199,656

23,376
13,833
9,543

24,673
14,463
10,21024,38013,638
10,742

23,23913,837
9,402

Provision for credit losses

1,308

1,452

1,215

1,315

864

1,271

1,402

1,824

Income before income tax expense

8,254

9,556

9,749

8,341

8,679

8,939

9,340

7,578

Income tax expense

4,022

2,824

2,720

1,893

1,952

2,653

3,140

Net income(a)Per common share data
Net income:
Basic
DilutedAverage shares: Basic
DilutedMarket and per common share data
Market capitalization
Common shares at period-end
Share price:(b)
High
Low
Close
Book value per share
TBVPS(c)Cash dividends declared per share
Selected ratios and metrics

4,232

$

6,732

$

7,029

$

6,448

$

6,727

$

6,286

$

6,200

$

5,520

$

1.08
1.07
3,489.7
3,512.2

$

1.77
1.76
3,534.7
3,559.6

$

1.83
1.82
3,574.1
3,599.0

$

1.66
1.65
3,601.7
3,630.4

$

1.73
1.71
3,611.3
3,646.6

$

1.60
1.58
3,637.7
3,669.8

$

1.56
1.55
3,675.5
3,706.2

$

1.36
1.35
3,710.6
3,737.6$

366,301
3,425.3$

331,3933,469.7$

321,633
3,519.0$

312,078
3,552.8$

307,295
3,561.2$

238,277
3,578.3$

224,449
3,612.0$

216,547
3,656.7$

108.4694.96
106.94
67.04
53.56
0.56

$

95.88
88.08
95.51
66.95
54.03
0.56

$

92.65
81.64
91.40
66.05
53.29
0.50

$

93.98
83.03
87.84
64.68
52.04
0.50

$

87.39
66.10
86.29
64.06
51.44
0.48

$

67.90
58.76
66.59
63.79
51.23
0.48

$

66.20
57.05
62.14
62.67
50.21
0.48

$

64.13
52.50
59.22
61.28
48.96
0.44

ROE
ROTCE(c)ROA
Overhead ratio
Loans-to-deposits ratio
HQLA (in billions)(d)$LCR (average)
CET1 capital ratio(e)Tier 1 capital ratio(e)Total capital ratio(e)Tier 1 leverage ratio(e)Selected balance sheet data (period-end)
Trading assets
Securities
Loans
Core loans
Average core loans
Total assets
Deposits
Long-term debt(f)Common stockholders’ equity
Total stockholders’ equity
Headcount

2,058

$

7%
8
0.66
60
64
560 $
119%
12.2
13.9
15.9
8.3

11%
13
1.04
57
63
568
120%
(i)
12.5
(i)
14.1
16.1
8.4

$

12%
14
1.10
57
63
541
115%
(i)
12.5
(i)
14.2
16.0
8.5

$

11%
13
1.03
61
63
528
NA%
(i)
12.4
(i)
14.1
15.6
8.4

$

11%
14
1.06
59
65
524
NA%
(i)
12.3
(i)
14.0
15.5
8.4

$

10%
13
1.01
59
65
539 $
NA%
12.0
13.6
15.1
8.5

10%
13
1.02
56
66
516 $
NA%
12.0
13.6
15.2
8.5

9%
12
0.93
60
64
505
NA%
11.9
13.5
15.1
8.6

$

381,844249,958
930,697
863,683
850,166
2,533,600
1,443,982
284,080
229,625
255,693
252,539$

420,418
263,288913,761
843,432
837,5222,563,074
1,439,027
288,582
232,314258,382
251,503$

407,064
263,458
908,767
834,935
824,583
2,563,174
1,439,473
292,973
232,415
258,483
249,257$

402,513281,850
895,974
812,119805,3822,546,290
1,422,999
289,492
229,795
255,863
246,345$$$

372,130
289,059
894,765
806,152
799,698
2,490,972
1,375,179
295,245
228,122254,190
243,355$

374,837
272,401
888,054795,077
779,383
2,521,029
1,376,138
309,418
228,263
254,331242,315$

380,793278,610872,804
775,813760,7212,466,096
1,330,958
295,627
226,355
252,423240,046$

366,153
285,323
847,313746,196
737,297
2,423,808
1,321,816
290,754224,089
250,157
237,420$

14,672$

14,648$14,480$14,490$14,854$15,304$

15,187$

15,008Credit quality metrics
Allowance for credit losses
Allowance for loan losses to total retainedloans
Allowance for loan losses to retainedloans excluding purchased creditimpaired loans(g)Nonperforming assets

1.47%

1.49%

1.27
$

6,426

1.49%

1.29
$

6,154

1.52%

1.28
$

6,432

1.55%

1.31
$

6,826

1.61%

1.34
$

7,535

1.64%

1.37
$

7,779

1.66%

1.40
$

7,757

1.40
$

8,023

Net charge-offs(h)

1,264

1,265

1,204

1,654

1,280

1,121

1,181

1,110

Net charge-off rate(h)

0.55%

0.56%

0.54%

0.76%

0.58%

0.51%

0.56%

0.53%

(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)

The Firm’s results for the three months ended December 31, 2017, included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of
the TCJA, see Note 24.
Based on daily prices reported by the New York Stock Exchange.
TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 52–54.
HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio. For December 31, 2017, September 30,2017 and June 30, 2017 the balance represents the average ofquarterly reported results per the U.S. LCR public disclosure requirements effective April 1, 2017 and period-end balances for the remaining periods. For additional information, see HQLA on page 93.
Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the Collins Floor. See Capital Risk Management on pages 82–91 for additional information on Basel III.
Included unsecured long-term debt of $218.8 billion, $221.7 billion, $221.0 billion, $212.0 billion, $212.6 billion, $226.8 billion, $220.6 billion, $216.1 billion respectively, for the periods presented.
Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm’s Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 52–54, and the Allowance for credit losses on pages 117–119.
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have been 0.54%.
The prior period ratios have been revised to conform with the current period presentation.

JPMorgan Chase & Co./2017 Annual Report277

Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase’s
consolidated average balances, interest rates and interest
differentials on a taxable-equivalent basis for the years
2015 through 2017. Income computed on a taxableequivalent basis is the income reported in the Consolidated

statements of income, adjusted to present interest income
and average rates earned on assets exempt from income
taxes (i.e. federal taxes) on a basis comparable with othertaxable investments. The incremental tax rate used for
calculating the taxable-equivalent adjustment wasapproximately 37% in 2017, and 38% in 2016 and 2015.

(Table continued on next page)
2017
Year ended December 31,(Taxable-equivalent interest and rates; in millions, except rates)
Assets
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets – debt instruments
Taxable securities
Non-taxable securities(a)Total securities
Loans
All other interest-earning assets(b)Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets – equity instruments
Trading assets – derivative receivables
Goodwill, MSRs and other intangible assets
Other assets
Total assets
Liabilities
Interest-bearing deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(c)Trading liabilities – debt and other interest-bearing liabilities(d)(e)Beneficial interests issued by consolidated VIEs
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
Trading liabilities – equity instruments(e)Trading liabilities – derivative payables
All other liabilities, including the allowance for lending-related commitments
Total liabilities
Stockholders’ equity
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

Averagebalance$$$$

Interest(g)Averagerate

438,240
191,819
95,324
237,206
223,592
45,086
268,678
906,397
42,9282,180,592(13,453)
20,364
115,91359,58853,999139,0592,556,062

$

4,219
2,327
(h)
(37)
7,714
5,534
2,769
8,303
(i)
41,296
1,863
65,6850.96%
1.21(0.04)
3.25
2.48
6.14
3.09 (j)
4.56
4.34
3.01

1,013,221
187,386
46,532
171,81432,457
291,489
1,742,899
404,165
21,022
44,12287,292
2,299,500

$

2,857
1,611
481
2,070
503
6,753
14,275

0.28%
0.86
1.03
1.21
1.55
2.32
0.82

$

51,4102.19%
2.36

26,212
230,350
256,5622,556,062(f)(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(b) Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets included in other assets.
(c) Includes commercial paper.
(d) Other interest-bearing liabilities include brokerage customer payables.
(e) Included trading liabilities – debt and equity instruments of $90.7 billion, $92.8 billion and $81.4 billion for the twelve months ended December 31, 2017, 2016 and 2015,
respectively.
(f) The ratio of average stockholders’ equity to average assets was 10.0% for 2017, 10.2% for 2016, and 9.7% for 2015. The return on average stockholders’ equity, based on net
income, was 9.5% for 2017, 9.9% for 2016, and 10.2% for 2015.
(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(h) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and thenegative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt, short-term and other liabilities.
(i) Fees and commissions on loans included in loan interest amounted to $1.0 billion in 2017, $808 million in 2016, and $936 million in 2015.
(j) The annualized rate for securities based on amortized cost was 3.13% in 2017, 2.99% in 2016, and 2.94% in 2015, and does not give effect to changes in fair value that arereflected in AOCI.

278

JPMorgan Chase & Co./2017 Annual ReportWithin the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans havebeen included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, see Note 12.

(Table continued from previous page)
2016
Averagebalance$$$$

Interest(g)392,160
205,368
102,964
215,565
235,211
44,176279,387
866,378
39,782
2,101,604(13,965)
18,66095,52870,89753,752
135,1432,461,619$

925,270
178,720
36,140177,765
40,180295,573
1,653,648
402,698
20,73755,927
77,9102,210,920$

26,068
224,631250,699
2,461,619

1,863
2,265
(h)
(332)
7,373
5,538
2,662
8,200
(i)
36,866875
57,1102015
Average
rate
0.48%
1.10
(0.32)
3.42
2.35
6.03
2.94 (j)
4.26
2.20
2.72

Averagebalance
$

$
1,356
1,089
203
1,102
504
5,564
9,818

0.15%
0.61
0.56
0.62
1.25
1.88
0.59

$

(f)

$
$

47,292

JPMorgan Chase & Co./2017 Annual Report

2.13%
2.25

Interest(g)Averagerate

427,963
206,637
105,273
206,385
273,730
42,125
315,855
787,318
38,811
2,088,242(13,885)
22,042
105,489
73,29055,439138,792
2,469,409

$

1,250
1,592
(h)
(532)
6,694
6,550
2,556
9,106
(i)
33,321652
52,0830.29%
0.77(0.50)
3.24
2.39
6.07
2.88 (j)
4.23
1.68
2.49

876,840
192,510
66,956
178,994
49,200284,940
1,649,440
418,948
17,28264,716
79,2932,229,679

$

1,252
609
175
557
435
4,435
7,463

0.14%
0.32
0.26
0.31
0.88
1.56
0.45

$

44,6202.04%
2.14

24,040215,690239,730
2,469,409

(f)

279

Interest rates and interest differential analysis of net interest income – U.S. and non-U.S.
Presented below is a summary of interest rates and interest
differentials segregated between U.S. and non-U.S.
operations for the years 2015 through 2017. 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 dollardenominated deposits originated in various locations thatare centrally managed by Treasury and CIO.

(Table continued on next page)
2017
Year ended December 31,(Taxable-equivalent interest and rates; in millions, except rates)
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:
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Securities:
U.S.
Non-U.S.
Loans:U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
Total interest-earning assets
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
Non-U.S.
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
Non-U.S.
Trading liabilities – debt, short-term and all other interest-bearing liabilities:(a)U.S.
Non-U.S.
Beneficial interests issued by consolidated VIEs, predominantly U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:U.S.
Non-U.S.
Total interest-bearing liabilities
Noninterest-bearing liabilities(b)Total investable funds
Net interest income and net yield:
U.S.
Non-U.S.
Percentage of total assets and liabilities attributable to non-U.S. operations:
AssetsLiabilities

Average balance$

Average rate

366,177 $
72,063

4,091
128

1.12%
0.18

90,878100,941

1,360
967

1.50
0.96

68,11027,214$

Interest(66) (c)29(0.10)
0.11

128,293108,913

4,186
3,528

3.26
3.24

223,140
45,538

7,490
813

3.36
1.79

832,608
73,78942,9282,180,592

39,4391,857
1,863
65,685

4.74
2.52
4.34
3.01

776,049
237,172

2,223
634

0.29
0.27

115,574
71,812

1,349
262

1.17
0.37

138,470
79,87632,457

1,271
1,280
503

0.92
1.60
1.55

276,750
14,739

6,745
8

2.44
0.05

(2,874)
2,874
1,742,899
437,693
2,180,592 $
$

(25)
25
14,275——0.82

14,27551,41046,059
5,351

0.65%
2.36%
2.68
1.15
22.5
21.1

(a) Includes commercial paper.
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book
activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt,
short-term and other liabilities.

280

JPMorgan Chase & Co./2017 Annual ReportFor further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 44–46.

(Table continued from previous page)
2016
Average balance$$

Interest

2015
Average rate

328,831 $63,329

1,708
155

0.52%
0.25

112,90292,466

1,166
1,099

73,297
29,667

Average balance

Average rate

388,833 $
39,130

1,021
229

0.26%
0.59

1.03
1.19

118,945
87,692

900
692

0.76
0.79

(341) (c)9(0.46)
0.03

78,81526,458(562) (c)30(0.71)
0.11

116,211
99,354

3,825
3,548

3.29
3.57

106,465
99,920

3,572
3,122

3.35
3.12

216,726
62,661

6,971
1,229

3.22
1.97

200,240
115,615

6,676
2,430

3.33
2.10

788,213
78,16539,782
2,101,604

35,1101,756
875
57,110

4.45
2.25
2.20
2.72

699,664
87,65438,811
2,088,242

31,4681,853
652
52,083

4.50
2.11
1.68
2.49

703,738
221,532

1,029
327

0.15
0.15

638,756
238,084

761
491

0.12
0.21

121,945
56,775

773
316

0.63
0.56

140,60951,901

366
243

0.26
0.47

133,788
80,11740,180

86
1,219
504

0.06
1.52
1.25

166,838
79,112
49,200(394) (c)
1,126
435

(0.24)
1.42
0.88

283,169
12,404

5,533
31

1.95
0.25

273,033
11,907

4,386
49

1.61
0.41

(20,405)
20,405
1,653,648
447,956
2,101,604 $
$

10
(10)
9,818

—
—
0.59

7
(7)
7,463

—
—
0.45

9,818
47,29240,705
6,587

0.47%
2.25%
2.49
1.42

(50,517)50,517
1,649,440
438,8022,088,242 $$

7,463
44,62038,033
6,587

0.36%
2.14%
2.34
1.42

23.1
20.7

JPMorgan Chase & Co./2017 Annual Report$

Interest

$

24.7
21.1

281

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 andrate is calculated using annual average balances for each category of assets and liabilities shown in the table and thecorresponding annual average rates (see pages 278-282 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 average 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 eachcategory of asset or liability. This analysis is calculated separately for each category without consideration of the relationshipbetween categories (for example, the net spread between the rates earned on assets and the rates paid on liabilities that fundthose 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 andrates is inherently complex and judgmental.
2017 versus 20162016 versus 2015

Increase/(decrease) due
to change in: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 resaleagreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets – debt instruments:
U.S.
Non-U.S.
Securities:
U.S.
Non-U.S.
Loans:U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
Change in interest income
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
Non-U.S.
Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
Non-U.S.
Trading liabilities – debt, short-term and other interest-bearing
liabilities: (a)U.S.
Non-U.S.
Beneficial interests issued by consolidated VIEs, predominantly
U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:U.S.
Non-U.S.
Change in interest expense
Change in net interest income

Volume

$

$

410
17

Rate

$

Increase/(decrease) due
to change in:NetchangeVolume1,973 $
(44)

2,383
(27)

(337)
81

531
(213)

11
(4)

$

Rate

Net
change(324) $
59

1,011 $
(133)

687
(74)

194
(132)

(55)
56

321
351

266
407

264
24

275
20

24
—

197
(21)

221
(21)

396
308

(35)
(328)

361
(20)

317
(24)

(64)
450

253
426

216
(303)

303
(113)

519
(416)

515
(1,051)

(220)
(150)

295
(1,201)

2,043
(110)
137
2,865

2,286
211
851
5,710

4,329
101
988
8,575

3,992
(220)
21
3,310

(350)
123
202
1,717

3,642
(97)
223
5,027

209
41

985
266

1,194
307

76
(21)

192
(143)

268
(164)

(83)
54

659
(108)

576
(54)

(113)
26

520
47

407
73

45
(3)

1,140
64

1,185
61

(24)
14

504
79

480
93

(122)

121

(1)

(113)

182

69

(176)
2

1,388
(25)

1,212
(23)

219
1

928
(19)

1,147
(18)

151
(151)
(33)
2,898 $

(186)
186
4,490
1,220 $

(35)
35
4,457
4,118

(17)
17
65
3,245 $

20
(20)
2,290
(573) $

3
(3)
2,355
2,672

$

(a) Includes commercial paper.

282

JPMorgan Chase & Co./2017 Annual ReportGlossary of Terms and Acronyms
2017 Annual Report or 2017 Form 10-K: Annual report on
Form 10-K for year ended December 31, 2017, filed with
the U.S. Securities and Exchange Commission.
ABS: Asset-backed securities
Active foreclosures: Loans referred to foreclosure whereformal foreclosure proceedings are ongoing. Includes bothjudicial and non-judicial states.

through novation, an open offer system, or another legallybinding arrangement.
CDS: Credit default swaps
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 Capital
CFTC: Commodity Futures Trading Commission

AFS: Available-for-sale

CFO: Chief Financial Officer

ALCO: Asset Liability Committee

Chase Bank USA, N.A.: Chase Bank USA, National
Association

Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retainedloans.
Alternative assets: The following types of assets constitutealternative investments – hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.
AWM: Asset & Wealth Management
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.”
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
Card Services includes the Credit Card and MerchantServices businesses.
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 thatinterposes itself between counterparties to contracts tradedin one or more financial markets, becoming the buyer toevery 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
JPMorgan Chase & Co./2017 Annual Report

CIB: Corporate & Investment Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as wellas 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 repurchaseagreements) as part of client cash management programs.
CLO: Collateralized loan obligations
CLTV: Combined loan-to-value
Collateral-dependent: A loan is considered to be collateraldependent when repayment of the loan is expected to beprovided solely by the underlying collateral, rather than bycash flows from the borrower’s operations, income or otherresources.
Merchant Services: is a business that primarily processes
transactions 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.
COO: Chief Operating Officer
Core loans: Represents loans considered central to theFirm’s ongoing businesses; core loans exclude loansclassified as trading assets, runoff portfolios, discontinued
portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or viceversa). The duration of a credit cycle can vary from a coupleof years to several years.
Credit derivatives: Financial instruments whose value isderived from the credit risk associated with the debt of athird-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk toanother party (the protection seller). Upon the occurrenceof a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
283

Glossary of Terms and Acronyms
obligations, or certain restructurings of the debt of thereference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to theprotection seller for the difference between the face valueof the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as towhether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association (“ISDA”) Determinations Committee.

ERISA: Employee Retirement Income Security Act of 1974

Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories forregulatory purposes and are generally consistent with arating of CCC+/Caa1 and below, as defined by S&P and
Moody’s.

FASB: Financial Accounting Standards Board

CRO: Chief Risk Officer
CTC: CIO, Treasury and Corporate
CVA: Credit valuation adjustments
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 senda high volume of traffic to a target website to create aservice outage at the target. This is a form of cyberattack.

EPS: Earnings per share
ETD: “Exchange-traded derivatives”: Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
EU: European Union
Fannie Mae: Federal National Mortgage Association
FCA: Financial Conduct Authority
FCC: Firmwide Control Committee
FDIA: Federal Depository Insurance Act
FDIC: Federal Deposit Insurance Corporation
Federal Reserve: The Board of the Governors of the Federal
Reserve System
Fee share: Proportion of fee revenue based on estimates ofinvestment banking fees generated across the industry frominvestment banking transactions in M&A, equity and debt
underwriting, and loan syndications. Source: Dealogic, athird-party provider of investment banking fee competitive
analysis and volume-based league tables for the above
noted industry products.
FFELP: Federal Family Education Loan Program
FFIEC: Federal Financial Institutions Examination Council

DFAST: Dodd-Frank Act Stress Test

FHA: Federal Housing Administration

Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act

FHLB: Federal Home Loan Bank

DOJ: U.S. Department of Justice
DOL: U.S. Department of Labor
DRPC: Board of Directors’ Risk Policy Committee
DVA: Debit valuation adjustment
E&P: Exploration & Production
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Embedded derivatives: are implicit or explicit terms orfeatures 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 theissuer 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.
284

FICO score: A measure of consumer credit risk provided bycredit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by thecredit bureaus.
Firm: JPMorgan Chase & Co.
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
Freddie Mac: Federal Home Loan Mortgage Corporation
Free standing derivatives: a derivative contract enteredinto either separate and apart from any of the Firm’s otherfinancial instruments or equity transactions. Or, inconjunction with some other transaction and is legallydetachable and separately exercisable.
FSB: Financial Stability Board
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
JPMorgan Chase & Co./2017 Annual ReportGlossary of Terms and Acronyms
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.

JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association

G7 government bonds: Bonds issued by the government of
one of the G7 nations.

JPMorgan Clearing: J.P. Morgan Clearing Corp.

Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
GSIB: Global systemically important banks
HAMP: Home affordable modification program
Headcount-related expense: Includes salary and benefits(excluding performance-based incentives), and othernoncompensation costs related to employees.

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.
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default

HELOAN: Home equity loan

LIBOR: London Interbank Offered RateHELOC: Home equity line of credit

LLC: Limited Liability Company

Home equity – senior lien: Represents loans andcommitments where JPMorgan Chase holds the first
security interest on the property.

LOB: Line of business

Home equity – junior lien: Represents loans andcommitments 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. Reported on a one-month lag.
HQLA: High quality liquid assets
HTM: Held-to-maturity
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Impaired loan: Impaired loans are loans measured atamortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal andinterest, according to the contractual terms of theagreement. Impaired loans include the following:•

All wholesale nonaccrual loans•

All TDRs (both wholesale and consumer), including ones
that have returned to accrual status

Interchange income: A fee paid to a credit card issuer inthe clearing and settlement of a sales or cash advancetransaction.
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 definedby independent rating agencies.
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase & Co./2017 Annual Report

Loss emergence period: Represents the time period
between the date at which the loss is estimated to havebeen incurred and the ultimate realization of that loss.
LTIP: Long-term incentive plan
LTV: “Loan-to-value”: For residential real estate loans, therelationship, expressed as a percentage, between theprincipal amount of a loan and the appraised value of thecollateral (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 appraisedvalues 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 estimatedcollateral values derived from a nationally recognized homeprice 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 estimatedcollateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; assuch, the resulting LTV ratios are necessarily imprecise andshould therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as wellas 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 ona fully taxable-equivalent basis. Management uses this nonGAAP financial measure at the segment level, because it
believes this provides information to enable investors tounderstand the underlying operational performance and285

Glossary of Terms and Acronyms
trends of the particular business segment and facilitates acomparison of the business segment with the performanceof competitors.
Master netting agreement: A single agreement with acounterparty that permits multiple transactions governedby that agreement to be terminated or accelerated andsettled through a single payment in a single currency in theevent of a default (e.g., bankruptcy, failure to make arequired payment or securities transfer or deliver collateralor margin when due).
MBS: Mortgage-backed securities
MD&A: Management’s discussion and analysis
MMDA: Money Market Deposit Accounts
Moody’s: Moody’s Investor Services
Mortgage origination channels:
Retail – Borrowers who buy or refinance a home throughdirect 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 bya banker in a Chase branch, real estate brokers, homebuilders or other third parties.
Correspondent – Banks, thrifts, other mortgage banks andother financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality thansubprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of thefollowing: (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 aborrower does not provide complete documentation of hisor her assets or the amount or source of his or her income.
Option ARMs
The option ARM real estate loan product is an adjustablerate mortgage loan that provides the borrower with theoption each month to make a fully amortizing, interest-onlyor 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 usuallysignificantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Oncethe introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate andadjusts 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 isdeferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, whichconverts the loan to a variable-rate fully amortizing loan
286

upon meeting specified loan balance and anniversary datetriggers.
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 havereliable 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 orpoor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) ahigh debt-to-income ratio; (iv) an occupancy type for theloan is other than the borrower’s primary residence; or (v) ahistory of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Multi-asset: Any fund or account that allocates assets undermanagement to more than one asset class.
NA: Data is not applicable or available for the period
presented.
NAV: Net Asset ValueNet Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
Net charge-off/(recovery) rate: Represents net chargeoffs/(recoveries) (annualized) divided by average retainedloans for the reporting period.
Net mortgage servicing revenue includes the following
components:
Operating revenue predominantly represents the return on
Home Lending Servicing’s MSR asset and includes:– Actual gross income earned from servicing third-party
mortgage loans, such as contractually specified
servicing fees and ancillary income; and– The change in the fair value of the MSR asset due tothe collection or realization of expected cash flows.
Risk management represents the components ofHome Lending Servicing’s MSR asset that are subject toongoing risk management activities, together with
derivatives and other instruments used in those risk
management activities.
Net production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other productionrelated fees and losses related to the repurchase ofpreviously sold loans.

JPMorgan Chase & Co./2017 Annual ReportGlossary of Terms and Acronyms
Net revenue rate: Represents Card Services net revenue(annualized) expressed as a percentage of average loans forthe period.
Net yield on interest-earning assets: The average rate forinterest-earning assets less the average rate paid for all
sources of funds.
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is notrecognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual statuswhen full payment of principal and interest is not expected,
regardless of delinquency status, or when principal andinterest have been in default for a period of 90 days ormore unless the loan is both well-secured and in theprocess 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 realestate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
NSFR: Net stable funding ratio
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OEP: One Equity Partners
OIS: Overnight index swap
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
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 bothcounterparties is a derivatives dealer.
Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executedbilaterally, 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 todividends or dividend equivalents (collectively, “dividends”),
which are included in the earnings per share calculation
JPMorgan Chase & Co./2017 Annual Reportusing the two-class method. JPMorgan Chase grants RSUs tocertain employees under its share-based compensation
programs, which entitle the recipients to receive
nonforfeitable dividends during the vesting period on abasis equivalent to the dividends paid to holders of common
stock. These unvested awards meet the definition ofparticipating securities. Under the two-class method, allearnings (distributed and undistributed) are allocated toeach class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
PCI: “Purchased credit-impaired” loans represents certain
loans that were acquired and deemed to be credit-impairedon the acquisition date in accordance with the guidance of
the 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 havecommon risk characteristics(e.g., product type, LTV ratios,
FICO scores, past due status, geographic location). A pool isthen accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.
PD: Probability of default
PRA: Prudential Regulatory Authority
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that thisfinancial measure is useful in assessing the ability of alending 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, inmanagement’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
the Firm is willing to buy a financial or other instrument andthe price at which the Firm is willing to sell that instrument.
It also consists of realized (as a result of closing out or
termination of transactions, or interim cash payments) andunrealized (as a result of changes in valuation) gains andlosses on financial and other instruments (including thoseaccounted for under the fair value option) primarily used inclient-driven market-making activities and on private equity
investments. In connection with its client-driven marketmaking activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instrumentsthat reference commodities).
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)287

Glossary of Terms and Acronyms
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges ofcommodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk andcommodity risk, and (c) other derivatives.
PSU(s): Performance share units
RCSA: Risk and Control Self-Assessment
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 realestate purposes.
REIT: “Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability toparticipate directly in the ownership or financing of realestate related assets by pooling their capital to purchaseand 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.
Receivables from customers: Primarily represents marginloans to brokerage customers that are collateralized
through assets maintained in the clients’ brokerage
accounts, as such no allowance is held against thesereceivables. These receivables are reported within accrued
interest and accounts receivable on the Firm’s Consolidatedbalance sheets.
Regulatory VaR: Daily aggregated VaR calculated inaccordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalentadjustments.
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 theindustry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, andloan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volumebased league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department ofAgriculture
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 thelikelihood that a borrower will default on its obligation; theloss given default (“LGD”) is the estimated loss on the loanthat would be realized upon the default and takes into
consideration collateral and structural support for eachcredit facility.
288

ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
RWA: “Risk-weighted assets”: Basel III establishes twocomprehensive methodologies for calculating RWA (aStandardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, andin the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between theStandardized 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 riskweightings which vary primarily by counterparty type andasset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
S&P: Standard and Poor’s 500 Index
SAR(s): Stock appreciation rights
SCCL: single-counterparty credit limits
Scored portfolio: The scored portfolio predominantly
includes residential real estate loans, credit card loans andcertain auto and business banking loans where credit loss
estimates are based on statistical analysis of credit losses
over discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring and decision-support
tools.
SEC: Securities and Exchange Commission
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring thefund is of sufficient size to represent a viable offering toclients, enabling pricing of its shares, and allowing themanager to develop a track record. After these goals areachieved, the intent is to remove the Firm’s capital from theinvestment.
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 ofsuch proceeds.
Single-name: Single reference-entities
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOA: Society of Actuaries
SPEs: Special purpose entities
Structural interest rate risk: Represents interest rate riskof the non-trading assets and liabilities of the Firm.
JPMorgan Chase & Co./2017 Annual ReportGlossary of Terms and Acronyms
Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.
Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of thebusiness segments and the Firm is presented on a taxequivalent basis. Accordingly, revenue from investmentsthat receive tax credits and tax-exempt securities ispresented 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.

VIEs: Variable interest entities
Warehouse loans: Consist of prime mortgages originatedwith the intent to sell that are accounted for at fair value
and classified as trading assets.
Washington Mutual transaction: On September 25, 2008,
JPMorgan Chase acquired certain of the assets of thebanking operations of Washington Mutual Bank(“Washington Mutual”) from the FDIC.

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.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that havenot been subjected to auditing procedures sufficient topermit an independent certified public accountant toexpress an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in theU.S.
U.S. government-sponsored enterprises (“U.S. GSEs”) and
U.S. GSE obligations: In the U.S., GSEs are quasigovernmental, privately held entities established by
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, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to thetimely payment of principal and interest by the full faith andcredit 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 ofpotential loss from adverse market moves in an ordinary
market environment.
VCG: Valuation Control GroupVGF: Valuation Governance Forum
JPMorgan Chase & Co./2017 Annual Report289

Board of Directors
Linda B. Bammann 5James S. Crown 5

Michael A. Neal 5

Member of:

Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)

President
Henry Crown and Company(Diversified investments)

Retired Vice Chairman
General Electric Company;
Retired Chairman andChief Executive Officer
GE Capital(Industrial and financial services)

1 Audit Committee

James Dimon
James A. Bell 1
Retired Executive Vice President
The Boeing Company(Aerospace)

Chairman andChief Executive Officer
JPMorgan Chase & Co.
(Financial services)

Crandall C. Bowles 1, 4

Timothy P. Flynn 1, 4

Chairman Emeritus
The Springs Company(Diversified investments)

Retired Chairman andChief Executive Officer
KPMG(Professional services)

Stephen B. Burke 2, 3
Chief Executive Officer
NBCUniversal, LLC(Television and entertainment)

Todd A. Combs 4, 5
Investment Officer
Berkshire Hathaway Inc.
(Conglomerate)

Mellody Hobson
President
Ariel Investments, LLC(Investment management)

Lee R. Raymond 2, 3
Lead Independent Director
JPMorgan Chase & Co.;
Retired Chairman andChief Executive Officer
Exxon Mobil Corporation(Oil and gas)

2 Compensation & 	 Management Development
 	 Committee
3 Corporate Governance &Nominating Committee
4 Public Responsibility
 	 Committee
5 Directors’ Risk Policy Committee

William C. Weldon 2, 3
Retired Chairman andChief Executive Officer
Johnson & Johnson(Healthcare products)

Laban P. Jackson, Jr. 1
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)

Operating Committee
James Dimon

Ashley Bacon

Marianne Lake

Chairman andChief Executive Officer

Chief Risk Officer

Chief Financial Officer

Lori Beer

Robin Leopold

Daniel E. Pinto

Chief Information Officer

Head of Human Resources

Co-President andChief Operating Officer;
CEO, Corporate & Investment Bank

Mary Callahan Erdoes

Douglas B. Petno

CEO, Asset & Wealth Management

CEO, Commercial Banking

Gordon A. Smith

Stacey FriedmanPeter Scher

Co-President andChief Operating Officer;
CEO, Consumer & Community Banking

General Counsel

Head of Corporate Responsibility;
Chair of the Mid-Atlantic Region

Other Corporate Officers
Molly Carpenter

Nicole Giles

Jason R. Scott

Secretary

Controller

Investor Relations

Joseph M. Evangelisti

Lou Rauchenberger

Corporate Communications

General Auditor

290

JPMorgan Chase & Co./2017 Annual Report

Regional Chief Executive Officers
Asia Pacific

Europe/Middle East/Africa

Latin America/Canada

Nicolas Aguzin

Viswas Raghavan

Martin G. Marron

Senior Country Officers
Asia Pacific

Europe/Middle East/Africa

Australia and New ZealandAfrica, Central Asia, Central &Eastern Europe, Middle East,
Russia and Turkey

Paul Uren
Bangladesh, India, Indonesia,
Malaysia, Philippines, Singapore,
Sri Lanka and Thailand

Kalpana Morparia
Indonesia

Haryanto T. Budiman
Malaysia

Steve R. Clayton
Philippines

Sjoerd Leenart
Bahrain, Egypt, Jordan andLebanonAli MoosaKazakhstan and Russia

Yan L. Tavrovsky
Saudi Arabia

Bader A. Alamoudi

Latin America/Caribbean
Austria, Germany, Ireland, Israel,
Nordics and Switzerland

Andean, Caribbean and Central
America

Dorothee Blessing

Moises Mainster

Austria

Anton J. Ulmer
IrelandIsraelBrazilRoy Navon

José Berenguer

Switzerland

Chile

Nick Bossart

Singapore

Marc J. Hussey
Kevin G. Latter

Belgium, France, Greece,
Iberia, Italy, Luxembourg and
the Netherlands

TurkeyKyril Courboin

M.L. Chayotid Kridakon

Mustafa Bagriacik

Argentina

Facundo D. Gomez Minujin

Sub-Saharan Africa

ThailandAngela Hurtado

Carin Bryans

Roberto L. Panlilio
Edmund Y. Lee

Columbia

Belgium

Alfonso Eyzaguirre
MexicoEduardo F. Cepeda
North America

China

Tanguy A. Piret

CanadaDavid Li

IberiaDavid E. Rawlings

Hong Kong

Ignacio de la Colina

Kam Shing Kwang

Italy

Japan

Guido M. Nola

Steve Teru Rinoie

The Netherlands

Korea and Taiwan

Peter A. Kerckhoffs

Carl K. Chien
Korea

Tae Jin Park
VietnamVan Bich Phan

JPMorgan Chase Vice Chairs
Melissa L. Bean

Jacob A. Frenkel

Mel R. Martinez

Phyllis J. Campbell

Vittorio U. Grilli

David Mayhew

John L. Donnelly

Walter A. Gubert

E. John Rosenwald

JPMorgan Chase & Co./2017 Annual Report291

J.P. Morgan International Council

Rt. Hon. Tony Blair

Armando Garza Sada

Jorge Paulo Lemann

Ratan Naval Tata

Chairman of the Council
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom

Chairman of the Board
ALFA
Nuevo León, Mexico

Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania

Chairman
Tata Trusts
Mumbai, India

Herman Gref

Sergio Marchionne

The Hon. Tung Chee Hwa GBM

The Hon. Robert M. Gates

Chief Executive Officer,
Chairman of the Executive Board
Sberbank
Moscow, Russia

Chief Executive Officer
Fiat Chrysler Automobiles
Auburn Hills, Michigan

Vice Chairman
National Committee of the Chinese
People’s Political Consultative Conference
Hong Kong, China

Vice Chairman of the Council
Partner
RiceHadleyGates LLC
Washington, District of Columbia

Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy — Louis Vuitton
Paris, France

Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland

Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York

Martin Feldstein
Professor of Economics
Harvard University
Cambridge, Massachusetts

William B. Harrison, Jr.
Former Chairman andChief Executive Officer
JPMorgan Chase & Co.
New York, New YorkThe Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia

The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia

Joe Kaeser
President and Chief Executive Officer
Siemens AG
Munich, Germany

The Hon. Henry A. Kissinger
Chairman
Kissinger Associates, Inc.
New York, New York

Gérard Mestrallet
Chairman of the Board
ENGIE
Paris la Défense, France

Amin H. Nasser
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia

The Hon. Condoleezza RicePartner
RiceHadleyGates LLC
Stanford, California

Paolo Rocca
Chairman and Chief Executive Officer
TenarisBuenos Aires, Argentina

Nassef Sawiris
Chief Executive Officer
OCI N.V.
London, United Kingdom

Masahiko Uotani
President and Group Chief Executive Officer
Shiseido., Ltd.
Tokyo, Japan

Cees J.A. van Lede
Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Amsterdam, The Netherlands

Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New YorkYang Yuanqing
Chairman and Chief Executive Officer
LenovoBeijing, China

Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
Ayala Corporation
Makati City, Philippines*Ex-officio

292

JPMorgan Chase & Co./2017 Annual ReportCorporate headquarters
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JPMorgan Chase Bank,
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JPMorgan Chase Holdings LLC
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
Annual Report on Form 10-K
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JPMorgan Chase & Co. as filed with the
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